diff --git a/examples/foundational/55h-update-settings-speechmatics-stt.py b/examples/foundational/55h-update-settings-speechmatics-stt.py
index 46ed44016..d041d69d2 100644
--- a/examples/foundational/55h-update-settings-speechmatics-stt.py
+++ b/examples/foundational/55h-update-settings-speechmatics-stt.py
@@ -51,7 +51,14 @@ transport_params = {
 async def run_bot(transport: BaseTransport, runner_args: RunnerArguments):
     logger.info(f"Starting bot")
 
-    stt = SpeechmaticsSTTService(api_key=os.getenv("SPEECHMATICS_API_KEY"))
+    stt = SpeechmaticsSTTService(
+        api_key=os.getenv("SPEECHMATICS_API_KEY"),
+        params=SpeechmaticsSTTService.InputParams(
+            enable_diarization=True,
+            speaker_active_format="<{speaker_id}>{text}</{speaker_id}>",
+            speaker_passive_format="<PASSIVE><{speaker_id}>{text}</{speaker_id}></PASSIVE>",
+        ),
+    )
 
     tts = CartesiaTTSService(
         api_key=os.getenv("CARTESIA_API_KEY"),
@@ -106,6 +113,24 @@ async def run_bot(transport: BaseTransport, runner_args: RunnerArguments):
             STTUpdateSettingsFrame(update=SpeechmaticsSTTSettings(language=Language.ES))
         )
 
+        await asyncio.sleep(10)
+        logger.info("Updating Speechmatics STT settings: focus_speakers=['S1']")
+        await task.queue_frame(
+            STTUpdateSettingsFrame(update=SpeechmaticsSTTSettings(focus_speakers=["S1"]))
+        )
+
+        await asyncio.sleep(10)
+        logger.info(
+            "Updating Speechmatics STT settings: speaker_active_format=<SPEAKER_{speaker_id}>{text}</SPEAKER_{speaker_id}>"
+        )
+        await task.queue_frame(
+            STTUpdateSettingsFrame(
+                update=SpeechmaticsSTTSettings(
+                    speaker_active_format="<SPEAKER_{speaker_id}>{text}</SPEAKER_{speaker_id}>"
+                )
+            )
+        )
+
     @transport.event_handler("on_client_disconnected")
     async def on_client_disconnected(transport, client):
         logger.info(f"Client disconnected")
diff --git a/src/pipecat/services/speechmatics/stt.py b/src/pipecat/services/speechmatics/stt.py
index c6fe0d16e..166e19d97 100644
--- a/src/pipecat/services/speechmatics/stt.py
+++ b/src/pipecat/services/speechmatics/stt.py
@@ -508,12 +508,14 @@ class SpeechmaticsSTTService(STTService):
         needs_reconnect = bool(changed.keys() - no_reconnect)
 
         if needs_reconnect:
+            logger.debug(f"{self} settings update requires reconnect: {changed.keys()}")
             # Connection-level fields changed — rebuild the SDK config
             # from the now-updated self._settings, then reconnect.
             self._config = self._build_config()
             await self._disconnect()
             await self._connect()
-        elif changed & SpeechmaticsSTTSettings.HOT_FIELDS:
+        elif changed.keys() & SpeechmaticsSTTSettings.HOT_FIELDS:
+            logger.debug(f"{self} applying hot settings update: {changed.keys()}")
             if self._config.enable_diarization:
                 # Only hot-updatable fields changed — push to the live session.
                 self._config.speaker_config.focus_speakers = self._settings.focus_speakers
@@ -522,11 +524,17 @@ class SpeechmaticsSTTService(STTService):
                 if self._client:
                     self._client.update_diarization_config(self._config.speaker_config)
             else:
-                # Diarization not enabled — need a full reconnect to apply.
-                self._config = self._build_config()
-                await self._disconnect()
-                await self._connect()
-        # LOCAL_FIELDS: already applied by super(); nothing else to do.
+                logger.debug(
+                    f"{self} hot settings updated but diarization not enabled: {changed.keys()}. ignoring."
+                )
+                # Diarization not enabled — the new settings will take effect
+                # if/when diarization is enabled, which does require a reconnect.
+        elif changed.keys() & SpeechmaticsSTTSettings.LOCAL_FIELDS:
+            logger.debug(
+                f"{self} local settings update, no special action required: {changed.keys()}"
+            )
+            # Only local fields changed — no need to push to the STT engine,
+            # the new settings will take effect immediately.
 
         return changed