On 4 June 2025, the Financial Ombudsman Service (FOS) issued a consultation paper on interest on compensation awards.
Background
In November 2024, the FOS and the Financial Conduct Authority jointly issued a call for input which sought feedback from stakeholders on how both organisations should collaborate to improve their services and modernise the current redress framework effectively. The feedback to the call for input included firms expressing concerns that the current discretionary 8 per cent interest rate on top of compensation awards was excessively high. In addition, some firms questioned the period over which interest is applied and argued that interest should not accrue during a pause in complaints.
The consultation paper is the first step in the response to the call for input. The recommended options in the consultation paper include:
- The standard rate being linked at 1 per cent above the Bank of England base rate (where the base rate is calculated as an average rate over the period that the money was due until the date redress payment is made). The FOS invites respondents who support this tracker option to suggest a view on the appropriateness of the ‘plus 1 per cent’ element.
- Apply the new rate to new complaints submitted to the FOS from the date that the new rate is implemented.
Next steps
The deadline for comments on the consultation paper is 2 July 2025.
The FOS will aim to publish a Policy Statement in September 2025.
It will look to implement any change as soon as possible.