Re-engineering UK Redress: FCA, FOS and HM Treasury Set Course for Reform

The UK redress system is under renewed scrutiny. The government, the Financial Conduct Authority (“FCA”) and the Financial Ombudsman Service (“FOS”) are revisiting a framework that sits at the heart of financial services regulation, amid growing concern over inconsistent FOS decisions, and perceived divergence from FCA rules and guidance. Calls for reform have been mounting and the market has largely welcomed the prospect of change.

Following its July 2025 consultation (CP25/22), the FCA and FOS issued a joint follow‑up consultation on 16 March 2026, setting out stakeholder feedback and the proposed next steps. In parallel, the government has published its own consultation response, confirming its intention to legislate in seven areas and drive reform of the redress framework. The proposals aim to bring greater certainty, consistency and predictability, while preserving access to appropriate consumer redress. They also promise a faster, more streamlined resolution process, reducing delay and improving outcomes for consumers and firms. This article considers what the reforms could mean in practice for key market participants.

KEY PROPOSALS:

1. Introduction of a pre-registration phase to the complaints process – this can be achieved through a rule change.
2. Modifications to the “fair and reasonable” test – the main change will need legislation.
3. New referral mechanism – this will need legislation.
4. Greater dismissal powers of the FOS – this will be done through new rules.

TWO-STAGE COMPLAINTS PROCESS

Stakeholder feedback has broadly supported the introduction of a more structured, two‑stage complaints process.  This is aimed at removing unmerited claims, especially bulk complaints filed by claims management companies. The new process comprises:

1. A “pre-registration stage” focused on early assessment and information gathering. This would be reinforced by amendments to DISP 3, introducing a clear, rules‑based checkpoint and a “readiness for investigation” framework to ensure that only evidenced, properly framed complaints are formally registered.
2. A “registration stage” where the full investigation begins. 

The model should give the FOS flexibility to hold cases at pre‑registration, or move them back if, for example, key information is missing.

APPLICATION IN PRACTICE: The introduction of product‑specific guidance on “readiness to progress” is intended to bring greater clarity and discipline to the complaints process from the outset. Parties should have a clearer understanding of the evidence required, reducing the volume of speculative or premature complaints and allowing the FOS to focus resources on cases with genuine merit.

The new pre‑registration stage also creates space to identify any additional support or adjustments a complainant may need, signalling a more accessible and inclusive approach to access to redress. Crucially, the model introduces flexibility, enabling complaints to move between stages as new information emerges, an approach likely to be particularly significant in the context of mass redress events.

The proposals however point to a more front‑loaded complaints process. Early engagement may prove critical, and firms will need to reassess and align their internal complaints analysis with the anticipated guidance.

THE MODIFICATION OF THE FAIR AND REASONABLE TEST

The FOS determines complaints by reference to what it considers to be “fair and reasonable”. It can diverge from the law so long as it explains why.  This standard is to be retained, but with two important tweaks.  For some time, stakeholders have criticised the inclusion of “good industry practice” within that test, arguing that it introduces subjectivity, undermines legal certainty and risks divergence from the FCA’s rules and guidance. The FCA proposals respond directly to those concerns by removing “good industry practice” as a standalone factor. The consultation also seeks to address unease around retrospective decision‑making. More important, under the revised approach, the FOS would be required to assess complaints solely by reference to the law and regulations, regulator’s rules (though some may be excluded), guidance and standards, and relevant codes of practice as they applied at the time of the act or omission complained of. Changes to the test are supported by the Treasury, which will introduce legislation on this issue.  

APPLICATION IN PRACTICE: These changes are key, and are designed to bring the FOS into closer alignment with the FCA’s regulatory framework, narrowing the scope for divergent interpretation and promoting greater consistency in outcomes. One point to watch is the suggestion that only acting in accordance with the rules and their intent will be a safe harbour.  Adherence to the rules alone, and not what the FCA thought (but didn’t make clear), should be sufficient. 

NEW REFERRAL MECHANISM 

The government has confirmed it will legislate to introduce a formal referral mechanism between the FOS and the FCA. Under the proposals, the FOS would be required to seek the FCA’s views where there is ambiguity in the interpretation of the FCA rules, or where an issue may have wider implications for the financial services industry.

APPLICATION IN PRACTICE: This mechanism should strengthen collaboration between the FOS and the FCA, promoting closer alignment with FCA standards and regulatory intent. It would allow the FCA to shape how its rules are interpreted in practice, potentially reducing inconsistency with FCA rules and across FOS decisions. In particular, both complainants and firms can ask FOS to seek the FCA’s guidance.  However, questions remain as to the FCA’s capacity to absorb this additional role, and the scope of what constitutes “wider implications” remains undefined, leaving room for uncertainty. Notably, the government has ruled out any right of appeal against either the FOS’s decision to make (or not make) a referral, or the decision itself. This may enhance finality, but risks leaving parties without an avenue to raise a challenge.

EXPANDED POWERS TO DISMISS COMPLAINTS

When the government replaces the EU-based Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015, the FOS will be removed from the scope of that legislation, providing an opportunity to clarify when a complaint might be dismissed and effectively return to the pre-2015 position.

Currently, the FOS may dismiss complaints that are frivolous or vexatious. The proposals would broaden that power, allowing the FOS to dismiss complaints where a complainant has acted vexatiously, abusively or unreasonably. Importantly, “unreasonable” conduct would not need to be abusive or unlawful. The consultation also considers including dismissal powers where, for example, the complainant fails to supply evidence, a complaint has already been reviewed by the respondent in line with regulatory requirements or redress has been issued in accordance with a consumer redress scheme, or the complaint is being addressed through another complaints or dispute resolution process.

APPLICATION IN PRACTICE: Consultation on dismissal discretion continues. The expanded discretion should speed up the FOS and may provide greater finality, reduce duplication and drive efficiencies by filtering repetitive or poorly substantiated complaints. For firms, this could translate into meaningful cost and resource savings. 

SNAPSHOT OF OTHER PROPOSALS:

• READ ACROSS RULES: The existing FCA requirements on “read‑across rules” have attracted criticism for allowing individual FOS decisions to set binding expectations without formal FCA rule‑making or consultation. This blurring of regulatory boundaries has raised concerns around predictability and leading to standards being applied beyond their intended scope. Further clarification and publication on this issue is anticipated and should be closely scrutinised.
• MASS REDRESS EVENTS: Alongside the FCA/FOS proposal for a new seven‑point criteria to identify mass redress events, the government has confirmed it will legislate to simplify the test for establishing the need for a consumer redress scheme under section 404(1) of the Financial Services and Markets Act 2000. This should be viewed with caution.  A low threshold for mandatory FCA compensation schemes could be damaging and destabilising.
• STRUCTURAL AND GOVERNANCE CHANGES: The government will legislate to appoint the FOS Chief Ombudsman, who will assume responsibility for FOS determinations and a lead function coordinating the approach to determinations, with an aim of providing greater regulatory certainty. The Chair of FOS will also be a government appointee.  By making them government appointments, the Treasury is flagging their importance in the regulatory ecosystem, and also ensuring that post-holders are subject to ongoing political scrutiny similar to the regulators.
• 10 YEAR TIME LIMIT: An absolute long‑stop of ten years is proposed for bringing complaints to the FOS, with limited exceptions expected for longer‑term products such as pensions. This is welcome.
• CORPORATE STRUCTURE: Despite earlier proposals, the government has ruled out making the FOS a subsidiary of the FCA, preserving its operational independence.
• GUIDANCE ON RECTIFICATION OF HARM BY FIRMS: The FCA has finalised its guidance on good and poor practice in identifying and rectifying harm. While intended to be illustrative rather than prescriptive, firms should note that reliance on the guidance alone does not guarantee compliance.
• LEAD COMPLAINT PROCEDURES: The FOS will work with stakeholders to create a framework allowing firms to apply for a representative sample of lead complaints to be considered. The focus will be on developing a clear criteria and robust safeguards, particularly for consumers in vulnerable circumstances.

Overall, the proposals mark a shift in the UK redress landscape. Greater structure, tighter evidential thresholds and closer alignment between the FOS and the FCA promise increased predictability. While the reforms offer firms the prospect of greater certainty and efficiency, they will demand earlier engagement, sharper internal reasoning and closer alignment with regulatory expectations. The joint consultation of the FOS and the FCA closes on 11 May 2026, firms, and industry participants can therefore provide further feedback. Whilst the reforms bring some optimism, the government will take these forward “when Parliamentary time allows”, suggesting that some of these changes may be several years away.