All Change at the FOS?

The Financial Conduct Authority (“FCA”) and Financial Ombudsman Services (“FOS”) have earlier this week proposed reforms to modernise financial redress system in the UK.

The FCA has noted that the majority of customer complaints are resolved by firms and that the current redress system “works well” for cases that go to the FOS but that “high volumes of complaints on specific or novel issues can jam the system and cause significant delays” (as we have seen with Payment Protection Insurance (“PPI”) complaints that at one stage threatened to overwhelm the FOS,  more recently complaints about Authorised Push Payment (“APP”) fraud and, looking forward, car finance mis-selling).

The FCA proposals (Consultation Paper 25/22) include:

• improving how the FCA and FOS 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 FOS processes complaints to ensure they are well-evidenced and ready before an investigation begins.  

The regulator thinks that the changes will help firms identify issues before complaints escalate and aim to provide greater predictability “so business have confidence to invest, innovate and support UK growth” .

The FCA and FOS are asking for industry comments on the Consultation Paper by 8 October 2025.

The changes are intended to complement Government proposals (also published earlier this week)   to modernise how the FOS assesses complaints. The proposals include:

• Adapt the FOS ‘fair and reasonable’ test that it uses when addressing complaints (“we have a duty to resolve complaints based on what we think is fair and reasonable in all the circumstances of the case”) .
• Give the FCA more flexibility to manage mass redress events, including pausing complaints handling without industry consultation.
• Introduce a formal mechanism for the FOS to refer issues that arise through its casework to the FCA on the interpretation of the FCA’s rules, where there is ambiguity in how they apply.
• Allow firms and complainants to refer an issue to the FCA, for clarity on its rules, before the FOS issues a final decision.
• Introduce an “absolute” time limit for bringing cases to the FOS of 10 years, subject to exceptions, for example, for longer-term products (currently no absolute time limit applies to the FOS in the way that long stops set out in the Limitation Act apply to Civil Court claims).

The Government’s consultation also closes on 8 October 2025.   

The changes come as the FOS proposes to further modernise its processes by, later this summer, consulting on the introduction of 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 FOS has also confirmed that 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, as now.