SM&CR Phase 2 reform: what financial sector regulated firms need to know

The Senior Managers and Certification Regime (“SM&CR”) planned programme of reform continues with ‘Phase 2’ in effect from 10 July 2026. If you are a regulated firm in the financial sector, here is what you need to know.

What is the SM&CR?

The SM&CR is the UK financial services’ regulatory framework which was introduced in 2016 by the Financial Conduct Authority (“FCA”) and the Prudential Regulation Authority (“PRA”). It focuses on upholding individual accountability in regulated firms.

Who does the SM&CR apply to?

The SM&CR applies to firms authorised under the Financial Services and Markets Act 2000, which includes:

• Banks
• Insurers
• Credit unions
• Wealth managers
• Financial advisers

What is the SM&CR reform taking place?

The multi-stage reform package was announced by the FCA and PRA on 22 April 2026 and is intended to:

• streamline senior management accountability;
• boost growth;
• reduce costs; and
• introduce greater flexibility.

Phase 1 changes were implemented from 24 April 2026 and included both rule changes and publication of guidance. For example:

1. Changes to the rules around criminal record checks and disclosure
2. Change to the “12-week rule”
3. Guidance on expectations when recertifying individuals as “fit and proper”
4. Guidance on conduct rules such as notification requirements and regulatory references without disciplinary action.

What is the SM&CR Phase 2 reform?

From 10 July 2026, the following changes to the FCA rules will be implemented:

1. Prescribed responsibilities: SMF18 holders (a senior individual within a UK financial firm who performs the ‘Other Overall Responsibility’ function) at solo-regulated firms will now be able to hold any FCA-prescribed senior management responsibility.
2. Thresholds to become an Enhanced SM&CR firm: some ‘Enhanced Firm’ financial thresholds will be increased by 30%. These thresholds will be reviewed every 5 years.
3. Certification regime: overlapping multiple certifications will be removed which means the total number of certification roles will be reduced by approximately 15%. For example, the FCA will remove FCA material risk taker roles where an individual is also certified by the PRA in one of its certification functions at the same firm. The FCA has confirmed it will make the necessary changes to the Directory itself, rather than relying on the individual firms to do so.

Is further reform anticipated?

It is anticipated further changes are likely and will be announced as consultations into the regime change continue.

HM Treasury has confirmed it has plans to proceed with changes to primary legislation. While there is currently no timeline for these changes, the plans are stated to include the following:

• Repeal of the Certification Regime, including the annual re-certification requirement
• Reform the regulatory pre-approval so firms will not always be required to seek regulatory pre-approval when appointing an individual into a senior management role
• Remove the legislative requirements for Statements of Responsibilities to enable regulators to determine appropriate requirements through their own rules
• Streamline the Conduct Rules to repeal the prescriptive legislative requirements on firms to notify breaches and conduct mandatory training
• Give regulators the power to specify in rules and guidance the circumstances in which they may accept senior manager applications subject to time-limits or conditions, without triggering statutory notice requirements
• Reduce the statutory deadline for senior manager applications from three months to two months
• Make equivalent changes to the Financial Market Infrastructure SM&CR to ensure consistency with the wider reforms.

How Hamlins can help

Our Corporate team acts for entrepreneurs, SMEs and larger organisations, providing corporate, commercial advice and business expertise, both in the UK and internationally.

We have the expertise to advise and support companies on upcoming regulatory changes and how best to adapt, at every stage of its journey. If you would like more information on how our Corporate team can help, please get in touch.