FCA Proposals for the SMCR Regime – Round 2: Thoughts for Private Fund Managers

In a previous alert, FCA Revisions to the SMCR Regime: Considerations for Private Fund Managers, we discussed the first round of changes made by the UK Financial Conduct Authority (FCA) to the Senior Managers and Certification Regime (SMCR). The FCA has published its proposals in its consultation, CP26/37: Senior Managers & Certification Regime Review: Phase 2, for round two of the changes, which are more substantial than those in round one.¹

• Senior appointments: Certain Senior Management Functions (SMFs) would move from FCA pre-approval for the holders of those SMFs to a notification to the FCA, with firms responsible for assessing the fitness and properness of those notified SMF holders.
• Certification: The FCA proposes removing the certification regime and associated regulatory reference requirements for staff performing “Certification Functions.”
• Conduct: The FCA proposes simpler staff communications and a higher reporting threshold for most staff who are not SMF holders.
• Timing: Responses are due by 22 January 2027. Implementation is anticipated in the second half of 2027, subject to legislation and final rules.

If adopted (which is likely), the proposals would materially simplify recruitment, certification, and reporting. For private fund managers (“Firms”), the practical question is how to use that flexibility while continuing to demonstrate effective oversight and individual accountability.

1. What is the FCA Seeking to Achieve?

The FCA proposes changes across senior management, certification, and conduct, with Firms assuming greater responsibility for assessing individuals and maintaining governance records.

2. What is Happening to “Enhanced Firm” Status?

A manager’s classification as an Enhanced Firm results in it having to comply with more SMCR requirements than is the case where the manager is classified as a “Core Firm.” The FCA proposes raising the thresholds applicable to asset managers by around 50%, potentially moving some Firms from the higher Enhanced Firm tier to the lower Core Firm tier. Managers should assess their classification using the final rules and relevant calculation methodology.

For Enhanced Firms, the FCA would also remove nine prescribed responsibilities for SMF holders. The responsibilities for the Senior Managers Regime, financial crime, and CASS, where applicable, would be retained.

3. How Would Senior Management Appointments Change?

For Enhanced Firms, the FCA proposes replacing pre-approval for SMF5 (Head of Internal Audit) and the chairs and senior independent functions covered under SMF10 to 15 with notification. Firms would assess SMF holder candidates internally, and individuals could begin only once notification becomes effective. Notified managers would remain subject to the Financial Services and Markets Act (FSMA) “Duty of Responsibility” and the FCA Conduct Rules and appear on the Financial Services Register.

The proposal would not generally change appointments to the partner, compliance oversight, or money laundering reporting functions commonly held within private fund managers. SMF24, the chief operations function, would also retain pre-approval.

The FCA proposes removing the “other responsibility” functions covered under SMF18 and SMF22, with responsibilities allocated to remaining senior managers. Guidance would recognise reliance on appropriate delegation, oversight, and escalation arrangements. Alternatively, the FCA asks whether these functions should become notified roles.

The FCA’s “Temporary Cover” rules would allow 18 weeks to submit an application or notification, replacing the current 12-week period. The FCA also proposes a reasonable-use test.

4. What Would Replace the Certification Regime?

The FCA proposes removing certification entirely, including annual certification requirements. Existing competence, suitability, and conduct requirements would continue to apply, together with other applicable obligations.

For managers employing investment professionals in certified functions, this could remove a recurring compliance exercise. The proposal would also retire the Directory for Certified Persons and associated reporting and attestation requirements. SMF holder information would remain on the Financial Services Register.

Regulatory references would cease to be mandatory for previously certified roles. They would remain required for SMF holder candidates, including notified appointments, and non-SMF board directors.

5. How Would Documentation and Conduct Requirements Change?

Firms would no longer routinely submit revised Statements of Responsibilities or Management Responsibilities Maps. They would generally need to maintain current internal documents, produce them on request, and retain them for six years. The FCA proposes removing these requirements where one individual performs all senior management functions.

Conduct Rule training requirements would be replaced by an obligation to notify staff of the applicable rules and consequences of breach. For most staff below senior management, reportable disciplinary action would be limited to final written warnings or dismissal, with up to 14 months to report final outcomes. Existing reporting requirements for SMF holders would remain.

The regulatory reference template would reflect the revised reporting thresholds. A reference obtained for a senior management appointment could therefore provide less information about disciplinary action taken during an earlier non-SMF role.

6. Do the Proposals Reduce Individual Accountability?

The Duty of Responsibility and Conduct Rules would continue to underpin senior management accountability. Firms would still need to demonstrate that individuals understand their responsibilities and that delegation operates effectively.

The FCA could exceptionally require pre-approval for otherwise notified functions where it has concerns about governance or the Firm’s assessment of candidates.

7. What Should Firms Be Thinking About?

The FCA consultation offers managers an opportunity to explain how the proposals would operate within private fund structures, including international groups and lean management teams. Firms should consider responding by 22 January 2027.

Even if Firms are not looking to respond to the consultation, they should be thinking about how they will map their existing senior management and certification populations against the proposals.

Compliance and HR teams will need to plan for a review of recruitment checks, assessment procedures, disciplinary records, and training arrangements. Governance documents should remain current while Firms identify which future submissions could cease.