Leeds Reforms: Starting gun sounds for comprehensive reforms to the FOS

Starting gun sounds for comprehensive reforms to the FOS

The government, together with the FCA and the FOS, has begun the process of modernising the UK’s redress framework by publishing two significant consultation papers. These draw on industry responses to the joint FCA/FOS Call for Input on the operation of the FOS last Autumn, and HM Treasury’s own review of the FOS’s operations. 

This review concluded that the FOS plays an important role in resolving complaints against financial services companies. However, in a minority of cases, its role has expanded beyond its original remit, reducing certainty around regulatory standards and creating misalignment between the FOS and the FCA. Changes are necessary to reestablish consistency, reduce uncertainty and cement the FCA’s role as the sole arbiter of its rules and guidance. 

The FOS is an autonomous body established under FSMA to operate a statutory dispute resolution scheme. The HMT consultation therefore proposes range of amendments to FSMA necessary to enable revisions to its framework for determining complaints and to give the FCA greater flexibility here.

Given this, there is a limit to what the FCA and FOS can achieve in their CP, which largely looks to create efficiencies in respect of areas of the complaints handling framework determined by FCA rules. 

One thing that is not happening: the government has rejected suggestions from industry that an appeal mechanism for FOS decisions be introduced. It concluded that introducing a formal link to the courts or tribunal system here could move the FOS away from its core purpose of providing a simple, impartial dispute resolution service.

The HMT consultation

• The Treasury plans to adapt the ‘fair and reasonable’ test by clarifying that, where conduct complained of is within the scope of FCA rules, and a firm has complied with the relevant FCA rules in accordance with the FCA’s intent for those rules, the FOS must find that a firm’s conduct was fair and reasonable. This change is intended to link the work of the FOS more directly to the rest of the regulatory framework, in particular, the FCA’s role in setting and applying high standards of consumer protection. 
• The government plans to amend FSMA to enable the FCA to pause complaints handling processes immediately where it judges that this is in the interests of affected consumers and firms. It will also be able to pause the handling of relevant complaints that have reached the FOS. 
• It also wants to simplify the legislative test which determines whether the FCA can introduce a section 404 redress scheme, to give the FCA greater flexibility here. 
• HMT is proposing to amend FSMA to require that, where there is ambiguity in how the FCA’s rules apply, the FOS must seek views from the FCA on the correct interpretation. The FCA will be obliged to respond within 30 days. Where appropriate, a party to a complaint will also be able to request that the FOS seeks the FCA’s view on interpretation of rules. 
• In addition, the FOS will be obliged to refer potential wider implications issues or mass redress events to the FCA, with the FCA obliged to consider those issues. Parties to a complaint will also be able to ask the FOS to refer such an issue to the FCA. It will then be for the FCA to decide how those issues should be addressed. The FCA will be able to direct the FOS to pause relevant complaints whilst it considers the issue.
• The government proposes introducing an absolute time limit in FSMA. This will require complaints to be brought within 10 years of the conduct about which a consumer is complaining. The FCA will be responsible for identifying exceptions, where an extended limit will apply (for example, longer term products such as pensions or mortgages).

Joint FCA/FOS CP

The joint FCA/FOS CP contains feedback on last year’s Call for Input on redress, together with suggestions for changes intended to deliver stronger collaboration between the two organisations. 

These include:

• New avenues for the FOS to seek a view from the FCA on the interpretation of its rules, and for the FOS to refer a potential mass redress event (“MRE”) or an issue with wider implications to the FCA for management. Although HMT has set out proposals for a statutory referrals process (described above), the FCA/FOS have updated their MoU to indicate the steps they will take when an issue with wider implications/a possible MRE is identified.
• A new "registration" process for complaints, to serve as a checkpoint for assessing whether it is appropriate for a complaint to proceed to the investigation stage. Before a complaint could be registered, it would be pre-assessed against criteria including minimum evidential standards. The FCA and FOS want to ensure that only well-formed, appropriately evidenced complaints progress to the chargeable investigation stage. 
• The FCA has proposed new criteria to help assess if an issue is a mass redress event or has wider implications. 
• Firms would also be able to ask the FOS to consider a representative sample of "lead complaints" (if they're "novel" and/or "significant" in volume or total redress) for in-depth investigation, to assist subsequent handling by the firm of other related complaints.
• The FCA wants to impose a new obligation on firms to report a potential MRE issue in a timely way.
• The annex to the CP contains examples of good practice for firms identifying and monitoring redress issues and carrying out proactive redress exercises. 

The FOS has also announced separately that it is changing the interest rate on compensation paid to customers who have been “deprived” of money – that is, not had it available to use, for example when an insurance claim is wrongly denied. The rate here will now track the Bank of England’s base (average) rate +1% to better reflect actual economic conditions and the cost to consumers. 

The FCA/FOS propose not to:

• Extend the current 8-week deadline for firms to process complaints.
• Re-implement a 2-stage process for firms to process complaints.
• Make further changes to the representative charging model at present (yet the case fee level remains under review).

Broader proposals

The government has confirmed that, when it replaces the ADR Regulations in Spring 2026, it will remove the FOS from the scope of that legislation. This will deliver greater flexibility for the FOS to consider grounds for dismissing a case where it can be dealt with more appropriately by an alternative channel (for example, the courts). The FCA and the FOS are also considering changes they could make to DISP rules to give the FOS more powers to dismiss cases in certain scenarios, including where a redress scheme is already in place.

HMT is also seeking views on whether quarterly thematic guidance from the FOS on the types of cases it is resolving might be more helpful to consumers. This is on the basis that it is unreasonable to expect consumers to ingest the volume of decisions the FOS is currently publishing or be able to extrapolate from these the FOS’s approach to types of complaints. 

Finally, the HMT CP goes as far as asking whether it should make the FOS a subsidiary of the FCA, citing a common strategic management function and closer institutional relationship as potential benefits. 

Both consultations close on 8 October 2025 with the FCA PS expected in H1 2026.