The FCA and Financial Ombudsman Service are consulting on plans to modernise the financial redress system to help prevent it becoming overwhelmed, delaying consumer compensation. They have also updated their Memorandum of Understanding which aims to improve how they work together on important topics. In addition, the government has launched a consultation on the role of the FOS.
FCA and FOS consultation
The FCA and FOS proposals include:
- Improving how the FCA and Financial Ombudsman work together to ensure consistency in the interpretation of regulations. This includes a new referral process to improve transparency about regulatory alignment and a lead complaint process to look at novel and significant complaint issues as they emerge.
- Clearer guidance for firms on reporting issues to the FCA sooner, alongside good practice examples to help identify and resolve complaints.
- Guidelines to help industry assess and trigger the need to resolve a situation with wider implications that could spike complaints.
- Changes to the way the Financial Ombudsman processes complaints to ensure they are well-evidenced and ready before an investigation begins.
HM Treasury consultation
Following a review, the government is consulting on plans to modernise how the Financial Ombudsman assesses consumer complaints. This was announced in its regulatory action plan. A key aim is stop the FOS acting as a quasi-regulator and ensure that the FOS is delivering its role as a simple, impartial dispute resolution service. The proposals include:
- An adapted "Fair and Reasonable" test – the FOS will be required to find that a firm's conduct is fair and reasonable where it has complied with relevant FCA rules, in accordance with the FCA's intent for those rules;
- Responsibility for determining FOS cases to be moved from any member of the panel of ombudsmen that deal with FOS cases to the Chief Ombudsman who, whilst being able to delegate case determination to a team, would be responsible for ensuring consistent case determinations and overall strategic management of the caseload, thereby delivering regulatory certainty and predictable outcomes for both consumers and firms;
- A framework which formalises the roles of the FOS and the FCA in providing regulatory certainty – where there is ambiguity in how the FCA's rules apply, the FOS will be required to seek a view from the FCA and the FCA will be obliged to respond. Where appropriate, a party to a complaint will be able to request that the FOS seeks the FCA's view on the interpretation of rules;
- A framework which provides clarity on the roles of the FCA and the FOS in relation to wider implications issues and mass redress events – the FOS will be obliged to refer potential wider implications issues or mass redress events to the FCA and the FCA will be obliged to consider those issues. Parties to a complaint will also be able to request the FOS refer such an issue to the FCA. It will be for the FCA to decide how those issues should be addressed;
- A more flexible mass redress event framework - the FCA will be able to investigate and respond to mass redress events more easily (including an ability to immediately pause the complaint handling process and changes to the requirements for industry-wide redress schemes), ensuring that, when needed, mass redress events can be considered and dealt with quickly and effectively, providing consistent outcomes for consumers and avoiding disruption to markets;
- An absolute time limit for bringing complaints to the FOS – consistent with the aim of providing a simple, impartial dispute resolution service which deals quickly and effectively with complaints, an absolute time limit in legislation will require complaints to be brought within ten years of the conduct complained of. This will avoid the risk of the FOS having to deal with a high number of historic cases, which can be challenging to resolve quickly and effectively;
- Removal of the FOS from the scope of the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015 in Spring 2026, thereby allowing the FOS to consider grounds for dismissing a case for it to be dealt with more appropriately by an alternative channel, e.g. the courts.
- Transparency – a requirement on the FOS to publish quarterly thematic guidance documents on how particular types of case are investigated and how the FOS would expect to see the relevant FCA standards applied to such cases, potentially also showing how the FOS has worked with the FCA to ensure it has a thorough understanding of relevant FCA standards and how the FCA intends those standards to be followed by firms; and
- A review of the institutional arrangements of the FOS – whether the current approach will support the proposed reforms or an alternative approach would work better, such as the FOS becoming a subsidiary of the FCA
Both consultations end on 8 October 2025.
As well as this, later this year, the Financial Ombudsman will consult on proposals to modernise its processes by introducing different levels of case fees for financial services firms, depending on the circumstances of a complaint, to make the system fairer and support early resolution.
The Financial Ombudsman has also confirmed that, following feedback, it will be changing the interest rate it applies to some awards it directs businesses to pay, from 8% to track the Bank of England's base (average) rate +1%. Awards will still reflect any actual losses the consumer has suffered.
Next steps
The FCA aims to publish a Policy Statement in H1 2026, confirming the changes it has decided to make and the implementation periods. The government will set out its response and next steps for delivering reform in due course, including any transitional arrangements that may be needed.
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