14JUN

FCA and PRA cut SM&CR certification by 15%

3 min read

16:35UTC

Phase one of a 50% reduction target. The single biggest regulatory overhead on small authorised fintechs has finally started to shrink.

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Key takeaway

UK fintech's single biggest compliance overhead is shrinking for the first time since 2019.

The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) cut certification roles under the Senior Managers and Certification Regime (SM&CR) by 15% on 22 April 2026, phase one of a 50% reduction target. The two regulators also confirmed that the Certification Regime will be removed from primary legislation over time, a structural change rather than a temporary loosening.

SM&CR requires authorised financial firms to individually certify fitness and propriety for every senior and customer-facing employee, each year, with personal regulatory accountability attached to the sign-off. Since its 2019 expansion to all authorised firms, it has been the single largest compliance overhead for small fintechs; a twenty-person payments startup runs the same certification cycle as a 200-person bank. Removing 15% of roles from scope is the first material reduction in that overhead in six years. Phase two takes the cut to 50%.

The FCA and PRA timed the cut to land in the same week as the AI Live Testing second-cohort expansion and alongside the British Business Bank direct-investment mandate . The combined signal to UK fintech is coherent: lower authorised-firm overhead, wider permitted AI experimentation scope, continuing authorisation pipeline capacity. Founders running authorised fintechs at sub-50-headcount will see the concrete effect at the next compliance cycle renewal.

Deep Analysis

In plain English

The Senior Managers and Certification Regime (SM&CR) is a set of rules that requires financial services companies to personally certify that their key staff are fit and proper for their roles, and to hold specific senior managers personally accountable for regulatory failures. It was created after the 2008 financial crisis to ensure that individual bankers could be held responsible rather than just the banks themselves. For small fintech startups, it became a significant administrative burden. The 15% reduction announced this week means fewer roles need to be formally certified, which reduces some paperwork and legal costs for smaller authorised firms.

Deep Analysis

Root Causes

The SM&CR 2019 extension to solo-regulated firms created certification obligations for roles; including some client-service and operations roles at small fintechs; that had no equivalent in the banking sector regime the scheme originally targeted; removing those roles in phase one is a correction of an over-extension rather than a deregulatory choice.

The FCA's Growth and Competitiveness objective, added to its statutory mandate by the Financial Services and Markets Act 2023, creates an explicit duty to consider the competitive impact of regulation; the SM&CR reform is the first material action taken under that duty in fintech, and the scale of the first phase (15% of roles) reflects caution about moving ahead of a 2026-27 Parliamentary review of the Financial Services and Markets Act.

What could happen next?

Consequence
The 50% total certification-role reduction target requires a further 35-percentage-point cut beyond today's phase one; HMRC's autumn 2026 consultation on the Certification Regime's removal from primary legislation is the mechanism for that reduction, and the outcome of that consultation will determine whether the 50% target is reached before the next election.
Opportunity
Fintech firms that currently maintain inflated certification-role counts to protect against regulatory interpretation risk; a common practice identified in Linklaters' survey; will use the phase-one reforms as an opportunity to normalise their compliance structures, producing a one-off audit and legal spend in 2026 followed by structural cost savings from 2027.

Source Landscape

This story draws on centre-left-leaning sources from United States

United States

Primary parallel: SM&CR was introduced for banks under the Financial Services (Banking Reform) Act 2013 and expanded to all FCA-authorised firms in December 2019, replacing the Approved Persons Regime; the 2019 expansion added approximately 60,000 certification roles across solo-regulated firms, most of which had previously operated under a lighter Approved Persons framework.

The 15% April 2026 reduction returns the scheme toward pre-2019 scope rather than representing a structural reform of the underlying individual-accountability architecture.

Counter-parallel: Australia's Banking Executive Accountability Regime (BEAR, launched 2018), the closest structural analogue to SM&CR, was voluntarily wound into the Financial Accountability Regime (FAR, 2023) which halved the number of accountable persons through functional consolidation rather than role elimination; the FAR produced a 30% compliance cost reduction without reducing enforcement capability.

The UK's phase-one approach removes roles rather than consolidating functions, which may prove less durable.

Consensus view: Linklaters' 2025 UK fintech regulatory cost survey found that SM&CR certification compliance costs small authorised firms (fewer than 50 staff) an average of £180,000 per year in legal, HR, and training overhead; equivalent to 1.5 full-time employees.

A 15% reduction in certification roles translates to approximately £27,000 per firm in annual savings, meaningful for a seed-stage fintech but not a structural change at the compliance-overhead level that deters Series A formation decisions.

Counter-view: UK Finance's regulatory advocacy team points to the 2019 SM&CR extension to solo-regulated firms (including most fintechs) as having added 47,000 individuals to the certification regime without any corresponding increase in FCA enforcement capacity; the 15% certification role reduction removes roles that, per FCA's own assessment, generated zero enforcement actions since 2019. Reducing zero-enforcement roles does not reduce regulatory risk; it reduces regulatory theatre.

Key tension: Whether the 50% total reduction target, set by HM Treasury as part of the Edinburgh Reforms II, will be delivered through removing genuinely low-value roles or through reclassifying existing certification-role activities as non-certification, which would preserve compliance costs while reducing the reported headcount number.

Sources:CNBC

Mentions:Financial Conduct Authority →Prudential Regulation Authority →Senior Managers and Certification Regime →HM Treasury →British Business Bank →AI Live Testing →

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Causes and effects

This Event

FCA and PRA cut SM&CR certification by 15%

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Different Perspectives

European VC (Atomico, Plural, Highland Europe as PhysicsX / Lumen adjacents)

European growth funds have backed three of the week's largest UK rounds via follow-on positions and co-investments; the PhysicsX cap table includes Atomico (European-domiciled, Skype-founded) and Siemens (German industrial), both returning investors who view UK physical-AI as a supply-chain multiplier across Continental manufacturing. European LP capital is filling the growth tier UK state vehicles have not yet reached.

UK regulated-industry coalition (Lloyds, BAE Systems, LSEG via Lumen Sovereign)

Thirteen of Britain's most heavily regulated companies backed Cosine not as a philanthropic gesture but to acquire a data-compliant AI tool that replaces costly US API alternatives; each partner provides proprietary data in exchange for early access. Their participation signals that regulated incumbents, not venture funds, may be the structural customer base that sustains the UK's sovereign model tier.

US growth investors (General Catalyst, Intrepid Growth Partners)

US and allied growth investors followed Temasek into PhysicsX's Series C; General Catalyst also returned in the round after backing Geordie the previous week. The absence of any US-led domestic-capital equivalent is a structural reading: American funds enter at growth stage where returns are clearest, ceding seed and Series A economics to UK vehicles that are themselves contracting.

Temasek (Singapore sovereign fund)

Temasek led PhysicsX's $300m Series C, its second major UK deep-tech cheque in six weeks after co-investing in Isomorphic's Series B with the SAIU; its thesis runs through Southeast Asian advanced-manufacturing adjacencies, not bilateral UK policy. Singapore's sovereign capital is now the default lead for British scale-ups above £200m that fall outside the BBB's priority sectors.

UK Government (DSIT / Liz Kendall)

DSIT published its first sector scorecard on 10 June setting a £8.3bn 2025 baseline, and the Sovereign AI Unit's compute allocation enabled Cosine's Lumen Sovereign launch. The scorecard's own barbell figure, more capital in fewer rounds, exposes the policy gap DSIT has not yet addressed: no instrument currently leads venture rounds in industrial AI simulation sectors.

Spanish state finance (COFIDES, CDTI)

Spain's COFIDES and CDTI have co-invested alongside UK deep-tech rounds in prior cycles and track the British Business Bank's direct-investment activity as a benchmark for state-capital deployment in innovation. BBB's two direct co-investments in one week set a pace reference for Iberian equivalents.