The PRA and FCA have announced parallel consultations on proposals to significantly streamline the Senior Managers and Certification Regime (SM&CR).
The number of financial services roles required to face enhanced checks from regulators will fall significantly under the proposals. The changes are expected to save firms around £2 billion over a 10-year period.
The SM&CR was introduced 10 years ago to instil a "culture of accountability" among senior decision-makers in regulated firms. The regulators say that "unnecessary burdens" will now be removed, while high standards of individual accountability and conduct will remain unchanged, including ensuring that individuals are accountable for misconduct that affects society as well as their employers.
The key changes to the regime include:
- Regulator pre-approval will be removed for a range of regulatory functions, including chief actuaries and chairs of risk and audit committees. Firms will instead notify regulators of these appointments directly, gaining speed and flexibility while remaining responsible for ensuring candidates are fit and proper.
- Removing the Certification Regime and associated administrative requirements for around 139,000 individuals below senior manager level to be subject to annual certification checks and appear on the Financial Services Register.
- Raising the conduct rule breach reporting threshold for most staff below senior manager level and streamlining Conduct Rule training requirements, enabling firms to better target more serious misconduct.
Certain senior manager roles, such as CEOs, CFOs and chairs, will continue to require regulator pre-approval, including fit and proper tests, before appointment. Regulators will also be able to require pre-approval for otherwise notified roles in high-risk cases. Firms will remain responsible for ensuring their employees remain competent, suitable and meet appropriate standards of conduct, and those no longer requiring pre-approval will continue to be held to the same level of accountability as before.
The consultations are now open until 22nd January, seeking views on how the regime can be made more proportionate. The consultations invite feedback on all aspects of the proposals with policy expected to follow in 2027.
Katharine Braddick, deputy governor for prudential regulation and CEO of the PRA, said: “The Senior Managers Regime is an essential part of the UK’s regulatory framework. These proposals keep checks in place for the most important roles, meaning individuals are accountable for their actions, but reduce the administrative burden where it isn’t needed, giving firms more time to invest in growth-focused activities and greater flexibility in onboarding senior talent.”
Sarah Pritchard, deputy CEO, commented: “SM&CR has delivered significant improvements in accountability and governance across financial services. We remain committed to ensuring individual accountability and good standards of behaviour across financial services. But we can achieve the same impact with a more streamlined regime, supporting our aim to be a smarter regulator.”
Matthew Gregory, regulatory partner at global law firm Norton Rose Fulbright, added: “These are substantial changes and there is a lot here that firms are likely to welcome. The proposed removal of the Certification Regime and the move away from pre-approval for a significant number of Senior Manager roles should make appointments quicker and reduce some of the administrative burden firms currently face.
“It is significant to see the PRA minded to remove the Certification Regime rather than replace it with a successor regime. Of course, there is a huge amount of detail underpinning this, which means this is not an eradication of the individual accountability the Certification Regime was designed to achieve. For example, the PRA’s proposals to ‘build slightly’ on the competent employee rule will, in effect, require banks and insurers to take reasonable steps to assess whether individuals undertaking currently certified roles demonstrate the integrity, honesty and other characteristics necessary to perform their roles.
“Therefore, the proposals do not mean accountability is being watered down. In fact, the trend of recent FCA enforcement activity has emphasised the importance of individual accountability to the regulator. Firms will still be responsible for ensuring those appointed to Senior Manager roles are fit and proper, and Senior Managers will continue to be held to the same standards. The question for firms will be how far they can simplify their own processes while continuing to meet their responsibilities.
“This is also the first major policy package of Katherine Braddick’s time as PRA CEO and arguably sends a strong signal to the market about the importance she places on the PRA’s growth and competitiveness objective.”
