When the Senior Managers and Certification Regime (SM&CR) was first introduced in the wake of the financial crisis, it wasn’t just another piece of red tape. It was a deliberate, considered response to the deep cultural and accountability failings exposed during the meltdown of 2008. At its heart, SM&CR was about restoring something essential: trust in the people who lead and represent financial services firms.
Over the years, that mission has remained remarkably consistent – even as the regime expanded from banks to insurers, asset managers, and solo-regulated firms. By placing individual accountability at the centre of governance, most stake holders and commentators are agreed that the regime has helped sharpen decision-making, clarify roles, and encourage ethical leadership.
Firms have reported stronger handovers, better definitions of responsibility, and a more joined-up culture of risk. Regulators say it’s become easier to hold individuals to account. Even employees, when surveyed, increasingly recognise that leadership owns problems when they arise. But no system, no matter how well intentioned, is immune to growing pains.
The regulators want firms to be proportionate, but they don’t want to dilute accountability.
So, as a direct response to the HM Treasury’s 2023 Call for Evidence on the effectiveness of SM&CR and the wider Edinburgh Reforms package, which were designed to ensure the UK’s financial regulatory framework supports growth, competitiveness, and high standards post-Brexit – CP25/21 and CP18/25 now mark Phase 1 of a broader effort to modernise the regime: Keep what works, fix what doesn’t, and above all, ensure SM&CR remains proportionate, flexible, and fit for the future.
How have we reached this stage?
The current consultation on SM&CR is best understood as part of a regulatory journey that has unfolded over several years. It began with the unveiling of the Edinburgh Reforms of UK financial services in December 2022, covering over 30 regulatory reforms designed to unlock investment and turbocharge growth in towns and cities across the UK. This also adding political weight and commitment from government and regulators to examine simplification and proportionality. The subsequent publication of CP25/21 and CP18/25 this year then sets out more concrete proposals to streamline processes and reduce duplication, particularly for smaller firms, while maintaining accountability.
Most recently, the latest HM Treasury paper has pushed the debate further still, explicitly questioning whether the Certification Regime should remain within FSMA or be reframed to give firms greater flexibility. Taken together, this sequence shows a clear trajectory: from testing industry sentiment, to embedding reform within government policy, to consulting on practical streamlining, and now, to considering potentially important operational change.
What do we think will be changing, and why
The proposals aren’t revolutionary – and that’s precisely the point. They’re broadly careful, pragmatic reforms designed to smooth rough edges without tearing down the framework.
Take, for example, the changes to the 12-week rule. This rule allows temporary cover for senior roles while approvals are processed – a vital safeguard when leadership changes unexpectedly. CP25/21 proposes extending timelines and adding flexibility here, recognising that firms need time to get the right people in place, particularly in today’s fast-moving markets.
Other changes aim to reduce duplication. The regulators propose trimming down the list of certification roles by up to 15%, especially where individuals are performing multiple overlapping functions. There are also plans to streamline fitness and propriety checks, giving firms more discretion – with appropriate safeguards – to align these reviews with the actual level of change or risk.
Perhaps most important is the commitment to clearer guidance. Firms have long asked for more direction on what constitutes “reasonable steps,” or how to complete Statements of Responsibilities (SoRs) effectively. These reforms promise to reduce the grey areas that can make compliance feel like guesswork.
All of this points to a single, coherent goal: Maintain the integrity of SM&CR but make it less of a bureaucratic burden. Let it breathe, in other words.
Having said that though, as my daily working life is mostly concerned with helping firms ensure they’re both managing and evidencing governance arrangements in a measurable, defensible way. I feel the need to call out that this growing commitment to clearer guidance is not just a regulatory courtesy – it reflects the underlying imperative for firms to manage and evidence good governance, dare I say in what might need to be a more meaningful and assessable way than firms have been doing thus far. Ambiguity around concepts like “reasonable steps” or vague Statements of Responsibilities doesn’t just complicate compliance; it undermines firms’ ability to demonstrate robust oversight and internal control.
That’s why investing in Training and Competence and elevating it as a strategic priority may be one of the most valuable moves firms can make right now
In today’s regulatory environment – shaped by SM&CR, the Consumer Duty, and increasing scrutiny of conduct and culture, evidence matters as much as intent. A firm may believe its leadership is acting in good faith, but without clear documentation, role clarity, and governance trails, that belief is difficult to stand behind under regulatory challenge. This is why effective governance isn’t just a matter of structure – it’s a matter of disciplined execution and transparent accountability.
For example, DEPP 6.2.9 sets out that “where disciplinary action is taken against an individual, the onus will be on the FCA to show that the individual has been guilty of misconduct.” On the face of it, this provides reassurance that the burden of proof rests with the regulator, not the individual.
However, in practice, and especially under SM&CR, this provision is tightly interwoven with the expectation that Senior Managers can evidence the reasonable steps they took in discharging their responsibilities. The FCA may carry the burden of proof, but the easiest way for the regulator to make its case is by demonstrating that an individual either failed to take reasonable steps, or cannot produce evidence that they did so. Well-maintained records of decisions, escalations, governance minutes, risk assessments, and oversight activity are not just good practice – they are an individual’s strongest defence if the FCA challenges their conduct.
By removing grey areas, the proposed reforms empower firms to embed more consistent governance processes – making it easier to assign responsibility, monitor performance, escalate concerns, and most importantly, prove that good governance is not only aspired to but delivered. The ability to show regulators, and stakeholders, that decisions were made with care, that oversight was real, and that duties were actively managed, is ultimately what turns compliance from a liability into a leadership asset.
Why it is not the time to abandon any aspect of SM&CR
Of course, with any regulatory reform, there’s always a risk of overcorrection. HMT have raised the possibility of dismantling some key components – most notably the Certification Regime. It’s true: Certification has been among the more administratively challenging parts of SM&CR. But to discard the overarching concepts altogether would be a mistake.
The governments proposed removal of the Certification Regime from legislation would remove the annual requirement, and the FCA (we think) supports this change. But that change aim is to replace it with a new, more flexible regime that still ensures fitness and propriety. That means firms cannot necessarily decide to move away from yearly (F&P) reviews altogether, but they may have more scope to tailor the process (e.g. using role-based or risk-based assessment models; leveraging technology for things like trigger-based reviews or ongoing screening checks).
The concern regulators have flagged is that some firms might misinterpret the shift towards flexibility as implying that less frequent reviews are acceptable – for example, assuming that no reassessments are needed unless there’s a positional change for example. This is not the direction of travel. The principle remains that evidence has a shelf life and that annual checks are a baseline expectation. On top of that, firms should be considering risk-based or role-based reviews. For example, Senior Managers and customer-facing staff may justify more frequent and/or intensive checks. With lower-risk Certified roles potentially not warranting additional interim assessments beyond the annual review.
So, in short: yes to flexibility in approach, no to relaxing frequency. The regulators want firms to be proportionate, but they don’t want to dilute accountability.
A better, smarter future for regulation
The proposed reforms represent a step forward then. They reflect maturity, not retreat. A regime that listens, adapts, and recalibrates is far healthier than one that refuses to evolve.
Retaining SM&CR, while making it smarter and more proportionate, allows the UK to uphold its reputation as a world-class financial centre. It says: we care about standards, but we also understand the realities of doing business. It gives firms the room to innovate, grow, and compete while ensuring they remain grounded in strong governance and ethical leadership.
And as we look to the future, we should recognise that much of the regime’s success will depend not just on the rules themselves, but on how they are lived. That’s why investing in Training and Competence and elevating it as a strategic priority may be one of the most valuable moves firms can make right now.
Because in the end, regulation is not about ticking boxes. It’s about people. And SM&CR, at its best, is a reminder of that truth.
The Competent Employee Rule remains
For firms willing to go beyond a compliance mindset, there are real and lasting business benefits to embedding Training and Competence and the Consumer Duty into the very fabric of their organisational culture. The Competent Employee Rule (SYSC 5.1.1R) still stands as a fundamental regulatory requirement: That firms must ensure employees are appropriately trained, qualified, and supervised to discharge their responsibilities. But more than that, it offers a clear framework for creating a workplace where competence, ethical judgement, and accountability are standard, not exceptional.
When firms cultivate these values deliberately – when they invest in their people not just to meet the letter of the rules, but to live up to their cultural purpose – the rewards are tangible. Staff make better decisions, customer trust deepens, and regulatory relationships improve.
Crucially, firms that are seen to embody strong values and deliver consistently good customer outcomes can turn that integrity into a competitive advantage. In an industry where public confidence is both fragile and fundamental, a reputation for fairness, professionalism and principled leadership becomes one of the most powerful differentiators. In that sense, Training & Competence, Consumer Duty, the Competent Employee Rule, and cultural values are not just compliance tools – they are the cornerstones of sustainable, ethical, and commercially successful financial services.
Training and Competence: The secret weapon
Does T&C demand more focus? If SM&CR provides the skeleton of accountability, T&C is the muscle – the system that makes the regime function in practice.
A good T&C framework ensures that individuals don’t just know their responsibilities on paper but understand how to live them day to day. It translates conduct rules into meaningful action. It prepares people to handle ethical dilemmas, regulatory change, and emerging risks.
Consider a scenario where a firm is granted more flexibility under the proposed reforms. They now have longer to file updates to SoRs, or more discretion over how often they conduct fitness assessments. That’s only safe if they have confidence that their people are competent, current, and capable. And that’s where T&C becomes invaluable.
It’s not just about compliance, either. Strong training programmes foster better culture, increase employee engagement, and reduce the risk of inadvertent misconduct. They also provide evidence in the form of training records, assessments and performance reviews, that firms and individuals have taken their responsibilities seriously. When things go wrong, that evidence can be the difference between a regulatory fine and a defensible position.
In short, T&C isn’t just a back-office HR function. It’s a frontline regulatory tool — and one that will become even more critical as the regulatory environment evolves.
Conclusion: A positive spin & key takeaways
- Modernising SM&CR rather than replacing it: -the current consultations signal that regulators want to preserve what works – accountability, conduct, responsibility – but make the regime more fit for current needs: more flexible, proportionate, less duplicative; more navigable. That’s a wise approach, not a retreat from standards.
- Training & Competence is the unsung lever: It supports all pillars of SM&CR: ensuring fitness & propriety, supporting conduct rules, enabling senior managers to understand and discharge their responsibilities, helping firms to demonstrate they have taken reasonable steps. If firms and/or the regulators choose to emphasise T&C, many of the risks of loosening some of the prescription are mitigated.
- Firms that invest in T&C and culture will benefit not just by compliance, but via better risk management, fewer incidents, better retention, perhaps lower regulatory friction. They may also enjoy competitive advantage: clients and investors continue to prioritise governance and ethical conduct.
- Regulatory reform and growth are not incompatible: By removing unnecessary burdens, clarifying expectations, allowing flexibility, the proposals help firms divert more resources to innovation, customer‑service and expansion, while still maintaining trust. A credible regulatory framework with strong SM&CR and competence can be a differentiator.
