What the phase-one reforms actually change

The joint policy statements published on 22 April by the FCA and the Prudential Regulation Authority set out eight discrete changes to the SM&CR framework, according to the regulators' press release. The headline measures are:

  • A roughly 15% reduction in certification roles. Overlapping certification functions have been consolidated, removing the need for firms to certify individuals against multiple functions that cover substantially the same conduct risk.
  • A 30% increase in enhanced-firm thresholds. The financial thresholds that determine whether a firm falls into the most onerous "enhanced" tier of SM&CR have been raised for the first time since their introduction in 2019. The regulators describe this as an inflation adjustment, broadly tracking cumulative CPI over the period.
  • Longer windows for senior manager applications. Firms now have up to 12 weeks to submit a senior manager application following an unexpected or temporary change, rather than needing FCA approval within that period.
  • Extended validity of criminal record checks used in senior manager applications, and more time to update the Financial Services Register directory of certified staff.
  • Streamlined annual fitness-and-propriety checks, intended to reduce the administrative cycle for compliance teams.

The SM&CR was introduced for banks in 2016 and extended to all FCA-regulated firms in 2019. The Edinburgh Reforms announced in December 2022 triggered the current review cycle, with the FCA and PRA publishing a joint discussion paper in March 2023 and formal phase-one proposals in July 2025.

Which firms stand to benefit most

The reforms are framed as a proportionality exercise: smaller, less complex firms should face lighter obligations. In practice, the distribution of benefit is uneven.

The 30% threshold uplift for enhanced-firm status is the most structurally significant change for growing businesses. A mid-market asset manager or fintech that has crossed the previous revenue or assets-under-management thresholds since 2019 may now drop back into the "core" SM&CR tier, shedding obligations around prescribed responsibilities, handover procedures, and additional reporting. For firms near the boundary, this removes a potential drag on scaling.

The 15% reduction in certification roles saves compliance time, but the saving is proportional to headcount. A firm with 30 certified individuals might eliminate four or five overlapping functions; a firm with 300 certified individuals eliminates proportionally more. The fixed cost of maintaining a certification framework, including the annual fitness-and-propriety cycle, remains.

Perhaps the most telling data point concerns approval speed. The FCA's most recent quarterly authorisation metrics show that 94.7% of senior manager applications were already determined within the proposed new two-month statutory deadline, according to the regulator's own figures. The PRA's equivalent figure is 98%. The new deadline therefore codifies existing practice rather than creating meaningful new capacity. Firms that have experienced delays are statistically in a small minority, and the reform is unlikely to change their experience unless the underlying cause, typically incomplete applications or complex fitness-and-propriety assessments, is also addressed.

For SME-scale regulated firms, the practical time savings from phase one are real but modest. The heavier compliance costs in SM&CR have always sat in the certification and conduct-rules layers, which phase one trims rather than overhauls. The larger structural relief, if it arrives, sits in phase two.

Phase two: what the Government's consultation response signals

The Treasury published its consultation response on the same day as the regulators' policy statements. Two proposals stand out.

First, the Government intends to remove the Certification Regime from legislation, giving the FCA and PRA discretion to design a "more proportionate replacement," according to the consultation response. The Certification Regime currently applies to staff below senior management level whose roles could cause significant harm to consumers or markets. Removing it from statute would not eliminate conduct-risk oversight, but would allow regulators to narrow its scope without requiring primary legislation each time.

Second, the Government proposes giving regulators more flexibility to reduce the number of senior management functions requiring pre-approval. Combined with the stated ambition, referenced as part of the Leeds reforms, to halve the SM&CR's overall regulatory burden on firms, this signals a material reduction in the number of individuals who need to go through the formal approval process.

Lucy Rigby, Economic Secretary to the Treasury, framed the direction of travel in the regulators' announcement:

"By working with regulators to streamline the Senior Managers and Certification Regime, we are cutting unnecessary complexity, halving the administrative burden, and building a simpler, faster and more competitive system."

Sarah Pritchard, deputy chief executive at the FCA, said the joint reforms would "keep consumers and markets protected while making the regime more proportionate." She added that the FCA had "used our current powers to streamline the regime now, so firms can benefit before future legislation unlocks even more efficiencies."

The regulators plan to consult on wider changes later in 2026, once any enabling legislation is in place. The timeline remains contingent on parliamentary scheduling.

What operators should do now

Phase one is confirmed policy, not a consultation. Firms should begin mapping the changes against their current SM&CR frameworks.

Review certification function maps. The consolidation of overlapping functions means some individuals currently certified against multiple functions may need only one. Compliance teams should audit their certification registers and update them before the extended directory-reporting deadlines take effect.

Reassess enhanced-firm status. Firms close to the previous thresholds should check whether the 30% uplift moves them into the core tier. Dropping out of enhanced status removes several obligations, including some prescribed-responsibility requirements, and may allow a simpler governance map.

Do not over-anticipate phase two. The removal of the Certification Regime from legislation is a Government proposal, not a confirmed change. Firms that dismantle their certification infrastructure prematurely risk non-compliance if the legislative timetable slips or the replacement regime retains similar requirements in a different form.

Quantify the saving. For board reporting purposes, compliance leads should estimate the hours and external advisory costs freed by the phase-one changes. For most SME-scale firms, the figure is likely to be measurable in days of staff time per year rather than headcount reductions. The more significant cost relief, if it materialises, will come from phase two's reduction in pre-approval functions and the replacement of the Certification Regime.

The direction of travel is clear: lighter SM&CR obligations, with the heaviest requirements reserved for the largest and most complex firms. Whether the cumulative effect amounts to the Government's stated ambition of halving the regulatory burden will depend on the detail of phase two, and on whether the regulators use their expanded discretion to make cuts that are genuinely felt at the operating level of smaller regulated businesses.