Briefing

Financial Ombudsman Service publishes policy statement on modernising the redress system

Key takeaways

The Financial Ombudsman Service (the FOS) has published its policy statement following the proposals set out in consultation paper CP26/9, which was a joint consultation by the FOS and the Financial Conduct Authority (the FCA) on modernising the redress system.
The FOS will proceed with a new registration stage for complaints, but will defer implementing formal rule changes until its consultation on case fees has concluded.
A strengthened dismissal framework will take effect from 1 October 2026, including new and reintroduced grounds covering vexatious conduct, prior regulatory reviews, matters being better suited to other forums or outside the FOS’s core remit (such as employment matters, investment performance and the exercise of discretion under wills or trusts), and a residual “other compelling reasons” ground.
The FOS will clarify the “fair and reasonable” test in DISP 3.6.4 R, but will not proceed with removing “good industry practice” from the test pending the outcome of the legislative process of the Financial Services and Markets Bill.

Background

Between March and May 2026, the FCA and the FOS consulted on proposals to modernise the FOS’s complaints-handling processes in CP26/9, Modernising the Redress System. The consultation covered three areas: introducing a registration stage, updating and clarifying the dismissal framework in DISP 3 of the FCA Handbook, and amending the fair and reasonable test in DISP 3.6.4R.

The consultation built on earlier joint initiatives to improve the effectiveness, consistency and accessibility of the redress system, including a 2024 Call for Input and a joint FCA and FOS consultation in 2025 (CP25/22). It took place against the backdrop of the government’s own review of the FOS and the Financial Services and Markets Bill, introduced to the House of Lords on 19 May 2026.

Support for the proposals was generally strong but often conditional, with respondents consistently emphasising the need for transparency, clear guidance, proportionate discretion and appropriate regard for vulnerable consumers.

Registration stage

The FOS will proceed with introducing a registration stage designed to assess whether a complaint is “ready to investigate” before it moves into full investigation. The change is intended to address inconsistency in when (rather than what) supporting information is provided, and to enable investigations to focus more directly on the substantive issues in dispute.

Formal rule changes will be deferred until the FOS’s forthcoming consultation on case fees concludes, to ensure a coherent overall framework. In the meantime, the FOS will test its internal processes and run pilots, starting with fraud and scams casework from October 2026.

Dismissal framework

The FOS will proceed with the proposed changes to its dismissal framework, with one minor amendment (see (f) below), taking effect from 1 October 2026.

Key changes include:

retaining and clarifying the ability to dismiss complaints that are frivolous or vexatious, or where a complainant has behaved abusively or unreasonably. This ground is intended to protect the integrity of the service and to ensure resources are focused on complaints that can be resolved fairly, and is to be used only as a last resort;
introducing a new ground allowing dismissal where a respondent has already reviewed the subject matter in line with prevailing regulatory standards or a formal consumer redress scheme (excluding firm-led redress exercises). This is intended to reduce unnecessary duplication and support consistency and finality where the relevant harm has already been considered, subject to safeguards against incomplete or inconsistent application of regulatory schemes;
adding “factual” to the existing rule on complaints previously considered or excluded, intended to strengthen finality and reduce reopening of cases based on fresh argument or reinterpretation rather than genuinely new factual evidence;
reintroducing grounds covering complaints better suited to court, arbitration or another dispute resolution forum, and complaints already the subject of court proceedings. These grounds are intended to establish clearer boundaries between the FOS and other routes to resolution, and better to reflect the FOS’s statutory purpose as an alternative to the courts;
reintroducing grounds excluding complaints about employment matters, pure investment performance, and the exercise of discretion under a will or private trust. These grounds are intended to clarify the boundaries of the FOS’s remit by recognising that those matters are more appropriately addressed through specialist legal or regulatory frameworks; and
introducing a residual “other compelling reasons” ground, including six non-exhaustive examples as guidance. The word “material” has been removed from the financial loss element of the loss, distress and inconvenience limb (so that any financial loss, rather than only material financial loss, may be relevant), in response to concerns about indirect discrimination.

Across all grounds, the FOS has emphasised that dismissal remains discretionary, will be exercised on a case-by-case basis with regard to vulnerability, and will be supported by staff training, guidance and quality assurance safeguards.

Fair and reasonable test

The FOS will amend DISP 3.6.4 R, with effect from 1 October 2026, to clarify that complaints are to be decided by reference to the law, regulatory standards, codes of practice and good industry practice applicable “at the time of the act or omission complained of“. The FOS describes this change as clarificatory, and it will apply to all current and future complaints.

However, having considered feedback alongside the progress of the Financial Services and Markets Bill through Parliament, which itself proposes an adapted fair and reasonable test, the FOS has decided not to proceed at this stage with the proposal to remove the reference to “good industry practice” from the test. The FOS will keep this position under review as the legislative process continues.

Next steps

The FCA has consented to the rule changes relating to the dismissal framework and the fair and reasonable test, which are given effect by the Redress Reforms (No 2) Instrument 2026 and come into force on 1 October 2026.

Firms should monitor the outcome of the FOS’s forthcoming case fees consultation, which will determine the timing of formal rules for the registration stage. The FOS has also signalled that it will keep the “good industry practice” question under review pending further progress of the Financial Services and Markets Bill.