FCA and FOS jointly consult on modernising redress system

The Financial Conduct Authority ("FCA") and the Financial Ombudsman Service ("FOS") have jointly published a consultation paper on their proposals to modernise the financial redress system.

It's a time of reform for UK financial regulation, as highlighted by Rachael Reeves' mansion House speech of 15 June. The proposed changes include the modernisation of the redress system, with a Government consultation paper being published on the FOS.

In a related press release, the FCA has stated that the current redress system works well for individual cases that are referred to the FOS. However the FCA has identified that specific or novel issues which involve a high volume of complaints can overwhelm the system and cause significant delays. The aim of the proposed changes is to help firms identify and resolve issues before complaints escalate and to support the Government's goal of increased economic growth, by providing greater predictability, so businesses have confidence to invest and innovate.

The consultation is the outcome of the FCA's and FOS' Call for Input that they jointly launched in November 2024. Individually, the FCA set out in their 2025-2030 Strategy that they intended to review the redress regime as part of their focus on the competitiveness of UK financial services. The FOS also detailed their intention to modernise the redress scheme in their Plan and Budget Consultation 2025-26.

The proposed changes include improving how the FCA and FOS work together in order to ensure regulations are interpreted consistently. This will be done through a new referral process to improve transparency about regulatory alignment, and the introduction of a lead complaint process to look at novel and significant complaint issues as they emerge. The FCA has also updated their Memorandum of Understanding with the FOS to assist in improving how they work together.

Moreover, clearer guidance will be issued on how firms can report issues to the FCA, as well as good practice examples to help identify and resolve complaints. Guidelines will be introduced to help the industry assess and resolve situations that could spike complaints. Changes will also be made to how the FOS processes complaints to ensure they are well-evidenced and ready before an investigation begins.

These proposed changes are intended to complement the Government's proposals, which  include:

• Adapting FOS' 'fair and reasonable' test, such that the FOS will be required to find that a firm’s conduct is fair and reasonable where it has complied with relevant FCA rules, in accordance with the FCA’s intent for those rules.
• The FOS will be obliged to refer issues with potentially wider implications, or mass redress events, to the FCA and the regulator will be obliged to consider those issues. Parties to a complaint will also be able to request that the FOS refer such an issue to the FCA and it will be for them to decide how those issues should be addressed.
• The adoption of a framework which formalises the roles of the FOS and the FCA in providing regulatory certainty. Where there is ambiguity in how the FCA’s rules apply, the FOS will be required to seek a view from the FCA. Where appropriate, a party to a complaint will be able to request that the FOS seeks the FCA’s view on interpretation of rules.
• A more flexible mass redress event framework will be introduced. The FCA will be able to investigate and respond to mass redress events more easily, ensuring that, when needed, mass redress events can be considered and dealt with quickly and effectively.
• An absolute time limit of 10 years will be introduced for bringing cases to the FOS, subject to certain exceptions, such as longer-term products.

The FCA and FOS are asking for comments on the consultation by 8 October 2025.

Key takeaways

The goal of modernising the financial redress system has clearly been an aim of both the FCA and the FOS for some time and comes as little surprise. It is worth noting the time of the consultation. The Supreme Court's judgment on motor finance is expected to be delivered in July 2025. The FOS received 18,658 new complaints concerning car loans in the fourth quarter of 2024, which is a 33% increase from the previous quarter and three times the number from the same period in 2023. Should the Supreme Court uphold the Court of Appeal's decision, then a significant increase in the number of complaints concerning car loans is expected which threatens to jam the system and significantly delay complaints being processed.

To read the consultation, please click here.