Reform of the FOS redress system

The headline points

There are 9 headline points to highlight:

1. The intention of the proposed reforms is to introduce a “package of measures” within which FOS will be able to “fulfil its original purpose as a simple, impartial dispute resolution service which quickly and effectively deals with complaints, and which works in concert with the FCA”.

2. Some things are coming in without further consultation.

   • For complaints referred from 1 January 2026, the FOS interest rate on compensation will be the Bank of England base (average) rate +1%.
   • From H2 2025 FOS is introducing interactive decision frameworks for common complaint areas (eg s75 Consumer Credit Act complaints) – this suggests that FOS doesn’t currently have playbooks for common categories of complaints, which may explain a lot.

3. The “fair and reasonable” test is being kept – as it is the right test for a simple and quick dispute resolution process – but there is a new process that it is proposed FOS will follow (see below). If a firm has followed FCA Rules or Guidance from the time (as determined by the FCA) that will be fair and reasonable.

4. There is proposed to be a new 4 step process. The key new elements are:

   • Introduction of a registration phase. To be registered, which is when an initial fee is likely to be payable, FOS will satisfy itself that (i) the 8 week deadline has passed, (ii) the FCA is not clarifying a relevant rule or considering a mass redress event (“MRE” – see below) and (iii) all of the required information has been provided (and if this evidential standard is not met the complaint wont progress).
   • FOS caseworkers are to determine if the case raises an issue:
     • where there is ambiguity in an FCA Rule. If so, they must seek the FCA’s view. That case (or group of cases) will be paused until the FCA view has been given (usually within 30 days)
     • which may have wider implications/potential to be an MRE, then it must be referred to the FCA and that case (or group of cases) will probably be paused.
   • Following a provisional assessment from FOS, either party can:
     • request FOS to ask the FCA to provide a view on its Rules – the proposed criteria are:
       • that FCA rules must be material to the complaint
       • there must be ambiguity or room for interpretation in how relevant rules should apply to the types of issues raised by the complaint
       • the FCA has not previously given the FOS a view on interpretation of those rules
     • state that the case raises wider implications and ask FOS to refer to FCA.

5. The government is considering whether changes should be made to the FCA’s powers under s.404 FSMA to address a potential MRE, including its power to bind the FOS and to impose redress where a consumer would not otherwise have a cause of action by which they could claim redress through the courts. This is significant because – depending on the nature of the changes - it potentially opens up a type of liability which previously could only be achieved by s.55L FSMA in single firm cases (i.e. the approach the FCA took in Bluecrest).

6. The proposed criteria for a MRE are:

   • Affects a high number of consumers.
   • Has a significant impact on individual consumers, including those in vulnerable circumstances.
   • Is likely to lead to a high redress bill.
   • Results in a significant number of firms being unable to meet their redress liabilities.
   • Leads to a high number of Financial Ombudsman complaints.
   • Driven by a systemic/repeatable failing that damages confidence in the financial system.

7. Extension to SUP 15 notification requirements such that firms are required to notify the FCA if one of 5 criteria are met. Whilst those criteria largely mirror the MRE ones (see above), the measures added to assist firms in understanding where the notification line is, are not always that clear. For example, for issues to “affect a high number of customers” it must be more than 40% of those from affected product/service, but for “significant impact on individual customers”, the firm has to determine whether there has been a “significant spike” in consumer complaints.

8. Parties to be given the ability to ask FOS to consider “lead complaints” where they address novel (i.e. new products/services/regulation) or significant (i.e. likely to generate a large volume of complaints/high levels of redress) issues. Whilst the FOS considers the lead complaints, the firm can pause its consideration of related complaints.

9. There will be a new 10 year long stop from the activity complained about, save that FCA is expected to be given flexibility to have a longer limit for certain long-term products from that.

Other points to note

1. To create consistency across FOS decisions, the ultimate authority is to rest on the Chief Ombudsman. Whilst that can be delegated, it is the Chief Ombudsman’s role to produce consistent decisions.

2. FOS may be required to publish quarterly thematic guidance on how particular case types are investigated. It is accepted that, as FOS publishes 20,000 decisions a year, it is not reasonable to expect consumers or firms to scrutinise this volume of decisions and extrapolate the FOS’s approach to certain types of complaint.

3. HMT will consult on whether to make FOS and the FCA part of the same corporate group to assist with the close working relationship.

4. FOS will hold a separate case fee consultation in late summer 2025.

5. There are improvements already underway to deal with professional representative-led complaints (i.e. the new fees, increased evidential requirements at the outset of cases and engagement with the relevant regulators) so nothing additional is currently included.

6. There will be no new right of appeal from a FOS decision

7. The FCA consultation paper includes 20 pages on good and bad practice in relation to the identification of harm. Much of that will be familiar as it links back to the obligations placed on firms under the Consumer Duty as well as the FCA’s findings on Complaints and Root Causes which was published in December 2024. That said, the examples seemed focussed on broadening the scope of redress activities as widely as possible. Examples of poor practice include:

   • excluding groups of customers from remedial activity for reasons such as the sale being over 6 years ago,
   • only including current customers and not considering customers that hadn’t already made a complaint.

   In addition, the FCA highlights a firm which applied a £250 threshold before a customer would be included in the redress exercise – unfortunately, they do not provide information about the customer’s broader circumstances in this case to help inform the perennial question of where a de minimis threshold should be set when carrying out remediation exercises.

If you would like to hear more about the reforms we are hosting a webinar on consumer redress on 24 July 2025 which you can register for here.