The UK government has confirmed that it is going to legislate to reform the financial services redress system. The plan is that the Financial Ombudsman (FOS) will act as a simple, impartial dispute resolution service that resolves complaints quickly and effectively, while operating within a clearer and more predictable framework alongside the Financial Conduct Authority (FCA).

The announcement follows a consultation last year which, among other things, sought views on how to address concerns that, in a small minority of cases, the FOS has acted as a quasi-regulator. 

Legislation will be brought forward when Parliamentary time allows to:

• Adapt the 'Fair and Reasonable' test used by the FOS to resolve cases, setting out that where firms have met their obligations under relevant FCA Rules, they must be found to have acted fairly and reasonably by the FOS.
• Introduce a referral mechanism between the FOS and the FCA to require the FOS to seek a view from the FCA where the FOS considers there may be ambiguity in what FCA rules require, or where it considers an issue raised may have wider implications across the financial services industry.
• Introduce an absolute time limit of ten years for bringing complaints to the FOS, while giving the FCA the ability to make exceptions to this time limit. 
• Make structural changes to the FOS to provide greater consistency in decision-making by giving the Chief Ombudsman overall responsibility for FOS determinations.
• Make it easier for firms and consumers to understand and learn from FOS decisions by introducing a requirement for the FOS and FCA to publish regular thematic reports which provide useful information and clarification on how the FOS will consider certain types of complaint, including the types of complaint covered by FCA rules. 
• Making sure that the FCA, as part of its responsibility for setting the regulatory response to mass redress events, has the tools it needs to respond quickly and effectively where such an intervention is appropriate.  

The consultation response also confirms that the FOS will not be made a subsidiary of the FCA.

The FOS and FCA have made separate proposals that aim to speed up complaint resolution, and better help firms in the short term to resolve customer issues and escalate major or emerging redress issues earlier. They are finalising several of the proposals on which they have previously consulted:

• Finalised guidance FG26/2, which includes good and poor practice on identifying and rectifying harm.
• Guidance in SUP 15 clarifying when firms should report emerging issues.
• Rule changes for improved efficiency by the FOS and the Financial Services Compensation Scheme.

The FCA and FOS are also seeking views on further changes possible within the existing framework, including proposed updates to the fair and reasonable test and to the dismissal grounds. The FOS is also seeking views on the introduction of a complaints registration stage to ensure that all complaints referred to the FOS are within its scope and ready to be investigated before being allocated a caseworker and businesses are charged. The consultation ends on 11 May.

The proposals aim to make sure that the FOS can resolve complaints more quickly and informally, leading to faster and more consistent resolutions, reduced delays and improved outcomes for all parties. The proposals will also encourage earlier proactive resolution of issues by firms. 

The FCA and FOS will publish another Policy Statement on all the proposals consulted on later in 2026.