The Future of Accountability: SM&CR Reforms

Author: Priscilla Gaudoin - Head of Risk & Compliance - published August 2025

Topics: Regulatory Strategy, Regulatory Change, Accountability, SM&CR

Regions and Regulators: UK - FCA, HM Treasury

“The SM&CR has driven up standards in financial services. But we want to boost competitiveness, and support growth, by streamlining the regime while preserving its benefits.” — FCA CP25/21

The SM&CR was originally introduced to improve accountability and culture in financial services. It applied to thousands of firms across banking, insurance, and financial markets, requiring clear designation of responsibilities for senior managers, certification of certain staff for their fitness and propriety, and conduct rules applicable to nearly all employees.

However, since its extension across the industry in 2019, stakeholders, including firms, industry bodies and governance, have raised concerns about is complexity, cost and administrative burden, particularly for smaller and midsized firms.

In response, the FCA and HM Treasury have initiated a two-phased reform process:

• Phase 1: (now out for consultation) Covers the FCA handbook changes that do not require legislation.
• Phase 2: (legislation changes) Will follow in partnership with the Treasury and be subject to future consultation.

Figure 1: Phased timeframes

Key Proposals in CP25/21:

The consultation includes several important reforms aimed at simplifying compliance, improving efficiency, and reducing regulatory burden while maintaining high standards of governance and accountability.

The FCA proposes to streamline and digitise the senior manager approval process, thereby reducing unnecessary paperwork, and making it easier for firms to navigate the application pipeline.

Firms will be given more flexibility and time to certify staff, notify the regulator of changes, and make internal governance updates.  This should help to reduce the pressure to act within short deadlines and allow better planning.

The FCA suggests raising the criteria for firms to fall within the “Enhanced” SM&CR regime, meaning fewer mid-sized firms would face the additional responsibilities such as maintaining responsibilities maps or handover procedures.

Proposals include simplifying how firms report breaches of Conduct Rules, focusing on materiality and consistency, and avoiding unnecessary duplication or over-reporting.

Although not part of the current consultation, the FCA outlines potential future legislative changes including:

• Abolishing the Certification Regime
• Reducing the number of approved roles
• Simplifying responsibilities maps
• Removing the Directory of certified staff

It's crucial that firms keep a watching brief on developments.

Benefits for Firms:

The proposed reforms could deliver tangible benefits for regulated firms, especially in areas that have become resource-intensive under the current regime.

Figure 2: Envisaged benefits of SM&CR reforms

Reduced Administrative Burden

By extending deadlines and simplifying processes, firms will likely spend less time managing SM&CR documentation, recordkeeping, and back-and-forth communication with the regulator.

Many firms currently subject to the Enhanced regime may be reclassified, which could significantly reduce compliance obligations, saving time and cost, particularly for HR, compliance and legal teams.

Streamlining breach reporting and reducing unnecessary approval requirements may allow compliance teams to focus on higher-risk areas, improving outcomes for both firms and regulators.

Simplifying the Certification Regime could also make it easier for firms to hire, certify and onboard staff without excessive regulatory delays, which has been a growing friction point in talent-constrained markets.

Challenges for Firms:

Despite the positive direction of reform, there will be short- and medium-term challenges which firms must proactively manage.

Transitional Complexity

Reforms may temporarily increase complexity as firms will need to run dual processes, manage SM&CR under the current framework, and prepare for changes expected in 2026 and beyond.

Governance Gaps during Transition

Simplification doesn’t mean lower expectations. The FCA has reiterated that governance and individual accountability remain core principles. If firms misinterpret the reforms as a relaxation of standards, they risk supervisory scrutiny or enforcement.

Resource constraints

Smaller firms, in particular, may lack the internal capacity to revised governance frameworks, update policies, and retain staff on new SM&CR processes whilst continuing business as usual.

How RegTech can Help?

In this landscape of reform and transition, RegTech can play a transformative role. Let’s consider the following aspects:

• Digital responsibilities mapping

RegTech platforms can dynamically create and update responsibility maps as roles change. With potential simplifications coming, these platforms can automate responsibilities allocation, reducing risk of omissions or duplications.

• Workflow automation for approval and certification

Automated workflow tools can streamline internal approval changes, reminders and signoffs, related to senior manager appointment and certifications. This becomes even more powerful as deadlines are extended, firms can build compliance into HR systems rather than relying on spreadsheets or ad hoc processes.

• Breach reporting and conduct rule monitoring

RegTech solutions with built-in conduct rule libraries and breach logging workflows can help firms respond to the new, clearer reporting standards. With integrations to case management or whistleblowing systems, firms can create a full audit trail and reduce manual error.

• Compliance dashboards

With responsibilities, breaches, deadlines, and certifications spread across multiple functions, RegTech can centralise all key SM&CR indicators on real-time dashboards, helping senior managers and compliance officers monitor compliance health at a glance.

• Training and attestations

RegTech tools can automate the delivery, tracking, and renewal of conduct rules training, certification attestations, and fit-and proper tests, ensuring firms stay on top of obligations with minimal overhead.

Preparing for Phase 2:

Firms should not adopt a ‘wait and see’ approach. The Phase 1 changes are likely to be implemented in mid-2026, and Phase 2 reforms may arrive soon after.   Firms should act now by:

• Engaging with the consultation before 7 October 2025 to influence final design
• Monitoring Phase 2 developments, especially legislative changes impacting Certification and SMF requirements
• Benchmarking current processes and SM&CR framework to identify inefficiencies
• Identifying bottlenecks and prepare to adopt streamlined procedures
• Assessing their technology slack and explore RegTech that can automate key processes
• Training senior managers and certification staff on anticipated changes

Figure 3: Key dates

The SM&CR reforms in CP25/21 signal a pragmatic shift in UK financial regulation, retaining accountability whilst reducing burdens that can hinder operational effectiveness. For firms, the key will be to embrace simplification without diluting governance, and to use technology to scale their compliance in a smarter, more agile way.

As RegTech solutions mature and regulatory expectations evolve, the future of individual accountability in financial services may become not just more manageable, but more strategic.

How Ruleguard helps the Financial Sector:

Ruleguard is an industry-leading GRC software platform designed to help regulated firms manage the burden of evidencing and monitoring compliance. It has a range of tools to help firms fulfil their obligations across the UK, Europe, N America, and APAC regions.

Transform the way your firm manages accountability and compliance.

Ruleguard's Accountability Regime Solution is designed to simplify compliance with various international accountability frameworks, including the UK’s SM&CR, Ireland’s SEAR, Singapore’s IAC, Hong Kong’s MIC, and Australia’s FAR. It supports key requirements like fitness and propriety assessments, certification, MRMs, SORs, and individual conduct breaches.

Ruleguard is a comprehensive solution that lets you protect and propel your business forward through the complex regulatory landscape.

Related Webinars, White Papers and Blogs

Ruleguard hosts regular events on various regulatory topics. You can watch our webinars on-demand at your convenience, or read our blogs, white papers, infographics, and tune in to our podcasts.

• SM&CR: Enhancing Ethics, Accountability & Culture
• From Compliance to Culture: Embedding Accountability
• Senior Managers & Certification Regime: Transforming Culture
• Has SM&CR made a difference?
• How does the implementation of SM&CR impact CASS firms
• Guide to the FCA's Strategy
• Accountability: Satisfying global standards

About the author

In a career spanning 30 years, Priscilla has worked as a consultant, CCO and MLRO providing regulatory oversight and advice to firms across the financial services industry. She is responsible for our thought leadership programme, writing regular articles and white papers, and hosting webinars on a variety of regulatory matters.

She is a Fellow of the International Compliance Association, a certified GRC practitioner, and a member of the Institute of Risk Management.

 

Contact Priscilla