FCA and PRA Finalize Phase 1 SMCR Reforms

April 23, 2026

UK Regulators Confirm First Wave of Changes to the SMCR

Charlotte Collins, Becky Critchley, Nicola Higgs, Rob Moulton Latham & Watkins LLP + Follow Contact LinkedIn Facebook X ;) Embed

The FCA and PRA have finalised Phase 1 reforms to ease the SMCR’s administrative burden on firms, while HM Treasury confirmed future legislative changes.

Key Points:

• The FCA and PRA’s initial amendments to the SMCR will largely take effect on 24 April 2026, including changes to the 12-week rule and additional guidance on SMF7s and reporting breaches of the Conduct Rules.
• HM Treasury confirmed that it will remove the Certification Regime from legislation so that the regulators can create a more proportionate and flexible replacement framework in their rulebooks, and allow certain SMFs to be notification-only. Legislation is expected to be made later this year.
• The FCA and PRA said they plan to issue further consultations later this year on their Phase 2 proposals in light of the confirmed legislative changes. On 22 April 2026, the FCA, PRA, and HM Treasury published confirmed changes to the SMCR, completing the first phase of reform of the regime (FCA PS26/6, PRA PS12/26, and HM Treasury Consultation Response). This follows their consultations launched in July 2025, as part of the Leeds Reforms (see this Latham Client Alert). While HM Treasury consulted on potential legislative changes, including removing the Certification Regime and enabling the regulators to reduce the overall number of Senior Managers within the regime, the regulators consulted on adjustments they could make to the SMCR to help ease the administrative burden in advance of any legislative changes.

FCA and PRA Phase 1 Changes to Rules and Guidance

The regulators indicate that they received strong support for their proposals, and so are implementing these largely as consulted on. The following changes take effect on 24 April 2026:

12-Week Rule

Firms have 12 weeks to submit an application rather than to obtain approval. The regulators then have the usual three months to determine the application. However, the SMF Conduct Rules now apply to non-SMFs covering roles using the 12-week rule.

The FCA has clarified that firms will need to report breaches of the Conduct Rules by non-SMFs acting as an SMF under SUP 15 as soon as practicable, rather than as part of their annual Conduct Rules breach notification. The PRA amended its Rulebook to require any such breaches to be notified using Form L. The PRA also added a new example of when use of the 12-week rule would be appropriate, covering situations where an individual takes leave due to performance issues or is taking gardening leave.

While acknowledging that many respondents asked for the time period for submitting an application to be extended further, both regulators consider that the final changes strike an appropriate balance.

Criminal Records Checks

Criminal records checks are now valid for six months rather than three. Further, firms do not need to carry out a criminal records check if a Senior Manager is applying to perform an SMF within the same firm or group. The PRA has amended its proposals to align with the FCA in this regard, as it originally proposed that this exemption would only apply to applications within the same firm. However, firms should note that the wording on the relevant forms will not be updated until 10 July 2026.

Regulatory References

Firms should now provide regulatory references within four weeks of a request (rather than six), in order to speed up the approval process. Although this only features in the FCA Handbook, the expectation applies to all firms in practice. Both regulators have also introduced new guidance regarding what approach firms should take to regulatory references if an employee leaves the firm part way through a misconduct investigation.

Fitness and Propriety

The PRA has added new guidance to make clear that PRA assessments of an individual’s fitness and propriety take account of any previous approvals in other jurisdictions or similar accountability regimes, and experience as an SMF in other firms.

Guidance on SMF7 (Group Entity Senior Manager)

Both regulators have confirmed new guidance on when an individual may be performing the SMF7 role, and the PRA also extended this role to controllers who have significant influence over the day-to-day management of a PRA-authorised firm.

In addition, the PRA confirmed a clarification of its ability to identify individuals as SMF7 where appropriate. However, after respondents to the PRA consultation raised concerns that the new guidance would expand the scope of this function, the PRA amended the examples provided in its Supervisory Statements on the SMCR to clarify the wording. In particular, the PRA has clarified that individuals responsible for setting group-wide strategy should not be captured. The PRA also confirmed that the intent is not to widen the scope of SMF7, beyond the extension to controllers. Further, the PRA indicates that SMF7 is one function that it might consider for a notification-only approach as part of Phase 2.

Guidance on SMF18 (Other Overall Responsibility Function)

The FCA has introduced new guidance on the factors a firm should consider when deciding whether an individual is performing the SMF18 role. The FCA removed the statement that the SMF holder must have “equal status” to the firm’s executive directors. However, it emphasises that SMF18 holders should be the most senior individuals reporting into the governing body.

Guidance on Prescribed Responsibilities

The FCA has introduced additional guidance on when it may be appropriate to split Prescribed Responsibilities and on allocating Prescribed Responsibilities. However, the FCA notes that any changes firms make as a result of the new guidance may be short-lived due to Phase 2 changes.

Guidance on the Certification Regime

The FCA has added new guidance to clarify that certificates can be provided digitally or by email, firms can embed recertification into existing appraisal processes, and the annual certification exercise can be undertaken proportionately when there are no changes from the previous year. Similarly, the PRA added new guidance clarifying that firms have flexibility to determine appropriate processes for the annual certification exercise.

Guidance on the Conduct Rules

The FCA has confirmed new guidance on reporting Conduct Rule breaches. This includes emphasising that only breaches resulting in disciplinary action need to be reported, clarifying when cases involving a suspension or reduction in remuneration need to be notified, and clarifying expectations regarding regulatory references when an individual has breached a Conduct Rule, but disciplinary action has not been taken.

Submission of Statements of Responsibilities and Management Responsibilities Maps

Firms only need to submit updated versions of these documents every six months, rather than when changes occur. Further, firms only need to submit a single, collated version, even if multiple changes occurred during the six-month period. The PRA amended its final rules to align with the FCA approach in this respect (it had proposed that dual-regulated firms would need to submit all versions).

However, the regulators are not amending Form J at this stage. They plan to explore reducing the frequency of submissions further and simplifying Management Responsibilities Maps as part of Phase 2.

The Directory

Firms now have 20 business days to make most updates to the Directory (although the seven working day requirement remains in place for staff departures).

Navigating the Rules

The PRA introduced a new SMCR policy index, indicating where relevant rules and guidance can be found for each component of the regime.

The following changes will not take effect until 10 July 2026:

• An FCA rule change to allow SMF18 holders to be allocated any Prescribed Responsibility.
• An increase (generally 30%) in certain thresholds for becoming an Enhanced SMCR firm under the FCA regime, in line with inflation, and the introduction of a new mechanism to update these thresholds every five years. The FCA says that it plans to look at these thresholds further as part of Phase 2.
• The removal of overlapping Certification Functions by the FCA, to remove the need to certify the same individuals to perform multiple functions in some circumstances. The FCA plans to remove duplicative roles from the Directory itself, to save firms incurring costs on this exercise. The regulators highlight that, as well as receiving feedback on the specific proposals, many comments anticipated potential Phase 2 changes. The FCA indicates that it factored the potential Phase 2 changes into this first set of amendments, to help avoid short-term changes, or changes that may need to be reversed, where possible. However, aside from mentioning some aspects they will consider further as part of Phase 2, the regulators have not, at this stage, given any clear indication of their approach to the major future changes such as the design of the Certification Regime and reduction in SMFs.

Both regulators also stress the work they have been undertaking to improve application timescales for Senior Manager approvals, in anticipation of the statutory timelines being reduced. The FCA indicates that it plans to reduce and consolidate the documents required for Senior Manager applications, and clarify the wording of some questions on the application form, as part of its Phase 2 work. In addition to their rulebook changes, both regulators are updating their SMCR webpages with expanded guidance to assist firms with SMCR applications.

HM Treasury’s Legislative Changes

HM Treasury reports that it received 58 responses to its consultation, which broadly supported its proposed approach. Therefore, HM Treasury has confirmed that it will make the necessary legislative changes to:

• Remove the Certification Regime from legislation, so that the regulators can create a more proportionate and flexible replacement framework in their rulebooks.
• Allow the regulators to specify circumstances in which firms may appoint certain Senior Managers without pre-approval by the regulators. Following further analysis, HM Treasury concluded that legislative changes concerning the designation of SMFs are not necessary, as the regulators currently have sufficient flexibility to amend the number of SMFs in scope of the regime.
• Repeal the provisions relating to Statements of Responsibilities, so that the regulators can specify suitable requirements in their rulebooks.
• Repeal the provisions requiring firms to notify breaches of the Conduct Rules and to train staff on the Conduct Rules, allowing the regulators to set out appropriate requirements in their rulebooks. Further, in response to feedback that firms would value being able to voluntarily apply for time limits or conditions on a Senior Manager’s approval, HM Treasury will also legislate to provide the regulators with the power to decide whether to accept applications subject to time limits or conditions. HM Treasury considers that this may assist firms by creating a more streamlined process when, for example, they are seeking approval for an interim appointment.

HM Treasury reveals that some respondents were of the view that obstacles to international recruitment would remain, even once the proposed reforms are made. HM Treasury indicates that it is open to industry feedback should specific issues persist once the legislative changes have been made.

Next Steps

Most of the FCA and PRA changes will take effect on 24 April 2026. However, certain improvements to regulatory reporting and processes will apply from 10 July 2026 (as outlined above), to allow time for firms and the regulators to make the necessary adjustments.

The government intends to introduce primary legislation to make the changes confirmed by HM Treasury as soon as parliamentary time allows, which is expected to be this year. Meanwhile, the FCA and the PRA can now move forward with the second phase of reform by consulting on further changes to their rules, and have indicated that they plan to do so this year.

While the direction of travel is clear, uncertainty remains until firms have sight of the regulators’ plans for further changes to their rules. Although many of the interim changes are helpful and will reduce the burden on firms to some extent, the most significant changes will not take place until Phase 2 is complete. Therefore, it is difficult to estimate the true impact of the reforms at this stage. Firms may wish to engage with the Phase 2 consultation process at an early stage to help ensure that the regulators’ proposals will introduce workable alternatives and truly reduce the administrative burden on firms.

;) ;) Report

Related Posts

• Leeds Reforms Set UK Government Agenda for Financial Services
• UK Government and Regulators Launch SMCR Review
• PRA Publishes Findings on Its Evaluation of the SMCR
• SMCR: FCA Updates Expectations on Fitness and Propriety Assessments and Conduct Rules Training

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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