SMCR Phase 1 Reform 2026: what the FCA’s policy statement actually changes

Why the FCA Is Reforming SMCR

The Senior Managers and Certification Regime (SMCR) has been the framework for individual accountability in UK financial services since 2016 for banks and 2019 for solo-regulated firms. After more than five years of full operation, HM Treasury commissioned a review of whether the regime was operating as intended.

The review, published in 2023, found that SMCR was broadly effective in its accountability objectives but had generated unnecessary administrative burden in specific areas — particularly around the Certification Regime and the volume of notifications firms were required to make. The government asked the FCA and PRA to work together to simplify and streamline the regime without weakening its core accountability framework.

The result is a programme of reforms structured in two phases. Phase 1 addresses the changes that could be made quickly — primarily procedural and administrative — without requiring primary legislation. Phase 2, which remains under development, addresses more fundamental structural questions about the regime’s scope and design.

This post covers what Phase 1 actually changes, what it does not change, and what firms operating under SMCR need to do in response.

The Source Documents

Phase 1 reforms are set out across several FCA publications:

• CP23/20 — Consultation Paper published December 2023, covering proposed reforms to SMCR for banks and large insurers (dual-regulated firms)
• CP24/2 — Consultation Paper published 2024, covering equivalent reforms for solo-regulated firms
• PS24/3 — Policy Statement confirming final rules for dual-regulated firms following the CP23/20 consultation
• PS25/1 — Policy Statement confirming final rules for solo-regulated firms, with implementation dates

The reforms confirm changes to the FCA Handbook — primarily to SYSC, SUP and COCON — with implementation dates staggered across 2025 and 2026. Firms should verify their obligations against the relevant policy statement rather than consultation documents, as some proposals were modified following consultation feedback.

What Phase 1 Actually Changes

1. Removal of the Directory Persons Notification Requirement

One of the most operationally significant Phase 1 changes is the removal — or substantial simplification — of the requirement for firms to notify the FCA when a Certified Person leaves a firm or their status changes. Under the existing rules, firms must update the FCA’s Financial Services Register (via the Directory of Persons) to reflect changes in certified persons’ roles within set timeframes.

The reform acknowledges that this notification obligation created significant administrative overhead for large firms managing high volumes of Certified Persons, while delivering limited supervisory value compared with the cost. The revised rules reduce the frequency and scope of required notifications, though firms still maintain their own internal certification records.

2. Streamlined SMF Pre-Approval Process

The pre-approval process for Senior Management Functions under the existing SMCR requires submission of Form A to the FCA before an individual can begin performing an SMF. The FCA has a statutory determination period of three months, though many applications are determined more quickly.

Phase 1 reforms do not remove SMF pre-approval — the accountability rationale for pre-approval of the most senior individuals is unchanged. However, the FCA has committed to process improvements to reduce unnecessary delays, clarify information requirements upfront, and reduce the volume of back-and-forth between firms and the FCA during processing. For firms managing urgent SMF appointments, this is a meaningful if incremental improvement.

Importantly, the reforms do not reduce the fitness and propriety standards applied during pre-approval assessment. The FCA has been explicit that the accountability objectives of SMCR are unchanged — the reforms address administrative friction, not the substantive gatekeeping function.

3. Amendments to the Certification Regime Timescales

Phase 1 includes modifications to the timescales within which firms must certify individuals when they are first appointed to a Certified Function. The existing rules require a certificate to be in place within a specified period of appointment. The reform adjusts these timescales to reduce the risk of technical non-compliance in situations where the certification process cannot realistically be completed within the existing window — for example, where a candidate joins at short notice.

The underlying certification obligation is unchanged. Annual certification cycles continue. The reform addresses the front-end timing issue rather than the substance of what certification involves. See our Certification Regime guide for how the certification process works in practice.

4. Clarification of Conduct Rules Notification Obligations

Under SMCR, firms must notify the FCA when they take disciplinary action against an employee for a Conduct Rules breach within specific timeframes. Phase 1 includes clarificatory changes to the notification requirements — particularly around what constitutes a notifiable breach versus an internal disciplinary matter that does not require FCA notification.

This clarification addresses a genuine compliance concern: firms have reported uncertainty about the threshold for notification, leading some to over-notify (creating noise in the supervisory process) and others to under-notify (creating regulatory risk). The revised guidance provides clearer criteria.

The FCA’s existing guidance on notifications is supplemented by the Phase 1 clarifications. Firms should review their conduct rules breach notification processes against the updated framework. For a full overview of the Conduct Rules framework, see our FCA Conduct Rules guide.

5. Removal of the Handover Arrangements Requirement

Under the existing SMCR rules for Enhanced firms, outgoing Senior Managers were required to prepare formal handover arrangements before leaving their role — a documented transition plan that the incoming SMF holder could rely on. Phase 1 removes this as a mandatory requirement, replacing it with an expectation that firms develop their own handover processes proportionate to their size and complexity.

For most firms, this change reduces administrative burden without materially affecting governance quality — well-run firms will maintain handover processes regardless of whether they are formally required. The change acknowledges that a mandated document requirement does not, by itself, ensure the quality of knowledge transfer.

What Phase 1 Does Not Change

It is as important to understand what Phase 1 leaves unchanged as what it modifies. The following core elements of SMCR are unaffected:

• SMF pre-approval requirement: Senior Managers must still be pre-approved by the FCA before performing their function. The Form A process continues.
• Statements of Responsibilities: All SMF holders must maintain current, accurate SoRs. This requirement is unchanged.
• The Duty of Responsibility: The personal accountability mechanism under Section 66A FSMA, under which Senior Managers bear the burden of demonstrating reasonable steps when a firm breach occurs within their area of responsibility, is entirely unchanged.
• Annual certification: Firms must continue to certify Certified Persons as fit and proper on an annual basis.
• Regulatory references: The requirement to obtain regulatory references for SMF and Certified Function appointments is unchanged.
• Conduct Rules scope: The Conduct Rules continue to apply to virtually all firm employees. The breadth of COCON is unchanged.

What Phase 2 May Bring

Phase 2 of the reform programme — still under development at the time of writing — is expected to address more fundamental questions, including:

• Whether the Certification Regime should be further reformed or replaced with a different model of individual accountability at the sub-SMF tier
• Whether the scope of mandatory SMFs should be reviewed for specific firm types
• How SMCR interacts with the government’s broader competitiveness agenda — the Financial Services and Markets Act 2023 introduced a secondary competitiveness objective for the FCA, and the SMCR review is part of the wider regulatory burden reduction programme

Phase 2 timelines have not been confirmed. Firms should not assume that Phase 2 will materially reduce their core accountability obligations — the political and regulatory consensus is that the accountability framework is working and should be preserved, even if its implementation can be simplified.

What Firms Should Do Now

The Phase 1 reforms are not a signal to relax SMCR governance — they are an adjustment to specific administrative requirements. Firms that have built their SMCR infrastructure well will find the changes reduce friction without requiring any fundamental redesign. Firms that have allowed their SMCR governance to drift — outdated SoRs, gaps in certification processes, inconsistent conduct rules training — should treat the reform review period as a prompt to audit and remediate.

Specific actions for firms ahead of implementation:

1. Review your Statements of Responsibilities — are they current and accurately reflect what each SMF holder is responsible for? See our guides on specific functions including SMF16, SMF17, and SMF2
2. Audit your certification records — do you have current certificates for every person in a Certified Function? Are annual renewals on schedule?
3. Review your conduct rules training records — can you evidence that all in-scope staff have been trained and when?
4. Check your Directory persons notifications — in preparation for the Phase 1 changes, ensure your current notifications are accurate so you start the new framework with clean data
5. Update your breach notification thresholds — once the clarified criteria are confirmed, update your internal process documentation accordingly

SMCR Recruitment in a Reform Period

Reform periods create a specific risk in hiring: firms may delay SMF appointments while awaiting clarity on the new framework, or assume that compliance requirements have reduced before implementation dates have passed. Neither is advisable.

The pre-approval requirement for SMFs continues throughout the reform period. Firms with vacant SMF roles must address those vacancies — fractional or interim cover may be appropriate where the permanent appointment process is underway.

FD Capital provides SMF-level appointments — permanent, interim and fractional — into FCA-regulated firms throughout the reform period. Our candidates hold active SMCR accountability experience and are familiar with Statement of Responsibilities requirements. Contact our SMCR compliance recruitment team, our MLRO recruitment service, or our SMF2 CFO recruitment team depending on the specific function you need to fill.

For broader context on the SMCR framework, see our main SMCR guide, our post on SMCR vs the Approved Persons Regime, and our Limited Scope firms guide.

Related Reading

Further context on the SMCR framework: SMCR Guide | SMCR for Limited Scope Firms | SMCR vs the Approved Persons Regime | Interview Questions for Senior Managers | FCA Conduct Rules Guide | Certification Regime Guide | Individual Conduct Rules | Senior Manager Conduct Rules | SMF16 Guide | SMF17 MLRO Guide | SMF2 Chief Finance Function Guide | FCA Regulated Firm Recruitment