Financial authorities in the UK, including the HM Treasury, Financial Conduct Authority (FCA), and Financial Ombudsman Service (FOS), are proposing changes to the UK's financial ombudsman and redress system.
The UK government, through HM Treasury (HMT), and the Financial Conduct Authority (FCA) have launched consultations on proposed reforms to the legislative framework of the Financial Ombudsman Service (FOS). The consultations, which opened in July, aim to modernize the redress system and improve its efficiency.
The proposals, expected to be finalized between October 8, 2025, and Q1 2026, include a new collaborative lead complaints process, a registration stage for complaints by personal representatives, an adapted "fair and reasonable" test, a formal process for FOS to consult FCA on rule ambiguities, a flexible mass redress framework, and a statutory 10-year time limit to bring complaints to FOS.
One of the contentious aspects of the proposals is the lowering and simplification of the test for introducing a section 404 redress scheme. This change has sparked debate within the industry.
An additional consultation by the FOS on changes to its case fee structure opened on August 13. A £250 case fee for professional representatives submitting complaints to the FOS was introduced from April 2025. The FOS case fees are proposed to vary by the stage at which they are resolved or depending on whether the complaint is upheld.
The FOS has faced criticism for its current approach, being seen as a "quasi-regulator" with delays and increased costs for firms. To address this, firms are encouraged to review examples of good and poor practice on complaints and root-cause analysis, and further guidance provided in annex 4.
The long-stop limitation period of 10 years in the proposals may lead to a similar increase in complaints, particularly due to changes in interest rates. This could result in a glut of complaints before January 1, 2026.
The proposals do not address all the concerns raised by industry bodies. For instance, they do not include requiring the FOS to apply the law and regulation instead of the fair and reasonable test, allowing appeals to court, and levelling case fees for personal representatives.
Ben Hills, a senior paralegal at our firm, has contributed to this Insight. The consultations close for comments on October 8, 2025, with a policy statement expected in the first quarter of 2026. The aim is to improve certainty of the redress regime for all stakeholders, including consumers, firms, and investors.
In addition to these changes, the FOS has announced changes to compensation interest levels from January 2026, awarding interest at a rate of 1% above the Bank of England base rate. The real test for the proposals will be in their implementation.
The joint consultation by the FCA and the FOS seeks to attract investment for the wider economy by improving how the two entities work together. The need for change is acknowledged, with the aim to address issues that may arise from the interplay between these proposals and other upcoming reforms, such as changes to interest rates and a long-stop limitation period of 10 years.
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