Culture, conduct, and accountability - FCA’s SM&CR reforms
21 Jan 2026 • Business Services • Financial Services • ICARA and wind-down processes • Preparation of Disclosures • Prudential Reporting and Advisory • Regulatory Reporting • Thresholds, indicators and OFAR monitoring • Transparency Reporting
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The FCA has been consulting on major changes to the Senior Managers & Certification Regime (SM&CR) to make it more efficient and proportionate, while preserving its core principles of accountability and conduct. These proposals aim to reduce administrative burdens, speed up processes, and support the UK’s competitiveness as a global financial centre.
The FCA’s policy statement PS25/23 published at the end of 2025 on tackling non‑financial misconduct (NFM) in financial services and the consultation paper CP25/21 published earlier in 2025 on streamlining the SM&CR are two sides of the same coin: clearer expectations on behaviour and a more efficient accountability framework.
Why PS25/23 matters for SM&CR
Code of Conduct (COCON) sets out conduct rules for staff and provides guidance about those rules and the FCA take enforcement action for serious breaches. Fit and Proper test for Employees and Senior Personnel (FIT) sets out factors to which the FCA and firms should have regard when assessing whether an individual is fit and proper to perform their role.
PS25/23 is amending the COCON sourcebook to explain how NFM can be a breach of the conduct rules and make it easier for SM&CR firms to interpret and consistently apply the rules. It also explains how NFM forms part of the FIT sourcebook. The integration of the NFM into the Handbook supports the FCA's objectives of consumer protection, maintaining market integrity and promoting effective competition, while facilitating the UK’s economic growth and global competitiveness. The rationale is that by tackling NFM in firms can help foster healthy and inclusive workplace cultures in a culture that supports openness and constructive feedback. The aim is to give firms confidence to act decisively, with practical guidance, examples, and flowcharts that support fair, consistent decision‑making.
The guidance will come into force on 1 September 2026 at the same time as the new rule at COCON 1.1.7FR. Firms have a duty under section 64B FSMA to notify conduct rules staff about the rules and take all reasonable steps to make sure they understand how they apply to them (COCON 2.3). This is directly relevant to SM&CR as the regime rests on personal accountability and minimum conduct standards across all levels of the firm.
What is changing?
The new rules will align conduct standards across banks and non-banks. Previously, proving that NFM was linked to financial activities in non-banks was challenging. The revised COCON now brings work-related misconduct firmly within scope, ensuring consistency across the sector. The update of the FIT guidance, clarifying how NFM, whether at work or in private life, affects assessments of honesty, integrity, and reputation. For example, serious misconduct outside work, such as violence or sexual offences, may indicate a material risk to regulatory standards and public confidence.
Key features
The FCA has taken into account the feedback from the industry and outlined in PS25/23 the revised version of the COCON and FIT guidance proposed in CP25/18. We have summarised below the key features:
Clearer rules: The new examples and flow diagrams help firms determine whether behaviour breaches conduct rules.
Manager accountability aim to prevent NFM: The guidance outlines reasonable steps they should take while clarifying they won’t be held liable for issues they couldn’t reasonably know about.
Alignment with employment law: While regulatory standards differ from employment law, the FCA has worked to minimise divergence and avoid disproportionate burdens.
Private life and social media: Firms are not expected to monitor employees’ private lives or social media proactively. However, serious conduct, e.g. criminal activity or harassment, may still be relevant to fitness and propriety.
Proportionality: The FCA stresses that firms should exercise judgment as guidance cannot cover every scenario, and trivial or implausible allegations need not be investigated.
Why the SM&CR review matters
Introduced to strengthen individual accountability and raise standards across financial services, the SM&CR has been widely regarded as successful. Respondents to the FCA’s earlier discussion paper in 2025 agreed that the regime makes it easier to hold individuals accountable and improves firm culture. However, firms highlighted inefficiencies that increase compliance costs without adding significant value, such as delays in senior manager approvals and rigid reporting requirements. The FCA’s proposals are aiming to reduce these frictions or uncertainties, support operational resilience, and enhance the UK’s competitiveness as a global financial centre. The SM&CR review is split into two phases which are outlined below.
Phase 1 of the consultation focuses on streamlining and improving the efficiency of the SM&CR without changing its core principles. The proposals aim to reduce regulatory burden, while maintaining accountability and governance standards.
Phase 1: Key changes
12-week rule flexibility: Firms will have 12 weeks to submit an application for a replacement Senior Manager, rather than needing approval within that period. The individual can continue in the role until the application is determined, reducing uncertainty and avoiding breaches.
Simplified SMF approvals: Improvements to forms, clearer guidance, and digitised processes will make applications faster and less complex. The FCA also proposes extending the validity of criminal record checks to six months and removing duplicate checks for internal moves.
Periodic SoR submissions: Statements of Responsibilities (SoRs) would only need to be submitted every six months, rather than after every change, significantly cutting administrative burden.
Certification regime streamlining: Guidance will clarify that certificates can be issued digitally and embedded into existing processes like performance reviews. Overlaps in certification roles will be removed, reducing duplication by around 15%.
Enhanced regime thresholds: Financial thresholds for becoming an Enhanced SM&CR firm will rise by 30% to reflect inflation, ensuring proportionality for larger firms.
Directory updates: Firms will have 20 business days (up from 7) to update most Directory information, easing compliance pressure.
Taken together, these proposals make the day‑to‑day operation of SM&CR lighter and more usable allowing compliance teams to focus on the culture and conduct outcomes that PS25/23 is designed to reinforce.
Phase 2: Bigger changes ahead
The FCA, alongside HM Treasury, is exploring legislative changes that could allow deeper reforms, such as reducing the number of Senior Management Functions, simplifying Prescribed Responsibilities, and potentially replacing the Certification Regime with a more proportionate model. These proposals aim to maintain accountability while creating a streamlined, future-ready framework for financial services.
The strategic link: Culture and accountability
PS25/23 sets the behavioural baseline (NFM clearly within conduct rules and FIT), while CP25/21 sharpens the tools with simpler approvals, clearer responsibilities, proportionate certification. This alignment promotes safety and soundness, consistent accountability, without adding unnecessary process friction. The FCA’s broader intent is to raise standards and streamline oversight simultaneously supporting the UK’s competitiveness and growth while maintaining trust in markets and firms.
Next steps
Firms should familiarise themselves with the new guidance to prepare for September 2026. By embedding these standards, the industry can build safer, more inclusive workplaces boosting trust, attracting global talent, and driving innovation.
Update conduct policies and ensure proper training to reflect NFM as a potential COCON breach and a FIT consideration; ensure managers know the “reasonable steps” expected of them.
Map process changes from CP25/21 plan for the revised 12‑week rule, periodic SoR submissions, streamlined certification checks, and extended Directory timelines.
Stress‑test fitness and propriety assessments and regulatory references to incorporate NFM factors consistently and proportionately.
Prepare for the September 2026 go‑live: align systems, Management information, Human resources, and governance so behavioural investigations and SM&CR processes work seamlessly together.
The FCA is currently reviewing feedback from the industry and will release the final rules in a Policy Statement by mid-2026 marking a significant step toward for a more efficient compliance framework.