FCA and FOS to update redress system

There is to be significant modernisation of the redress scheme, following publication of Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS) proposals designed to provide create greater predictability, certainty and transparency around complaints, and to improve regulatory alignment.

The changes include a new triage and registration stage for complaints, updated dismissal grounds and clearer guidance on the fair and reasonable test. The Treasury has indicated the government will bring forward primary legislation to deliver the reforms when Parliamentary time allows.

 “Pre registration”

Under the proposals FOS will adopt a two-stage model, consisting of a new “pre-registration stage”, where early assessment and information gathering takes place, which precedes the “registration stage”, when full investigation begins.

To implement this, the FCA is proposing specific DISP 3 rule changes to create a clear, rules-based checkpoint within the casework process. The aim is to ensure only well-formed, appropriately evidenced complaints are registered.

In addition, the DISP 3 changes will allow the FCA formally to hold cases before registration or move cases from the registered stage back to pre-registration – for example, where cases relate to ongoing FCA regulatory action.

Dismissal grounds

FOS is set to be given new powers to dismiss complaints that are best resolved in other ways, are more appropriate for courts or another dispute resolution process, or where there has been no material financial loss, distress or inconvenience. 

FOS will be able to dismiss complaints where the firm has reviewed the subject matter of the complaint in accordance with the regulatory standards for the review of such transactions prevailing at the time of the review; or any formal regulatory requirement, standard or guidance published by the FCA or other regulator in respect of that type of complaint.

The FOS’s dismissal grounds are widened to include complainants who have acted “vexatiously, abusively or otherwise unreasonably”, and the proposals re-introduce a ground which enables FOS to dismiss a complaint where there are “compelling” reasons to do so, which will replace the current “seriously impair” rule.  Possible examples include cases where complaints have suffered no material financial loss; where there is no reasonable prospect of success; or where the firm concerned has already offered or made compensation.

“The financial sector has changed significantly since the Financial Ombudsman was set up 25 years ago, which is why we are driving forward changes to transform the redress system. We are laying the foundations for an agile, responsive and modern service which is fit for the future and has the confidence of consumers and firms alike.”

“Fair and reasonable”

The government’s response to the earlier FCA/FOS consultation on changes to the redress system stated the existing fair and reasonable test must be adapted to ensure FOS decisions align with FCA rules. This means that, for any element of a complaint where firms have met their obligations under relevant FCA Rules, the FOS will be required to find that a firm has acted fairly and reasonably in relation to that element of the complaint.

To achieve this, the FCA will make amendments to the fair and reasonable test in DISP 3.6.4R to remove reference to the FOS considering “good industry practice” and to make clear that only the standards applicable at the time of the act or omission complained about will apply.

This change has been welcomed by the Finance & Leasing Association (FLA) which made the point that FOS previously had a degree of latitude in interpreting FCA’s rules and regulations. The effect of this was to generate uncertainty and risk for lenders because they could comply with FCA rules but still fall foul of the FOS’ interpretation of those rules.

 “While extremely pleased that our discussions with all parties – the FOS, FCA and Government – have yielded this result, it is nonetheless disappointing how long the industry has had to deal with a quasi-regulator.”

Policy proposals

The FCA has finalised new SUP 15 guidance, which will be effective 1 June 2026. This clarifies when firms should report foreseeable harm or systemic issues, based on criteria including a potential redress bill greater than £10 million or 50% of the firm’s annual revenue from the affected product or service line; a significant spike in consumer complaints; or an average consumer loss of more than £10,000.

There is also, for the first time, specific FCA guidance on Good and Poor practice on identifying and rectifying harm. This emphasises the need for firms to adopt a proactive strategy, with a central complaints’ forum and data team, overseen by a compliance board. It also covers the design of a “best practice” redress scheme, favouring an “opt out” approach, with strong communications to consumers, including around how to challenge a decision, and robust record keeping.

“We want a system that delivers fair compensation fast, while providing greater certainty to businesses so they have the confidence to invest, grow and compete. We’re acting at pace to change what we can within our current powers, ahead of the Government’s wider reforms.

“Currently, the majority of complaints are resolved by firms, and the redress system works well for individual cases that come to the Financial Ombudsman. But high volumes of complaints on specific or novel issues can jam the system and cause significant delays.  

“Together the measures will ensure the Financial Ombudsman Service is able to focus its resources on the cases it was set up to resolve as a quick and informal alternative to the courts and help ensure that outcomes are clearly aligned with regulation.” 

The Financial Ombudsman and FCA’s consultation closes on 11 May 2026.