SM&CR overhaul: accountability stays, the paperwork goes

The Senior Managers and Certification Regime, the post-crisis spine of UK individual accountability, is being thinned out. On 22 October the PRA and FCA opened parallel consultations that would end regulator pre-approval for a range of senior functions, abolish the Certification Regime for around 139,000 individuals, and raise the conduct rule breach reporting threshold for most staff below senior manager level (Bank of England). The regulators estimate firms will save roughly £2 billion over ten years (Bank of England).

Key Executive Takeaways

• UK regulators are proposing to end the Certification Regime for around 139,000 financial services staff and remove pre-approval for several senior functions, with firms expected to save about £2 billion over ten years.
• CEO, CFO and Chair appointments still require regulator pre-approval and fit and proper tests, and firms remain fully accountable for the competence and conduct of staff no longer on the Register.
• Boards should treat this as a transfer of supervisory work from the regulator to the firm, not a reduction in personal liability, and reassess internal certification, HR and conduct systems before the regime changes bite.

The headline relief is real but narrower than it looks. Chief Actuaries and Chairs of Risk and Audit Committees move from pre-approval to notification, and annual certification checks plus Register entries fall away for a large cohort below senior manager level (Bank of England). What does not change is the substance: CEOs, CFOs and Chairs still face pre-approval and fit and proper tests, regulators retain the right to require pre-approval in high-risk cases, and firms remain responsible for ensuring staff are competent and meet conduct standards. Katharine Braddick, Deputy Governor for Prudential Regulation and CEO of the PRA, described the regime as "an essential part of the UK's regulatory framework" (Bank of England).

The strategic read is that supervisory work is being pushed inside the firm. Removing the Register entry for 139,000 people does not remove the obligation to assess them; it transfers the audit trail from a regulator-facing process to an internal one. HR, compliance and risk functions that have spent a decade building certification machinery will need to decide what to keep, what to retire, and how to evidence fitness and propriety when the external deadline disappears. Firms that dismantle controls too quickly may find themselves exposed when a conduct issue later surfaces in a role that used to be certified.

The move also fits a wider regulatory posture. Sarah Pritchard, FCA deputy chief executive, told the Investment Association that the UK is "just past peak rule making" and is pursuing a "deliberate, strategic approach to reform rather than taking a piecemeal approach" (FCA). Nikhil Rathi reinforced the same frame at Mansion House, arguing the FCA will make "more assertive use of its powers to tackle system-wide risks and financial crime" even as rulemaking slows (FCA). Lighter process, sharper intervention: the SM&CR changes are consistent with that trade.

For boards, three questions follow. Who inside the firm now owns the fit and proper judgement that the regulator used to validate? How will the Nominations Committee evidence due diligence on notified-but-not-approved roles if something goes wrong? And how quickly can internal conduct systems be recalibrated to focus on the "more serious misconduct" the regulators say they want firms to target (Bank of England)?

The cost line will please finance directors. The accountability line should keep general counsel awake. SM&CR is being simplified, not softened, and the individuals at the top of the house carry the same weight they did yesterday.