SM&CR Reform: Reducing Red Tape or Reopening the Door to Rolling Bad Apples?

The UK regulators are proposing to dismantle significant elements of the post-crisis accountability framework. Before celebrating the reduction in regulatory burden, we should ask what SM&CR achieved and what risks its removal might reintroduce.

A familiar regulatory cycle

Financial services regulation has a habit of moving in cycles. A crisis exposes weaknesses in governance and accountability; regulators respond with new requirements; firms invest heavily in implementation. Years later, attention turns to complexity, proportionality and competitiveness. SM&CR, introduced for banks in 2016 and subsequently extended, illustrates this cycle. Firms invested in responsibility mapping, certification, fitness-and-propriety processes, training and records. A decade later, significant elements may be removed. The central question is whether the regime delivered the accountability and conduct improvements promised, and whether the evidence justifies removing safeguards now.

What is being proposed?

The FCA and PRA published phase-two SM&CR consultations in October 2026. Proposals include abolishing the Certification Regime, retiring the FCA Directory, reducing pre-approval requirements for some Senior Management Functions, simplifying prescribed responsibilities and regulatory submissions, easing certain Conduct Rules processes, and raising Enhanced-regime thresholds. The principle of individual accountability, including Senior Manager Conduct Rules and the Duty of Responsibility, would remain. These are proposals, not final rules; the consultation closes on 22 January 2027, with implementation dependent on final decisions and legislation.

The rolling bad apples problem

A core post-crisis concern was individuals with serious misconduct histories moving between firms without adequate scrutiny. Certification, fitness-and-propriety checks, regulatory references and the Directory are distinct but complementary safeguards. The Directory was never a comprehensive misconduct database, and regulatory references are especially important. Yet removing or relaxing several mechanisms simultaneously could reduce the visibility of concerns about individuals below SMF level. The scope of proposed changes to references for formerly certified staff must be distinguished from continuing SMF requirements and other employment checks. Reducing administrative duplication is sensible. Reducing the likelihood that serious misconduct is discovered is not.

Did SM&CR actually improve accountability?

The FCA's 2019 banking stocktake reported improvements in clarity of responsibilities, ownership and challenge. Those observations matter, but improved documentation and perceptions are not the same as demonstrably improved conduct or reduced harm. We should distinguish clarity of accountability, actual behavioural change and regulatory outcomes. Absence of evidence is not evidence of absence. A preventative regime may succeed precisely when misconduct, inappropriate appointments or governance failures do not occur. Equally, the absence of major failures cannot automatically be credited to SM&CR. Enforcement case counts alone cannot establish success or failure. A credible evaluation should consider the quality of challenge, escalation, decisions, prevention and correction, as well as the limits of causal attribution.

The cost of regulation — and the cost of reversing it

SM&CR required substantial one-off investment and recurring costs in Compliance, Risk, HR, Legal, Governance and Technology. Some spending improved governance; some supported administrative processes. Gross reductions in required paperwork do not necessarily translate into equivalent net savings: firms may still need suitability assessments and effective accountability systems, while transition creates new costs for policy, systems and training changes. Firms can end up paying first to implement, then maintain, then unwind regulatory architecture. Impact assessments should distinguish sustainable savings from transferred, continuing or transitional costs.

The overlooked cost: barriers to entry and competition

Compliance obligations also affect competition. Specialist expertise, governance infrastructure, technology, legal advice and assurance create fixed costs that large incumbents can spread over existing operations but new entrants and smaller firms cannot. This can raise barriers to entry, discourage innovation and reduce competitive pressure. Even a reform intended to simplify regulation can impose substantial transition costs and uncertainty. Effective safeguards also support trust and fair competition, so the goal is not deregulation at any price. A genuinely pro-competition approach should consider the steady-state cost of rules, the cumulative cost of changing them, and their disproportionate effect on smaller firms and prospective entrants.

Accountability should not depend on paperwork

Extensive documentation does not necessarily create meaningful accountability. A perfectly maintained responsibilities map cannot compensate for weak leadership, poor incentives or ineffective challenge. Annual certification can become mechanical. A proportionate regime may improve outcomes if it redirects effort toward genuine oversight and conduct. But the mechanisms used to establish, test and enforce individual responsibility must remain effective when procedural requirements disappear.

Six questions the regulators should answer

1. What measurable benefits has SM&CR delivered? How are preventative benefits and events that never occurred assessed?
2. Which requirements genuinely added value? Which improved outcomes and which mainly created administration?
3. How will rolling bad apples be prevented? What equivalent screening and information-sharing safeguards remain for affected roles?
4. Are projected savings realistic? Do estimates include continuing governance activity and transition costs?
5. What is the effect on competition? Are fixed compliance costs and repeated redesign disproportionately affecting smaller firms and new entrants?
6. How will the new regime be evaluated? Which behavioural and risk outcomes, rather than paperwork counts, will be monitored?

Our perspective: simplify the regime, not accountability

JADEtc Academy supports proportionate, outcomes-focused regulation and the removal of low-value administrative duplication. But simplification should be evidence-led. We should not preserve costly processes merely because firms have already invested in them, nor dismantle safeguards merely because their benefits are difficult to quantify. The rolling bad apples question is a critical test. Regulatory success should be measured neither by rules introduced after a crisis nor by rules removed a decade later, but by demonstrably better outcomes at a proportionate and sustainable cost, while enabling competition. The real test of SM&CR reform is not whether it reduces red tape. It is whether accountability remains effective when the paperwork disappears.

Regulatory references: FCA CP26/37; PRA CP14/26; FCA banking-sector SM&CR stocktake (2019); FCA/PRA DP23/3 (2023). Commentary represents JADEtc Academy analysis, not final regulatory requirements.