Briefing

FOS Reform moves forward

One key strand of the Chancellor’s Mansion House speech and the Leeds Reforms announced last year was substantial reform of the Financial Ombudsman Service. There have been some further recent developments towards these changes.

On 16 March 2026, HM Treasury published its consultation response following its Review of the Financial Ombudsman Service paper, while the FCA and the Financial Ombudsman Service jointly published a further consultation paper — CP26/9: Modernising the Redress System — alongside finalised guidance (FG26/2) following its last consultation. We set out the key details below.

HMT’s consultation response

In its July 2025 paper, HMT set out its conclusion that the FOS plays an important role in the regulatory landscape, but that changes are needed to prevent it from acting as a quasi-regulator and to return it to its original purpose as a simple, impartial dispute resolution service. HMT consulted on various proposals in relation to determining complaints, time limits for complaints and the approach to mass redress events, and has now published the responses and the way forward.

Respondents were broadly supportive of the core aims of HMT and the government intends to legislate on a number of key matters when Parliamentary time allows. These include the following changes.

1. Fair and reasonable test

Under FSMA 2000, the FOS must determine complaints by reference to what in the opinion of the Ombudsman is fair and reasonable in all of the circumstances of the case. Matters the Ombudsman must take into account in determining what is fair and reasonable include relevant law, regulators rules, guidance and standards, codes of practice, and (where appropriate) what the Ombudsman considers to have been good industry practice at the relevant time.

The government intends to legislate to adapt the fair and reasonableness test so that, where firms have met their obligations under relevant FCA rules, the FOS will be required to find that the firm acted fairly and reasonably in relation to that element of the complaint.

The FOS will be required to consider FCA rules where they are relevant to a complaint, in a way consistent with the FCA’s stated purpose for those rules, and to use relevant FCA materials, such as guidance and policy statements, to inform its understanding.

The document states that in practice, this means:

Where FCA rules are relevant, the FOS should consider those rules to determine whether the firm met its obligations when looking at all the circumstances of the case.
Where a complaint is not covered by FCA rules — such as straightforward maladministration complaints — the FOS will continue to determine matters according to what is fair and reasonable in all the circumstances.

Further, HMT states that it intends to “take a power” enabling it to specify that particular rules are not included in the adapted test, or should be treated differently. This is particularly relevant to the FCA’s Principles for Business, including the Consumer Duty.

There will also be no retrospective application by the FOS of current FCA rules.

2. An FCA referral mechanism

The government will legislate to introduce a referral mechanism requiring the FOS to seek the FCA’s view where there is ambiguity in FCA rules that needs to be resolved in order for the FOS to deal with relevant complaints effectively.

There will also be an obligation on the FOS to refer issues to the FCA if they have the potential for wider implications for consumers and firms. The FCA will assess such issues and consider whether a wider regulatory response is required. To ensure there are no delays to the resolution of complaints, there will be a 30-day limit for the FCA to respond to the FOS.

Parties to a complaint may request that the FOS makes an FCA referral, although it will be for the FOS to decide whether to approve such requests.

3. Joint thematic reports

In response to concerns about the best way for the FOS to help consumers and firms understand what to expect from the FOS approach, the government will introduce a requirement for the FCA and the FOS to produce regular thematic reports explaining the FOS’s approach to types of complaints it receives, using illustrative case examples.

It has been decided not to alter the existing arrangements for publishing individual FOS determinations at this stage, but the paper stresses that individual FOS determinations are not intended to have precedent-setting effect, and firms and consumers should look to the new thematic reports instead. The paper states that the FCA has received feedback from firms that the DISP guidance on factors firms should take into account when considering complaints (the “read across rules”) can result in individual FOS decisions being perceived as creating binding expectations, and therefore de facto standards outside the FCA’s formal policymaking process. The FCA and FOS will work with the government ahead of any legislative change to consider how greater clarity could be provided in this area.

4. A 10-year time limit on FOS complaints

A 10-year time limit to bring an FOS complaint will be introduced, running from the act or omission that forms the basis of the complaint.

The FCA will be given responsibility for determining limited exceptions. These are expected to cover longer-term products such as pensions, where a consumer’s cause for complaint may take longer to come to light.

5. Mass redress events — Enhanced FCA powers

The government will legislate to allow the FCA to act more quickly to prevent disruption and uncertainty during investigations into potential mass redress events (“MREs”). This will include: removing the requirement to consult before pausing complaints-handling deadlines; ensuring that unresolved FOS complaints which are within the scope of a redress scheme which was established with the involvement of the FCA are returned to the relevant firm by requiring the FOS to redirect them back; and revising the approach to establishing a consumer redress scheme under section 404 of FSMA, making the test more straightforward and aligned with the FCA’s operational objectives.

FCA and FOS — CP26/9

The FCA and FOS have published a further joint consultation paper CP26/9 as well as Finalised Guidance FG26/2. The Finalised Guidance includes good and poor practice on identifying and rectifying harm, guidance in SUP 15 clarifying when firms should report emerging issues, and some rule changes for improved efficiency by the FOS and FSCS.

The Consultation Paper includes feedback from the previous consultation (CP25/22) and seeks to make changes identified that can be carried out ahead of legislation, including initial implementation of the new referral mechanism and proposed updates to the fair and reasonable test. The proposals include:

1. A new registration stage

The FOS is consulting on introducing a distinct registration stage within the casework process for complaints. This will require changes to DISP 3. The idea is that there will be a distinct ‘pre-registration stage’ for early assessment and information gathering, and a ‘registration stage’ at which full investigation begins. When an enquiry first arrives, it will enter pre-registration stage where the FOS will carry out early assessment and triage, and will include matters such as confirming jurisdiction, and checking that necessary information has been received. This stage is where the complaint may be held or paused where wider legal or regulatory issues require further consideration. It is proposed that the FOS will assess case readiness, and will amend DISP 3 to support this.

2. Amended dismissal grounds

These proposed changes follow the government’s confirmation that it will remove the FOS from the scope of the 2015 ADR Regulations when it replaces that legislation in Spring 2026, creating an opportunity to clarify when the FOS may decline to consider the merits of a complaint.

The FOS will be able to dismiss a claim in a number of circumstances including the following:

Frivolous or vexatious complaints (an existing ground that will be retained).
The complainant has acted vexatiously, abusively or otherwise unreasonably in engaging with the FOS.
Where the respondent 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 other formal requirement published by the FCA or other regulator.
Where the respondent has issued a redress determination in accordance with the terms of a consumer redress scheme.
A modified version of the rule allowing the FOS to dismiss a complaint about the same subject, clarifying that only material factual new evidence (not new arguments or changes in case law or regulations) will suffice to re-open a previously decided or excluded complaint.
Grounds relating to court proceedings; complaints more suitable for courts or arbitration; employment matters; complaints purely about investment performance; and discretionary decisions under wills or private trusts.

It will also be possible to dismiss a complaint where there are ‘other compelling reasons’, with non-exhaustive examples including: where the complainant has not suffered material financial loss, distress or inconvenience; where the complaint clearly has no reasonable prospect of success; where a fair and reasonable offer remains open for acceptance; where the complainant has already accepted a full and final settlement; where the complaint concerns the legitimate exercise of commercial judgment; and where the compensation sought would significantly exceed the FOS’s statutory award limit.

On the last point, the consultation states that it can require firms to pay up to the statutory cap on awards and recommend a firm pay more, but cannot require it to do so, and a complainant may be willing to accept a discrepancy between the redress payable and the amount in dispute. However, the FOS wants to avoid complaints being referred to it for very large sums in order to get an in principle outcome to inform legal action.

3. Amendments to the fair and reasonable test in DISP 3.6.4R

Pending the legislative changes announced by HMT, the FOS is proposing two targeted amendments to DISP 3.6.4R.

First, it proposes removing ‘good industry practice’ as a relevant consideration when determining what is fair and reasonable when determining a complaint due to its subjectivity and uncertainty. Second, it proposes clarifying that only the standards applicable at the time of the act or omission complained about will be taken into account in relation to a complaint, in order to address industry concerns about retrospective interpretation.

Conclusion

The FCA/FOS consultation closes on 11 May 2026. The legislative proposals in the HMT consultation will require Parliamentary time. It is therefore very difficult to say how long these reforms will take, but the Government is keen to proceed with its agenda to drive forward financial services growth, so it is hoped that it will not be too long. The insurance industry will no doubt support the aims behind these reforms, and (although some may feel they could have gone further) will be pleased to see that significant changes are moving ahead.