The Financial Ombudsman Service (FOS) is to return to its original role as a fast, impartial complaints body under landmark reforms announced today by the Treasury.
It said the changes will improve consistency and alignment with the FCA, benefiting consumers and firms.
Legislation will be required to deliver the reforms of the FOS. The Treasury said the legislation will be brought forward when Parliamentary time allows.
Some critics have suggested that the FOS's detailed judgements were conflicting with FCA rules and handbook and in danger of setting new 'case law' judgments.
A consultation on the changes ran for 12 weeks from July to October 2025. It received hundreds of responses from a wide range of stakeholders, including consumer groups, financial services firms, trade associations, academics and individuals.
As a result the government has today confirmed it will legislate to:
- Adapt the ‘Fair and Reasonable’ test used by the FOS to determine 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 10 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 types of complaint covered by FCA rules.
- Ensuring the FCA, as part of its responsibility for setting the regulatory response to mass redress events, has the tools it needs to respond to these events quickly and effectively, in the small number of cases where such an intervention is appropriate.
The consultation response also confirmed that the FOS will not be made a subsidiary of the FCA.
Ahead of the changes taking effect, the FOS and FCA said they have outlined separate proposals that will speed up complaint resolution, and better help firms in the short term to resolve customer issues and escalate major or emerging redress issues earlier.
Sarah Pritchard, deputy chief executive at the FCA, said: “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.”
James Dipple-Johnstone, interim chief ombudsman at the Financial Ombudsman Service, said: “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.”
Simon Harrington, head of public affairs at trade body PIMFA, said: "While we believe this package of measures is overwhelmingly positive, we still have questions around how they will work in practice. For our sector, the adaptation of the Fair and Reasonable test is superficially welcome. However, we retain concerns around how useful it will be when the FOS is required to reach judgements on issues such as an assessment of suitability."
Phil Smith, head of redress at consultancy Broadstone, said: “The government’s response marks an important step towards bringing greater clarity and consistency to the UK’s redress framework. Ensuring that the Financial Ombudsman Service places greater weight on firms’ compliance with FCA rules should provide much-needed certainty for firms, while the proposed referral mechanism between the FOS and FCA could help resolve areas of regulatory ambiguity and inconsistency."