The Financial Conduct Authority (FCA) has announced yet another regulatory shakeup, laying out proposals to streamline the Senior Managers & Certification Regime (SM&CR) amid wider movements by the U.K. government to reduce regulatory “red tape” and drive innovation and growth.
What are the changes to the SM&CR?
The FCA’s consultation, which will close on 7 October, 2025, includes a proposal to “streamline” the SM&CR that will reduce the admin and compliance burden on firms and the regulator alike. The changes are intended to “reduce the number of senior management functions (SMFs) which require pre-approval” and are intended to “make the regime less onerous for firms,” while continuing to ensure high levels of accountability and protect markets and consumers.
Proposed changes include:
- Giving firms more time to submit applications for approving new senior managers when there has been unexpected or temporary change
- Removing duplication where the same individuals are certified across separate functions (reducing the number of certification roles by 15%)
- Providing more guidance on how to streamline annual checks firms must undertake to certify individuals as ‘fit and proper’
- Increasing how long criminal record checks are valid for prior to application submission
Sheree Howard, executive director of authorizations at the FCA, pledged a “significant reduction” in the backlog of senior manager authorizations when appearing before a House of Lords committee. The FCA has established a target for at least half of SM&CR applications to be completed within 35 days going forward.
Riskier business
The FCA’s proposals to change the scope of the SM&CR come amid wider moves by the regulator and the U.K. government to reduce regulatory burdens by cutting “red tape” and to change what is seen by some as an overly “risk averse” culture in the financial services space.
Chancellor Rachel Reeves recently highlighted what she believes is a “culture of risk aversion to the point of obsession with stamping risk out” as part of a recent Mansion House speech. Reeves has pledged to enact “the biggest cut in financial services regulation in a decade” as “regulation still acts as a boot on the neck of businesses, choking off the enterprise and innovation that is the lifeblood of growth.” She summarized that the “pendulum has swung too far in the opposite direction” after a wave of re-regulation took place after the 2008 financial crisis.
Reeves has singled out the SM&CR as being implemented in such a way that it “creates unnecessary costs for business,” and that proposed streamlining of the regime is aimed at “cutting the burden on firms in half.” The Chancellor criticized “flawed judgement” that “requires almost 140,000 finance professionals to certify they are fit for their roles on an annual basis.”
The SM&CR was not the only FCA framework included in Reeves’ speech. The Consumer Duty was also highlighted, with Reeves outlining that the regulator will need to reassess how the rule applies to wholesale firms amid red-tape reducing measures, with the Chancellor summarizing that the Consumer Duty was “intended to raise standards in how finance companies treat retail customers, but today affect the way businesses interact with other businesses.”
Deregulation, deregulation, deregulation
The FCA’s latest commitment to streamlining the SM&CR echoes a wider global shift towards reduced ‘regulatory burdens’ on firms that are aimed at driving growth. We have seen a range of examples of this, including:
- The Department of Justice (DOJ) altering its Corporate Enforcement Policy to simplify investigations and emphasizing the benefits to firms of self-disclosure and cooperation
- The Securities and Exchange Commission (SEC) committing to “promoting, rather than stifling, innovation,” expressing support for firms looking to explore AI and cryptocurrencies, and making a concerted effort to “move away from regulation by enforcement”
- The FCA moving away from controversial proposals to “name and shame” firms under investigation, pledging to “bridge the gap between market participants and the regulator” and work more collaboratively with businesses, as well as taking a pro-innovation stance on AI
Less red tape, more red flags?
Interestingly, while the prevailing theme has been one of reducing regulatory rule setting, the FCA recently pledged to expand its rules around reporting non-financial misconduct (NFM) – such as bullying and harassment – to apply to a further 37,000 non-bank firms by September 2026.
This makes the timing of its proposed changes to the SM&CR interesting: expanded NFM rules are a clear sign that the regulator expects firms to up their game when it comes to ensuring high levels of conduct and culture are adhered to. That said, some may see changes to the SM&CR regime as potentially weakening safeguards that ensure only individuals deemed ‘fit and proper’ hold positions of authority within the financial services space – and cutting red tape around background checks might result in vital red flags being missed entirely.
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Rob Mason, Director, Regulatory Intelligence – Global Relay
“The FCA’s proposed plan to ‘streamline’ SMCR in the wake of Reeve’s Mansion House address is a surprising change of tack, and somewhat contradicts the regulator’s recent extension of the scope of non-financial misconduct reporting rules. It seems likely the FCA may place more reliance on NFM rules to ‘fill the culture and conduct gaps’ scaling back SMCR might leave.”
“Reeves summarized that ‘risk can be good and it can be bad’ – but with the behaviour we’ve seen from the likes of Crispin Odey and Jes Staley, which took considerable time to be identified and escalated, can we really say ‘the pendulum has swung too far’?”
“Accountability and ensuring the individuals that oversee financial institutions are appropriately qualified and demonstrate integrity now seem to be less important than competitiveness and growth – begging the question, ‘how can this end well?’”
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While the SM&CR acts as a first line of defence that prevents individuals exhibiting poor conduct and culture from taking on senior management roles, it shouldn’t be your only line of defence. Ensuring that you are proactively monitoring for the tell tale signs of misconduct in your business communications, and that these are caught, flagged, and escalated, is a vital part of managing and mitigating misconduct risk.
