On 15 July 2025, HM Treasury (HMT) issued a consultation which sets out the findings and proposed reforms following the Economic Secretary’s Review of the Financial Ombudsman Service (FOS).

Background

Earlier this year the government announced in its Regulation Action Plan that the Economic Secretary to the Treasury would conduct a review of the FOS to examine whether it is delivering its role as a simple, impartial dispute resolution service, which quickly and effectively deals with complaints against financial services firms and which works in concert with the Financial Conduct Authority (FCA), which regulates the sector. The consultation now published sets out the government’s conclusions to the review and seeks views on certain reforms that are intended to ensure that the FOS meets the policy aims set by the review.

Changes

In summary, the government proposes to use changes to legislation, when Parliamentary time allows, to deliver the following reforms:

  • 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.
  • 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 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, 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 10 years of the conduct complained of.

In addition, the FOS is introducing a new standard interest rate on compensation awards, which will be updated to ensure it better reflects market conditions.

Modernising the redress system

The FCA has jointly issued with the FOS Consultation Paper 25/22: Modernising the redress system (CP25/22).

In summary, in CP25/22 the FCA is asking for views on:

  • Good practice examples for identifying and monitoring redress issues and clarifying the FCA’s expectations for firms carrying out proactive redress exercises.
  • Amendments to guidance in chapter 15 of the Supervision Manual clarifying when firms should report the identification of issues causing foreseeable harm or systemic issues to the FCA.
  • Criteria to help assess if an issue is a mass redress event or has wider implications.
  • A new registration stage for complaints and changes to the delegated authority of determinations at the FOS, to improve the quality, consistency and efficiency of case handling and achieve quicker outcomes for consumers.
  • Stronger collaboration between the FCA and the FOS, through a new lead complaint process and a referral mechanism to improve consistency in interpretating regulatory requirements.
  • Other amendments to the Dispute Resolution: Complaints Sourcebook (DISP) and Compensation Sourcebook (COMP) to improve the operational efficiency of the FOS and the Financial Services Compensation Scheme (FSCS) respectively, for the benefit of consumers and FOS and FSCS levy payers.

Next steps

The deadline for comments on both the HMT consultation and CP25/22 is 8 October 2025.

The FCA aims to publish a Policy Statement in H1 2026, confirming the changes it has decided to make.