Leeds Reforms: the SMCR proposals at a glance

As part of the Leeds Reforms, HMT, the FCA and the PRA published consultation papers on a package of proposed changes to the SMCR. Their intention is to reduce regulatory burden to drive growth and competitiveness, while maintaining high standards of individual accountability and market integrity.

The proposals are detailed.  Here are the key points.

Incremental change

The FCA and PRA can make some adjustments themselves, but others depend upon legislative reform. The HMT consultation addresses this, setting out proposed changes to FSMA that would free the FCA and PRA to tailor the regime.

Given this, both regulators have split their proposals into two phases.  The first contains amendments they can make to their existing rules which do not first require changes to FSMA, and is well developed.  The second phase is more akin to flags planted in the ground: it contains markers for the future direction of travel, without substantial detail and is dependent on legislative reform.

What’s on the table

Unshackling the regulators

• HMT proposes to remove criteria relating to the Certification Regime from primary legislation entirely, freeing the FCA and PRA to design a more proportionate, flexible regime through their own rules. It’s not clear yet whether this will result in the Certification Regime becoming more streamlined or being scrapped entirely – this will likely be addressed in phase two.  In the meantime, the FCA proposes to reduce the number of certification roles by about 15% by removing the need, in certain cases, for individuals performing more than one certified function to be separately certified for each. 
• Likewise, HMT wants to reduce prescriptive legislation governing SMF roles and pre-approvals. It proposes giving the regulators more discretion to both define SMF roles and identify which of these regulatory pre-approval (verses only requiring notification, with the firm responsible for assessing fitness and propriety). The FCA and PRA will again set out how they plan to exercise this new discretion in phase two.  
• HMT also plans to give regulators more flexibility in setting requirements for Statements of Responsibilities, allowing them to use their rules to adjust how they are provided, maintained, updated and when and how changes are notified to the regulators. In the meantime, both the FCA and PRA use their CPs to propose to extending the period for submitting updated Statements of Responsibilities (SoRs) and Management Responsibility Maps (MRMs), from the current requirement for immediate submission to up to six months (with all versions within that window to be submitted in a single batch at that time).
• Also on the cards for phase two: the FCA may explore alternatives to the Directory.

Changes to the 12-week rule

• This rule allows firms to appoint individuals to SMF roles for up to 12 weeks – without pre-approval by regulators – to cover for an SMF-holder whose absence is temporary or reasonably unforeseen. The FCA acknowledges industry feedback that the 12-week rule does not always give firms sufficient flexibility to manage changes in individuals performing SMF roles.
• To ease time pressures, both regulators propose giving firms 12 weeks to submit an SMF application, rather than 12 weeks to obtain a decision on an application. The interim appointee will be able to continue in role until that application is determined.  Firms would need to apply within the 12 weeks either for a replacement permanent candidate or for an interim one, and the rule would apply in either case. Where recruiting a permanent candidate would take longer than 12 weeks, firms should apply for an interim SMF within the 12 weeks, who would hold the role until a suitable permanent candidate is found and approved.
• To promote governance and accountability, both regulators propose that the Senior Manager Conduct Rules bind interim appointees (currently only the Individual Conduct Rules apply).
• The FCA and PRA stress that the 12-week rule should be used sparingly. Firms should use succession plans and notice periods to manage transitions, rather than routinely relying on the 12-week rule. Both regulators propose new detailed guidance on the circumstances in which it might be appropriate to rely upon this. 

Raising Enhanced SMCR thresholds

• The FCA proposes to increase and (going forward) inflation-adjust the financial thresholds for Enhanced SMCR firm categorisation (with some complex machinery to avoid firms on the cusp repeatedly falling within and outside the criteria).  The PRA proposes to make no such changes and is satisfied that its current tests strike the right balance.

Guidance and clarification

• On SMF7 (group entity senior manager), both regulators propose substantial guidance – including illustrative examples – on whether an individual exercises the requisite influence to require SMF approval.  Yet only the PRA proposes to broaden the definition of SMF7 for dual-regulated firms to include owners and controllers (in certain circumstances). 
• The FCA is seeing some firms allocate SMF18 to individuals whose role might not fit the function, for example, to individuals who are not the most senior person responsible for a business area or activity.  To address this, it proposes new guidance on considerations relevant to determining whether the SMF18 function applies.
• On firms’ certification processes, both regulators propose stressing that firms have autonomy over the precise form and manner of assessment and re-assessment.
• The FCA in particular proposes some pointed guidance to combat over-reporting to the FCA of Conduct Rule breaches and over-inclusion of matters on regulatory references; the PRA is more circumspect here.  Whilst the FCA proposes a four week deadline to provide regulatory references, the PRA refrains from imposing a deadline here.

PRA-specific measures

• The PRA will exempt certain appointed resolution administrators and officials, during periods of resolution or stabilisation, from the requirement for SMF approval (and only the Individual Conduct Rules – not the Senior Manager Conduct Rules – would apply to them).

Efficiencies

• Both regulators identify opportunities to simplify and streamline their relevant forms, paperwork and requirements for supporting evidence – including permitting SMF approval applications to be supported by criminal record checks (CRCs) that are up to six months old (currently CRCs must be a maximum of three months old), and removing the requirement for a new CRC where an existing SMF holder applies for an SMF role in the same firm or group.

What’s not on the table

• The government does not plan to take forward secondary legislation to apply the SMCR to CCPs, RIEs, CSDs or Credit Ratings Agencies (CRAs).
• The FCA is not planning any major changes to the way the regime applies proportionately to firms of different sizes and in different markets.
• The regulators do not plan to adjust Prescribed Responsibilities, though they may revisit this in phase two.  In the meantime, the FCA merely proposes guidance to assist firms in allocating Prescribed Responsibilities going forward, but would not require firms to reconsider their existing allocations.

What’s next

Together, these consultation papers signal substantial willingness, across government and the regulators, to streamline and simplify the SMCR to foster growth.  The FCA and PRA broadly support all of HMT’s proposals, and the HMT consultation questions include widely drawn requests to identify unnecessary any further regulatory burdens as well as obstacles to recruiting internationally.  If you have views on how they can achieve these aims more effectively, now is the time to make your voice heard. 

The consultations close on 7 October 2025.

Interested in the other Leeds Reforms?  Here are our insights.