FCA Proposes to Modernize the complaints resolution system
The Financial Conduct Authority (FCA) and Financial Ombudsman Service (FOS) have announced a series of reforms aimed at modernizing the UK's financial redress system. The proposed changes seek to increase efficiency, predictability, and fairness while preventing delays in compensation.
Key proposed changes include:
- Introducing a 10-year absolute time limit (longstop) for bringing complaints to the Financial Ombudsman, except in certain cases like longer-term products. This will help avoid an influx of historic cases.
- Allowing the FCA greater flexibility to manage mass redress events, including the ability to pause complaints handling without consulting the industry, enabling quicker and more consistent handling of large-scale issues.
- Establishing a formal referral mechanism enabling the Ombudsman to refer questions arising in casework to the FCA for clarity on rule interpretation, where ambiguity exists. This mechanism also allows firms and complainants to request FCA clarity on rules before a final Ombudsman decision.
- Updating the Financial Ombudsman’s approach to compensation, including changing the interest rate on awards from a fixed 8% to tracking the Bank of England base rate plus 1%.
- Proposals to introduce different levels of case fees for financial firms depending on complaint circumstances to make the system fairer and encourage early resolution.
These reforms are part of a broader package of financial regulatory reforms announced in July 2025, aligning with the UK government and regulators' strategy to improve competitiveness and innovation in financial services. The FCA and FOS have issued consultation papers inviting industry and consumer feedback with responses due by October 2025.
The changes aim to make the redress system more agile, transparent, and responsive to the needs of modern financial markets, offering greater consistency and predictability for both consumers and businesses. The proposed reforms are expected to prevent the redress system from becoming overwhelmed and delaying consumer compensation.
In addition, the FCA has extended the deadline for motor finance firms to provide a final response to customer complaints regarding discretionary commission arrangements (DCAs) until 4 December 2025. This extension is related to the motor finance sector and is not connected to the modernization of the financial redress system or the proposed changes for claims management companies (CMCs) that come into effect from today.
The new FCA rules for CMCs limit the maximum fees they can charge to consumers owed compensation from financial services firms. These changes, along with the proposed reforms for the Financial Ombudsman, mark a significant step in modernizing the UK’s redress system, as stated by James Dipple-Johnstone, Interim Chief Ombudsman at the Financial Ombudsman Service.
- The proposed regulation changes for the Financial Ombudsman Service (FOS) and Financial Conduct Authority (FCA) represent an opinion by the UK government and regulators to improve the efficiency and fairness of the UK's financial redress system.
- The new rules for Claims Management Companies (CMCs), which limit the fees they can charge, are an innovation in financial policy-and-legislation aimed at making the redress system more consumer-friendly.
- The announcement of mass redress events management flexibility for the FCA and the formal referral mechanism between the FCA and FOS are events that highlight the modernization of the general-news-focused financial redress system.
- The predicted preventive effects of the redress system reforms on delays in consumer compensation are of significant interest to both the politics and finance sectors, as they aim to ensure business continuity and maintain consumer trust.
