FCA and FOS announce reforms to overhaul UK redress system

The Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS) have unveiled major reform proposals to modernise the UK’s financial redress system, with the goal of making it faster, more consistent, and fit for purpose in today’s evolving economic landscape.

The reforms aim to resolve long-standing issues that have caused the redress system to become clogged during periods of high complaint volumes, particularly those stemming from novel or complex issues. The changes will also ensure businesses have greater predictability and confidence in how disputes will be handled – a key enabler of investment and innovation in financial services.

Announced through a joint consultation, the proposals include:

• Closer collaboration between FCA and FOS to ensure consistency in the interpretation of regulatory rules.
• A new referral process to promote transparency and handle novel or significant complaint issues.
• Clearer guidance for firms on early issue reporting and best practices for complaint resolution.
• Enhanced complaint preparation standards to ensure cases referred to FOS are well-evidenced and ready for investigation.
• Guidelines for identifying and resolving wider systemic issues before they trigger mass complaints.

In parallel, the government has published its own consultation outlining complementary changes to how FOS assesses complaints, including:

• Adapting the ‘fair and reasonable’ test, requiring the Ombudsman to align more closely with FCA rules where those rules are clear and intended to govern the conduct in question.
• Introducing a 10-year absolute time limit for raising complaints with FOS (subject to exceptions).
• Giving the FCA new powers to pause complaint handling in mass redress situations without industry consultation.
• Allowing firms and complainants to seek clarity from the FCA before the Ombudsman issues a final decision.

These reforms also come alongside FOS’s decision to modernise the interest rate it applies to compensation awards. From January 2026, the longstanding 8% rate will be replaced with a Bank of England base rate +1%, better reflecting current economic conditions and ensuring fairer outcomes for all parties.

The proposals have been welcomed by industry bodies, including the Finance & Leasing Association (FLA). In a statement today, Stephen Haddrill, Director General of the FLA, said: “The direction of travel contained in these proposals shows a much more certain, consistent and confident dynamic between the FOS and FCA, which will benefit firms and consumers alike.

“We look forward to working with Government, the FCA and FOS to ensure these changes are implemented as quickly and effectively as possible. The credit industry is vital to the health of the economy and how people manage their individual budgets – the sooner these changes come into effect, the more the industry can do to enhance even further its contribution.”

A more predictable, agile redress system

“Our changes will bring consistency and predictability for businesses and consumers, enabling us to better focus on our core purpose – resolving individual disputes quickly and with minimum formality.”

“Our changes will help create a system that is more predictable for firms and gives consumers quick and fair compensation where they’re owed it.”

Next steps

Further consultation on some of the proposals, including the FOS’s tiered case fee model, will be launched later this summer. Implementation of the interest rate changes is scheduled for 1 January 2026 for new complaints referred from that date, with additional implementation details to follow in the autumn.