On 16 March 2026, HM Treasury (HMT) published its consultation response in relation to its review of the Financial Ombudsman Service (FOS).

Background

In July 2025, the Chancellor set out the conclusions of the government’s review of the FOS, which found that changes were needed to the framework in which the FOS operates to prevent it acting as a quasi-regulator and provide greater regulatory coherence with the Financial Conduct Authority (FCA).  As a result, from July to October 2025, the government consulted on proposals to reform the FOS.

Summary  

HMT set out in its response that, overall, respondents were supportive of the government’s core aims and proposed reforms. In particular, the response sets out that the government intends to legislate to:

  • Adapt the ‘Fair and Reasonable’ test: this is currently used by the FOS to determine cases, to set out that where firms have met their obligations under relevant FCA Rules, and in accordance with which firms must be found to have acted fairly and reasonably by the FOS.
  • Introduce a referral mechanism between the FOS and the FCA: this would require the FOS to seek a view from the FCA on matters of interpretation where the FOS considers there may be ambiguity in what FCA rules require, or where it considers an issue raised may have wider implications across the financial services industry.
  • Introduce an absolute time limit: this would mean that there would be a limit of 10 years for bringing complaints to the FOS, while giving the FCA the ability to make exceptions to this time limit.
  • Make structural changes to the FOS: this would be to provide greater consistency in FOS decision making, by giving the Chief Ombudsman overall responsibility for FOS determinations.
  • Make it easier for firms and consumers to understand and learn from FOS determinations: this would be achieved by introducing a requirement for the FOS and FCA to publish regular thematic reports which provide useful information and clarification on how the FOS will consider certain types of complaint, including types of complaint covered by FCA rules.
  • Ensuring the FCA has tools to respond: this would be as part of its responsibility for setting the regulatory response to mass redress events, to ensure that it has the tools it needs to respond to these events quickly and effectively, in the small number of cases where such an intervention is appropriate.
  • FOS Chair appointment: in addition to the proposals outlined in the consultation, HMT also intends to legislate to make the government responsible for the appointment of the Chair of the FOS, and to make the appointment of the FOS Chief Ombudsman subject to government approval.

The consultation also asked for views on whether the FOS should be made a subsidiary of the FCA, to achieve greater regulatory alignment between the two organisations. Having considered the responses, HMT set out in this response that it considers that that the wider package of reforms set out here are sufficient to achieve the government’s objectives for reform, and it will not take this proposal forward.

Next steps

HMT sets out that delivering these reforms to the FOS’s legislative framework will require primary legislation, which the government will take forward when Parliamentary time allows.

However, HMT also explains that some changes can be made by the FOS and FCA within the existing framework, without the need for legislative change, through changes to the rules they each make, currently set out in the Dispute Resolution: Complaints sourcebook (DISP). As a result, the FCA and FOS have published a paper today seeking views on proposals by the FOS to amend its rules and the paper also finalises several rule or guidance changes consulted on in July 2025 and sets out appropriately flexible criteria the FCA intends to use to identify mass redress events.