The end of certification? The UK FCA and PRA unveil Phase 2 SMCR reforms

Phase 1: The story so far

Between April and July 2026, the FCA and PRA made Phase 1 changes to their own rules and guidance which did not require changes to enabling legislation. These amendments streamlined administrative requirements and clarified certain aspects of the SMCR.

Many elements of the proposed Phase 2 reforms require the passage of the Financial Services and Markets Bill (the Bill), which would remove a number of prescriptive SMCR requirements from the Financial Services and Markets Act 2000 and give the FCA and PRA greater discretion to determine how the SMCR should operate through their own rules. The FCA and PRA are consulting in parallel with the legislative process so that they may finalise and implement the proposed changes promptly.

Phase 2: The changes proposed

The Phase 2 proposals aim to retain senior individual accountability while reducing the regulatory burden on firms, increasing flexibility and predictability around appointments and allowing for greater proportionality, including for smaller firms. These proposals include:

• Amending the appointment process for certain senior staff. The FCA would make certain SMF roles in dual-regulated and Enhanced firms subject to regulatory notification rather than approval, significantly reducing the time needed to make these appointments. These roles include Chairs of the Board Risk (SMF10), Audit (SMF11), Remuneration (SMF12) and Nomination (SMF13) Committees, plus the Senior Independent Director (SMF14) and the Head of Internal Audit (SMF5). Notified SMFs would still be subject to the same regulatory requirements as pre-approved SMFs, including compliance with the Individual and Senior Manager Conduct Rules (COCON), the Duty of Responsibility and fitness and propriety standards. The FCA intends to require less information when a firm notifies it of a new SMF that does not require pre-approval than is required to support an application for a candidate to be pre-approved to perform an SMF role.
• Removing the SMF18 and SMF22 roles. These roles account for a significant number of SMF applications at dual-regulated and Enhanced firms. Responsibilities held by current SMF18s and SMF22s will need to be reallocated to other SMFs. To help with this, proposed changes to SYSC 26 and COCON would allow greater use of delegation, layered management structures, and governance and reporting frameworks to demonstrate accountability more proportionately.
• Extending the temporary SMF cover period from 12 to 18 weeks. Both regulators would extend the period for firms to submit an SMF application or SMF notification from 12 to 18 weeks. For solo-regulated firms, the FCA would also replace the requirement that this rule can only be used where the absence of the Senior Manager is “reasonably unforeseen” with a requirement that the temporary SMF cover arrangements be used “reasonably”. No equivalent change would apply to dual-regulated firms.
• Removing the Certification Regime completely. This would remove the requirement for firms to identify Certified Persons and assess their fitness and propriety upon appointment and annually thereafter. The FCA proposes to rely on existing employee competence and suitability rules, while the PRA plans to extend its “competent employee” rule to include personal characteristics such as integrity and honesty for individuals at CRR and Solvency II firms.
• Retiring the Directory and associated reporting and attestation. The FCA publishes and maintains the Directory, and firms are required to report up-to-date information about SMFs and Certified Persons for publication in the Directory. The FCA now considers that its recently launched Firm Checker, designed for consumers, is a more effective tool than the Directory for supporting informed decision-making by consumers.
• Making changes to COCON. The Individual and Senior Manager Conduct Rules in COCON are not changing. However, the FCA proposes simplifying associated training requirements (while still requiring firms to ensure that everyone subject to COCON understands what COCON requires and the consequences of breaching it), raising the reporting threshold for breaches of COCON by non-SMFs to cases where an individual receives a final written warning or is dismissed, and bringing sole traders within the scope of COCON. The FCA is also proposing to supplement its existing guidance on Individual Conduct Rule 2 and Senior Manager Conduct Rule 3 to give greater clarity on the extent to which a manager or SMF can rely on the work of their delegates.

Next steps

The consultations close on January 22, 2027. The final rules are due to be published in the first half of 2027, with the changes being implemented around six months later, provided Parliament passes the Bill as planned.