The UK Financial Conduct Authority (FCA), Financial Ombudsman Service (FOS) and HM Treasury (HMT) are seeking to reform the financial redress system to deliver greater predictability, consistency and efficiency in resolving consumer complaints. The proposed reforms mark a clear shift in approach, as part of both the UK government’s and FCA’s growth agendas, and amid increasing criticism of the current role of the FOS.
The proposed reforms at a glance
Alignment of standards
The FOS would be required to find that a firm has acted fairly and reasonably where it has complied with relevant FCA rules that are material to the resolution of a complaint, in accordance with the FCA’s intent for those rules. This adaptation of the ‘fair and reasonable’ test is designed to prevent the FOS from acting as a quasi-regulator and to ensure that firms are not held to standards beyond those set by the FCA at the relevant time.
Regulatory interpretation
Where ambiguity exists in the application of FCA rules, the FOS would be obliged to seek a view from the FCA, which must respond within 30 days. Parties to a complaint - firms or consumers - would also be able to ask the FOS to refer an issue to the FCA for an interpretation of its rules in certain circumstances.
Mass Redress Events (MREs)
The FCA would take full responsibility for investigating and managing MREs and issues with wider implications. The FOS would be required to refer such issues to the FCA, and the FCA would have the power to pause complaint handling both at firm and FOS level while it investigates and determines the appropriate regulatory response. HMT is also considering changing the test for a statutory redress scheme under s.404(1) of FSMA to remove the current requirement that the consumer loss suffered would be subject to a remedy in court proceedings.
Absolute time limits for complaints
A new 10-year ‘longstop’ would be introduced, meaning complaints must be brought to the FOS within 10 years of the event giving rise to the complaint.
Early harm identification
Proposed changes to SUP15 would oblige firms to notify the FCA when an issue:
- is likely to affect over 40 per cent of its customers for an affected product line or service;
- may result in the firm paying redress in excess of GBP 10 million or 50 per cent of the firm’s annual revenue from the affected product line or service;
- may negatively impact a firm’s capital adequacy or solvency;
- has led or is likely to lead to a high number of complaints; or
- may lead to substantial loss to two or more consumers of a product line (which would include a loss of more than GBP 10,000 to a consumer).
A new ‘registration’ stage
The FOS complaints-handling process would include a new ‘registration’ stage that would occur between the existing referral and investigation stages. This new stage is intended to ensure that complaints meet minimum evidential requirements and would allow the FOS to dismiss any complaints that are vexatious or unsuitable to proceed to the investigation stage. As part of this, the FOS would assess whether the respondent firm has issued a final response letter, whether there are any objections to the complaint’s admissibility or jurisdiction, and whether the complaint is subject to any ongoing legal or regulatory proceedings.
A new ‘lead complaints’ process for the FOS
A new ‘lead complaints’ process would be introduced to allow firms to apply for the FOS to consider a representative sample of lead complaints that meet both ‘novel’ and ‘significant’ criteria. During this process, the FOS would consider the lead complaints and firms could pause their consideration of related complaints, pending the outcome of the FOS’s findings. This process would reduce case fees, provide clarity to firms and consumers and result in more consistent outcomes.
Complaint handling: what does good look like?
The FCA’s consultation paper includes guidance on what it considers good, and poor, practice for firms to identify and rectify issues that may have been caused to consumers. Firms should review this guidance now, to ensure that they already meet the FCA’s expectations and are ready for the eventual reforms.
Proactively identifying harm
Firms that meet the FCA’s expectations systematically review complaints data, monitor for trends, and draw on insights from across the business to identify potential harm at an early stage. They use centralized data functions to aggregate information from complaints, customer feedback, and operational incidents, enabling them to spot recurring or systemic issues before they escalate. In contrast, firms that fail to integrate data sources or overlook patterns in complaints risk missing underlying problems, leading to greater consumer detriment and regulatory scrutiny.
Governance
Strong governance is characterized by clear senior management responsibility for redress, with defined escalation routes and regular board-level oversight of both the identification and remediation of harm. Firms ensure that all staff understand when and how to escalate issues, and that senior personnel are provided with timely, relevant information to support decision-making. Where governance is weak, responsibilities are unclear, escalation is inconsistent and redress exercises may lack proper oversight, resulting in slow or inadequate responses to consumer harm.
Redress
Firms that deliver fair outcomes take a comprehensive approach to redress, ensuring all affected customers are identified and included, regardless of whether they have complained. They avoid arbitrary exclusions, such as high financial thresholds or limiting redress to current customers and consider opt-out approaches to maximize participation. Narrowly defined exercises or failure to trace and contact former customers can leave significant harm unremedied and undermine trust in the process.
When calculating redress, firms adopting good practices use evidence-based methodologies that reflect the nature and extent of the harm, drawing on relevant FCA guidance and previous ombudsman decisions where appropriate. They consider both financial and non-financial remedies and ensure that any compensation is sufficient to put customers back in the position they would have been in but for the firm’s failings. Inadequate or inconsistent approaches to redress calculation risk further complaints and regulatory intervention.
Communication with consumers
Clear, accessible communication is central to effective redress. Firms should use plain language, avoid jargon, and structure information logically, making key points prominent and easy to understand. Communications are tested with representative customers to ensure they are effective and tailored to meet the needs of those in vulnerable circumstances, including providing additional support or extended deadlines where necessary. Poorly drafted, generic, or overly complex communications can confuse customers, reduce engagement and increase the risk of complaints being escalated.
Record keeping
Comprehensive record keeping underpins effective redress exercises. Firms should maintain detailed documentation of root cause analysis, decision-making processes, customer contacts and the outcomes of redress activity. They monitor the effectiveness of redress schemes, track customer responses and use lessons learned to improve future processes. Incomplete records or lack of monitoring can hinder regulatory compliance, impede oversight, and limit the firm’s ability to demonstrate that harm has been properly addressed.
Looking ahead
The proposals show that the FCA and the UK government have taken onboard considered and constructive feedback, with a view to making redress work more efficiently and consistently for firms and consumers. In return, firms should consider their complaints processes and ensure that they have implemented best practices to avoid falling foul of the FCA’s expectations, particularly in respect of Consumer Duty obligations.
The consultation is set to conclude on 8 October 2025, with policy statements expected in the first half of 2026, followed by phased implementation. Most of the more significant proposals will require changes to legislation, which will need parliamentary time and may therefore take some time to come into effect.
Firms and the broader industry should closely scrutinise the proposals and engage with the consultation, as the reforms would mark a significant shift in how the FCA and FOS will function in respect of complaints handling and consumer redress exercises.
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