AI and the Senior Managers and Certification Regime (SM&CR)

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The Financial Conduct Authority (FCA) in the UK largely believes that its current regulatory framework is adequate to address the risks and challenges posed using AI and their primary approach to overseeing AI-related activities is likely to be through the application of the Senior Managers and Certification Regime (SM&CR).

SM&CR holds senior managers accountable for the actions and decisions of their firms, including those related to the use of AI systems.

Under the SM&CR, firms are required to identify the senior managers responsible for the oversight and governance of AI-powered systems. These individuals would be responsible for ensuring that the deployment of AI aligns with the firm’s risk appetite, regulatory requirements, and principles of fair customer treatment.

The FCA has emphasised the importance of firms having robust governance and risk management processes in place to manage the risks associated with AI. This includes a clear understanding of the input data, algorithms, and potential biases inherent in the AI models used. Firms will also need to demonstrate that their AI systems are transparent, explainable, and subject to appropriate testing and validation.


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While the FCA’s existing regulatory framework may be seen as largely fit for purpose, the authority has indicated that it will not hesitate to take enforcement action against firms that fail to comply with their obligations. This could include individual accountability measures under the SM&CR, as well as broader regulatory interventions to address identified risks or misconduct.

Zeena Saleh, Partner in the Global Compliance and Investigations Group at Dentons, and expert in financial services regulation and enforcement, said

“The FCA’s approach to regulating AI within its existing framework, including the Senior Managers and Certification Regime, has some benefits particularly when you consider the pace of change within AI generally. However, given the breadth of AI-enabled systems used by FS firms, it is likely that these firms will find mapping the governance of AI across their existing SM&CR framework challenging from a practical perspective. They (and no doubt relevant SMFs given their individual accountability) will be looking for more clarity from the FCA as it considers how it will be developing the supervision of this area within the current regulatory framework over the next year.”

Overall, the FCA’s approach to AI regulation in the UK financial services sector reflects a pragmatic and principles-based approach, focusing on the effective governance and oversight of these technologies rather than prescriptive rules. However, the regulator remains vigilant and is prepared to take action where necessary to protect consumers and maintain the integrity of the financial system.

#RISK AI London will explore how organisations navigate regulations while planning long-term AI strategies.

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