SMCR+ View – October 2025

With the SMCR and Non-Financial Misconduct (“NFM”) Consultation Papers now closed, we need to wait and see what is coming next! We know the FCA is considering whether to issue FCA Handbook Guidance on NFM, which, if it decides to do so, will be published by the end of the year - the festive gift the industry arguably asked for? For the broader SMCR Review, we’ll need to wait until next year to see what happens.

There’s a lot in this edition - please do let us know if you’d like to discuss:

• The FCA’s Letter to the Treasury Committee responding to questions in relation to the “Sexism in the City” inquiry, with some interesting NFM updates.
• EBA Consultation Paper on amendments to its guidelines on internal governance to accommodate for CRD VI, which will be relevant for those of you with EU credit institutions.
• A brief summary of ESMA’s Final Report on Supervisory Expectations for the Management Body, relevant for entities ESMA supervises directly.
• The publication of EIOPA’s Guidance on the notion of diversity for the selection of administrative, management or supervisory body members.
• A brief summary of the FCA and PRA’s Joint Policy Statement on Remuneration Reforms.
• The FCA’s findings from its review of corporate finance firms in relation to financial crime and client categorisation.
• The SMCR-related proposals of the FCA’s Consultation Paper on targeted support.
• Other updates, including the latest FCA complaints data, a PRA Dear CFO Letter on written auditor reports, a FCA Dear CEO Letter on the Motor Finance Redress scheme, a FCA Dear Compliance Officer Letter for asset management and alternatives firms, and a Market Watch from the FCA on changes to the UK’s derivative reporting regime.
• Last but not least, we briefly cover the latest enforcement action on insider dealing.

1. FCA Letter to the House of Commons Treasury Committee - “Sexism in the City”

Our regular readers will know that we’ve followed all the NFM developments closely – see this SMCR+ View for our coverage of the Treasury Select Committee’s (“TSC”) Sexism in the City report, and here for the regulators’ and HM Treasury’s response. In October, the TSC published a letter sent to it by the FCA responding to the TSC’s recommendations following the Sexism in the City report. Key points to flag from that letter include:

• The FCA restates that it will confirm “before the end of the year” whether additional guidance on NFM will be published (see our summary of the FCA’s proposed guidance here). It reiterates that the guidance will be “indicative, not prescriptive”.
• Good news for some firms - the FCA confirms that it doesn’t have “immediate plans” to issue a NFM survey to its other portfolios - so it looks like asset managers, corporate finance houses, and others are off the hook for now. Less good news for others, as the FCA has confirmed it has followed-up with ‘outlier’ firms following its 2024 NFM survey.
• The FCA does not have plans to collect regular data on the use of ‘confidentiality and settlement agreements’.
• Since the 2024 NFM Survey, the FCA believes improvements have been made around management information (“MI”) and NFM-related reporting and training of staff. We’ve been involved in training programmes which firms have rolled out following the introduction of the duty to prevent sexual harassment under the Worker Protection (Amendment of Equality Act 2010) Act 2023 (see our update here), and many firms have sought to remind staff of the regulatory position on NFM in these sessions.
• Interestingly, the FCA and the Equality and Human Rights Commission have delivered joint training to FCA staff on NFM. Our hope is that initiatives like this will reduce some of the challenging interactions firms have with the FCA where there may be a lack of awareness of the broader legal framework relevant to misconduct and NFM in particular.
• The FCA’s supervisory team is taking forward work across the wholesale brokers portfolio to test whether firms have effective controls to ensure NFM is prevented, stopped in its early stages, or at least addressed appropriately after taking place.
• The FCA has 76 NFM-related supervisory cases open (the FCA notes that this may understate the NFM related work being done because one case may relate to multiple instances/issues). The portfolio with the highest number of open cases is wholesale sell-side and infrastructure & exchanges (18), followed by insurance (15), retail banks (11), consumer investments and wholesale buyside (9). Since 2022, there’s been an upward trend in the number of supervisory cases concerning NFM. As of 9 October 2025 there had been 176 NFM supervisory cases (compared to 229 for 2024) – we’re coming up to Christmas party season, but potentially this could be the start of a downward trend…

If you have any questions on NFM more broadly and the support we can offer your team, please reach out to Andrea Finn (Partner) and Amy Sumaria (Managing Associate).

2. EBA Consultation Paper – Draft Revised Guidelines on Internal Governance

Relevant for EU credit institutions, the European Banking Authority (“EBA”) is consulting on amendments to its Guidelines on Internal Governance (“Guidelines”) in order to address the new internal governance and suitability requirements introduced under CRD6 (EU Directive 2024/1619). You can find our full article on the proposals here, but we’ve included a brief summary of what we cover in that note below. This consultation is open until the 7 November 2025, but it is currently unclear as to when the revised Guidelines will be applicable (although the new internal governance requirements under CRD6 come into force on 1 January 2026). Once final, firms subject to the Guidelines will need to review and update their internal governance frameworks to align with the revised Guidelines.

• Third Country Branches (“TCBs”): The EBA is proposing to extend the scope of the Guidelines to explicitly cover TCBs in addition to credit institutions, and includes a new section on the internal governance arrangements of TCBs.
• Mapping of duties: Firms will be required to draw up in a single set of documents a comprehensive mapping of duties including reporting lines, lines of responsibility and the people who are part of the governance arrangements and their duties. This should be done at both entity and group level, and is akin to a Management Responsibilities Map (“MRM”) under the UK SMCR.
• Statements of roles and duties: Each member of the management body, senior management and key function holders (“KFH”) will be required to have a documented statement of roles and duties which clearly sets out their role in respect of that institution. This is akin to the requirements in relation to Statements of Responsibilities (“SoRs”) under the UK SMCR and the Irish SEAR.
• Sufficient substance: The Guidelines include a new proposed requirement for institutions, TCBs and subsidiaries of third-country undertakings to maintain "sufficient substance" to satisfy the conditions of their authorisation, to avoid becoming "empty shells" or "letterbox entities".
• Diversity and inclusion: The notion of 'corporate culture and values' has been expanded to cover diversity and inclusion to reinforce a culture of equality, diversity and inclusion and prevent discrimination and harassment.

We are doing a lot of work on this across our European network and leveraging our experience of implementing the SMCR and SEAR in Ireland to support clients in relation to these new requirements – please reach out to Amy Sumaria (Managing Associate) or Derek Lawlor (Partner) to discuss the support we can offer further. We are planning to hold roundtables in each of our European offices on the requirements and lessons learned from implementing SMCR and SEAR – if you or your colleagues would be interested in this then please email Amy McQuire. More broadly, we have our own CRD6 Manager tool to help you navigate CRD6 implementation – please reach out to Charlotte Stalin (Partner), Markéta Edwards (Of Counsel) or Rosie MacArthur (Managing Associate) if you have any questions.

3. ESMA’s Final Report on Supervisory Expectations for the Management Body

The EBA isn’t the only EU body focussing on governance-related guidelines… We also have the Final ESMA Report on supervisory expectations for management bodies of entities it supervises directly – i.e., administrators of EU benchmarks, Tier 2 central counterparties, credit rating agencies, data reporting service providers, securitisation repositories and trade repositories. The report outlines the feedback received in response to the ESMA Consultation Paper in July 2024 (see more here), with ESMA’s final supervisory expectations laid out in Annex III, which ESMA will start considering in relation to its supervisory activities from 15 January 2026 (3 months after publication).

Annex III sets out the concept of the ‘management body’, and 12 principles which describe outcomes ESMA wants firms to try and achieve to ensure there is robust and effective governance and oversight in place. The 12 principles are (i) responsibilities of the management body, (ii) accountability and delegation, (iii) effective challenge, (iv) tone from the top, (v) operation of the management body, (vi) effective reporting, (vii) control function access to the management body, (viii) record keeping, (ix) effective leadership, (x) composition of the management body, (xi) reviewing effectiveness, and (xii) training and recruitment.

Arguably none of this is rocket science and many of these outcomes are already things that firms will be looking to achieve in any event. However, relevant firms will want to undertake a gap analysis to consider these principles against the existing governance frameworks and see what, if any, enhancements could or should be made. Other firms not directly within scope of these guidelines may still find it interesting to consider ESMA’s perspective on what good governance outcomes look like.

Please reach out to Amy Sumaria (Managing Associate) for more details or for assistance with your gap analysis.

4. European Insurance and Occupational Pensions Authority (“EIOPA”) – Guidelines on the notion of Diversity for the selection of AMSB members

Final one on the EU side…EIOPA published its Guidelines on the notion of diversity for the selection of administrative, management or supervisory body (“AMSB”) members. The Guidelines apply from 30 January 2027 and have been developed as a result of amendments to the Solvency II Directive and the new requirement for firms to have a policy promoting diversity of the administrative, management or supervisory body. The aim of the Guidelines is to promote diversity in the composition of senior function holders on the basis of the their educational and professional background, age, gender and geographical origin when recruiting new AMSB members and beyond.

Please reach out to Jonathan Thorpe (Partner) and Thomas Makin (Managing Associate) for more details.

5. FCA and PRA Policy Statement on Remuneration Reform (FCA PS 25/15 and PRA PS 21/25)

Following their Consultation Paper (FCA CP 23/24, PRA CP 16/24) back in November 2024 and the positive feedback received in relation to their proposals, the FCA and PRA have now published a joint Policy Statement which includes amendments to the remuneration rules for dual-regulated firms. This includes changes to the deferral rules by reducing the deferral period to 4 years for all Material Risk Takers (“MRTs”), including SMFs, removal of quantitative identification criteria for MRTs and changes to the MRT proportionality threshold, the introduction of time based MRT exemptions, clarifying the role of committees and the Chief Risk Officer in MRT assessments and more clearly aligning remuneration with risk-taking outcomes and individual responsibilities. Positively for industry (which had been asking for these changes to improve the competitive position of the UK for talent), a number of these changes can be applied to 2025 remuneration and firms are considering what changes they can implement in this year’s remuneration round.

These changes came into effect on 16 October 2025. If you have any questions on these changes and would like to discuss, please reach out to Andrea Finn (Partner), Tair Hussain (Partner) or Amy Sumaria (Managing Associate).

6. FCA Survey and Review Findings relating to Corporate Finance Firms (“CFFs”) - Financial Crime Controls and Client Categorisation

CFFs have been in the hot seat recently in terms of FCA supervisory publications…on the same day in October the FCA published (i) its findings from its survey of CFFs’ financial crime controls, and (ii) its findings from its multi-firm review of CFFs’ approaches to client categorisation. These publications are specific to CFFs, but they do have broader read across and may be helpful for other firms to consider.

The FCA surveyed 303 CFFs for their financial crime controls supervisory work, as well as interviewing senior staff at firms. The findings will be of particular interest to Senior Managers holding prescribed responsibility (b) (for financial crime). The FCA identified three key issues requiring improvement: (i) a lack of business-wide risk assessments, (ii) missing evidence of customer due diligence, and (iii) gaps in risk assessments for appointed representatives. The FCA did also outline areas of good practice, particularly in relation to regular reporting to senior management (97% of firms), the use of detailed MI, and the regular assessment and documenting of risks and live updating of risk registers.

In the FCA’s review of client categorisation, the FCA noted various areas of improvement relating to (i) policies and procedures – e.g., there were examples of no policy being in place, or it was incomplete, or it was too high-level, (ii) certifying retail investors as high-net-worth or sophisticated – there were a significant number of areas identified as requiring improvement, (iii) categorising corporate finance contacts, and (iv) categorising clients both at the outset and in terms of elective professional categorisation. This will be important for both Compliance and front office Senior Managers to consider.

If you would like to discuss these findings further, please reach out to Alex Ainley (Partner) or Amy Sumaria (Managing Associate).

7. FCA Consultation Paper – Consequential Handbook changes following targeted support proposals (CP 25/26)

Following CP 25/17 (June 2025) on targeted support, the FCA has published CP 25/26 which proposes consequential changes to the FCA’s Handbook in order to ensure that the new targeted support framework works within the existing FCA rules and requirements. More details on the targeted support proposals can be found here, but essentially the FCA is proposing to introduce a new regulated activity of “targeted support”, which would allow firms to provide suggestions to groups of consumers with common characteristics to help them make financial decisions.

What’s the SMCR angle? Well, the FCA is proposing (i) if a firm is an Enhanced SMCR firm, then “targeted support” will be added as an example of business activities and functions that should consider when preparing a MRM, (ii) in CP 25/27, the FCA proposed that individuals providing targeted support would not hold the client dealing function, albeit they could hold another certified role, but CP 25/26 confirms that firms may still have to upload individual providing targeted support to the FCA Directory in a Directory persons information report, and (iii) that targeted support will not be included in SYSC 19G as an activity meaning those with managerial responsibility for the relevant business unit will necessarily be identified as MRTs which has potential implications from both a remuneration and SMCR perspective. The FCA is also proposing minor amendments to confirm that the requirements for employee competence and knowledge apply to the provision of targeted support in the same way as they apply to personal recommendations and other MiFID activities.

If you have any questions on targeted support and the FCA’s proposals more broadly, please reach out to Catherine Weeks (Partner) and Camilla Jessel (Managing Associate).

8. Other Updates

We’ve included a summary of some of the other developments we’ve seen which may be of interes

• FCA - Complaints Data H1 2025: This may be of interest to Senior Managers with responsibility for complaints. The new FCA page provides an overview of financial services firms' complaints reported to the FCA during H1 2025 (1 January to 30 June 2025), including the latest trends and analysis by product groups. There has been an increase in complaints since the last report, with complaints increasing 7.2% in relation to banking and credit cards, 10.1% for investments, and 5.5% for decumulation and pensions.
• PRA - Dear CFO Letter on its Thematic Feedback from its review of written auditor reports: The PRA sent this letter to the CFOs of certain deposit-takers which provides feedback from its review of written reports from auditors. The focus of this year’s assessment is the timely recognition of credit risk changes and the integration of climate-related risks. The PRA encourages firms to benchmark against the findings, and identify any areas for improvement. Relevant CFOs should consider their reasonable steps in relation to this letter - documenting those appropriately will be important in the event of subsequent regulatory enquiries.
• FCA - Dear CEO Letters in relation to Motor Finance Commission Redress: The FCA published a Dear CEO letter to all firms involved in motor finance lending and broking from 2007, and a Dear CEO Letter to Claims Management Companies involved in motor finance commission claims. This follows CP 25/27 - the FCA’s consultation on the industry wide redress scheme. The FCA reiterates in this letter that it expects lenders and brokers to prepare now to deal with their existing portfolio of complaints and for a potential redress scheme, rather than awaiting the outcome of the consultation. The FCA highlights firms’ Principle 11 obligations to be open and cooperative, particularly if there is something that could materially impact a firm’s ability to meet its obligations.
• FCA - Dear Compliance Officer letter on T+1 securities settlement expectations: The FCA sent this letter to the compliance officers (SMF 16s) of firms in the asset management and alternatives portfolio in relation to its expectations for firms ahead of the transition from a T+2 to a T+1 securities settlement cycle on the 11 October 2027. The FCA indicates that it expects firms to have put in place a project to move to T+1 settlement by the end of 2025, as well as carrying out end-to-end reviews of their trading, clearing and settlement arrangements, and contact their settlement agents, and other outsourced providers to discuss required changes. The FCA indicates that it may ask firms to inform it of the transition plans they have put in place. The fact that the FCA is pinning this responsibility on the SMF 16 may be controversial for some. Where the responsibility clearly sits elsewhere (e.g. the SMF 24) we’d recommend documenting that in an amendment to the relevant SoR.
• FCA - Market Watch 84: Following the FCA’s amendments to the UK’s derivatives reporting regime under UK EMIR Refit in September 2024, this Market Watch provides an overview of the FCA’s findings in relation to the implementation, focussing on firms’ change and vendor management with respect to the changes in the reporting framework. The main issues identified by the FCA were inadequate resource planning and over-reliance on third-party vendors, some of whom struggled to support clients. Since the Refit went live, the FCA has received 267 breach notifications, fewer than expected, possibly due to inconsistent internal thresholds for reporting material breaches. Firms are required to promptly notify the FCA of any material reporting issues and to have effective procedures for assessing and reporting breaches. Looking ahead, the FCA’s priorities include improving data quality, monitoring reconciliation rates, and increasing scrutiny of breach notifications, with firms expected to ensure robust systems and controls for accurate and complete reporting.
• FCA’s Multi-Firm Review – Combating Romance Fraud: Relevant for banks, building societies and other businesses that provide payment accounts, the FCA has carried out a multi-firm review of 6 firms, focussing on how firms detect and prevent romance fraud (i.e. where people are convinced they are in a genuine relationship and deceived into sending money to criminals) and support victims. The FCA focussed its review of firms’ systems, governance and investigative procedures, as well as reviewing policies, procedures and internal guidance. The FCA noted several areas for improvement, including firms missing opportunities to identify seemingly suspicious transactions, staff lacking the capability to identify red flags and critically assess customer explanations, and instances where safeguarding concerns were not escalated properly. Whilst the FCA notes this was a standalone review, it does confirm that its findings should inform relevant firms’ broader fraud strategies, and the FCA expects all firms to consider these findings to assess whether their own systems, controls and customer engagement practices are sufficient. Another one for the Senior Manager holding prescribed responsibility (b) for financial crime to consider closely.

9. Enforcements

After a long list of enforcement actions in the last version of SMCR+ View, we only have one for you in this update – a FCA Final Notice against Neil Sedgwick Dwane in relation to insider dealing / market abuse. In this Final Notice, the FCA imposed a financial penalty of £100,281 and has banned Mr. Dwane from working in financial services for engaging in insider dealing. Mr. Dwane was in the Investor Relations Team at ITM Power Plc (“ITM”). While in possession of inside information relating to significant warranty and manufacturing issues at ITM, Mr Dwane sold his and a close family member’s entire shareholding in ITM (totalling 125,000 shares). ITM has planned to disclose the information in a trading update the day after Mr. Dwane sold his shares. Mr Dwane’s actions were found to constitute insider dealing and the FCA considered his conduct particularly serious given (i) he was in a position of trust, (ii) he deliberately and dishonestly traded for personal gain, and (iii) he failed to obtain the required permission to deal in ITM shares, despite being fully aware of the company’s share dealing policies and his regulatory obligations. This is another Final Notice in relation to insider dealing / market abuse matters, highlighting the FCA’s continued focus on this area of the regulatory framework.

If you have any questions, please reach out to Emma Sutcliffe (Partner) and Thomas Makin (Managing Associate).