Introduction
The FCA’s CP25/21, published in July 2025, proposes several streamlining changes to the SM&CR as part of Phase 1 of a wider two-phase reform. While no immediate legal changes will be made under Phase 1, the proposals aim to reduce unnecessary burdens, clarify expectations and improve the practicality of existing processes without compromising accountability.
The key changes that are proposed are as follows.
Reform of the 12-Week Rule
The current 12-week rule allows firms to temporarily fill a Senior Management Function (SMF) role without regulatory approval for up to 12 weeks. The proposal suggests a material change: the 12-week clock would apply to the time to submit an application, not to the time to obtain approval.
It is also proposed that an individual performing a SMF role will be subject to the Senior manager Conduct Rules both during the 12-week period and during the period of FCA consideration of the application.
Under the proposals, firms would not be required to notify the FCA routinely of the use of the 12-week rule.
Implications:
- If adopted, an SMF role can be covered by an interim appointment provided the application is submitted within 12 weeks.
- The interim can remain in place until the FCA reaches a decision, removing the current uncertainty caused by delays in approval turnaround.
- The interim will be personally accountable for their conduct in overseeing the areas under their responsibility and potential gaps in accountability during the period will be avoided.
- Firms will not be required to notify the FCA of the commencement of the 12-week rule for interims.
- Firms would not be required to submit a revised Statement of Responsibilities (SoR) until the absence reaches 12 weeks.
This reduces administrative churn for short absences and helps avoid non-compliance caused by regulatory backlog.
Criminal Records Check (CRC) Validity Extension
Under current process, if the CRCs used in SMF applications are not dated within three months prior to the submission date, firms are required to explain why this is the case. CP25/21 proposes extending this window to six months, aligning more realistically with hiring and onboarding timelines.
Additionally, internal SMF transitions within the same legal entity or group would no longer require a new CRC, provided the individual had already passed vetting in the initial appointment.
Implications:
- Reduced delays and duplication in onboarding or internal promotions.
- Simplified compliance processes and a lower administrative burden.
Streamlining of Certification Roles and Annual Assessments
The Certification Regime has drawn criticism for duplication and excessive scope. CP25/21 proposes:
- Eliminating duplication where individuals fall into multiple certification categories (e.g., material risk taker and manager of certified individuals).
- Introducing guidance allowing digital certificates and integrating certification into routine performance reviews.
- Permitting light-touch reassessments where roles and risks have not materially changed since the last certification.
Implications:
- Expected reduction of certification population by around 15%.
- Lower time and resource demand for HR and Compliance teams.
- More flexibility to adapt the process to firm size and risk profile.
Delayed Submission of Statements of Responsibilities (SoRs)
Currently, firms must submit SoR updates promptly upon any change. The FCA now proposes that firms be allowed to batch and submit SoR updates every six months, except in cases of new appointments or major changes. Firms would have flexibility in when to submit the batched SoRs and solo regulated firms would only be required to submit the current SoRs and not any interim SoRs that may have been created during the period since the last submission.
Implications:
- Enables more efficient handling of minor or temporary changes.
- Reduces immediate paperwork pressure on HR and SMF candidates.
- Encourages use of internal tracking processes to manage SoR changes pending formal submission.
Directory Persons: Extended Time to Notify
Under existing rules, firms must update Directory Persons information promptly, typically within seven business days. CP25/21 extends this to 20 business days for most changes. However, the requirement to report staff departures within 7 working days will remain.
Implications:
- Reduces pressure on smaller firms with limited admin capacity.
- Aligns with other regulatory timelines, providing consistency.
Regulatory References: Timeliness and Guidance on Unresolved Conduct
To support better recruitment timelines, CP25F/21 proposes reducing the timeframe for providing regulatory references from six to four weeks after receiving a request. It also introduces guidance for handling references in cases where an individual leaves during an unresolved internal investigation.
Implications:
- Firms must enhance internal reference management processes to meet the tighter turnaround.
- Clear guidance on dealing with incomplete investigations will reduce legal risk and improve consistency.
Clarification on SMF Roles and Prescribed Responsibilities (PRs)
The original PRA/FCA Discussion Paper DP1/23 broached the subject of potential changes to SMFs and PRs but the FCA has decided not to add or remove any SMFs nor to make changes to existing PRs in this phase of the review. Potential streamlining of both is expected to be considered in phase 2.
The FCA is offering new guidance on when certain SMF roles apply, particularly SMF7 (Group Entity) and SMF18 (Other Overall Responsibility), and how PRs should be allocated within the SM&CR structure.
Implications:
- Better understanding of how to use ‘Other Overall Responsibility’ roles for less traditional org charts.
- Firms may need to revisit their current allocation of PRs and documentation to ensure alignment with new guidance.
Adjusted Thresholds for Enhanced Firms
CP25/21 proposes increasing the total revenue threshold that determines whether a firm falls into the Enhanced SM&CR regime. The adjustment, expected to be around 30% (with AUM increasing to £65bn, intermediary regulated revenue to £45m and regulated consumer credit lending to £130m), will reduce the number of firms captured by Enhanced obligations.
Implications:
- Some firms may revert to the Core regime, leading to a reduction in required SMFs, PRs and oversight documentation.
- Firms close to the current threshold should model the operational impact of reclassification.
Duty of Responsibility
As this is set in legislation, and as feedback was that the Duty was useful and supportive of the SM&CR, the FCA does not propose any changes to this.
Conduct Rules
The FCA continues to consider the Conduct Rules to be generally useful and effective, and is not proposing rule changes in this phase of the reform. However, additional guidance will be provided in areas such as notification of events to the FCA, clarification of the impact of legal privilege and regulatory reference expectations where Conduct Rule breaches have occurred.
Summary of Benefits
If adopted, these proposals will:
- Reduce duplication and improve process efficiency.
- Allow firms more flexibility to tailor SM&CR to their size and risk profile.
- Shorten recruitment timelines through quicker references and more practical CRC rules.
- Enable better handling of temporary absences and operational gaps.
Timeline and Next Steps
The consultation on CP25/21 closes on 7 October 2025, and firms are strongly encouraged to review the proposals in full and consider submitting formal feedback through the FCA’s online response platform. While this phase focuses on operational improvements within the existing SM&CR framework, a more extensive Phase 2 is expected in 2026, which may involve legislative changes, potentially including an overhaul or even removal of the Certification Regime.
For further information, consult the FCA consultation paper CP25/21.
