HM Treasury, the FCA, and the FOS have published next steps for reshaping the disputes handler, promising greater certainty for firms and a more streamlined complaints process.
By Becky Critchley, Nicola Higgs, Rob Moulton, and Charlotte Collins
Link to Key Points: Key Points:
- Legislative changes will recalibrate the “fair and reasonable” test, introduce a 10-year absolute time limit for complaints, and establish a formal referral mechanism between the FOS and the FCA.
- The FOS proposes rule changes including a new registration phase for complaints, amended dismissal grounds, and alignment of the fair and reasonable test with the upcoming legislative amendments.
- The FCA has finalised new guidance for firms on identifying and rectifying harm, clarified reporting requirements for serious redress risks, and established criteria for mass redress events.
On 16 March 2026, HM Treasury published a consultation response on plans for reforming the Financial Ombudsman Service (FOS). In parallel, the FCA and the FOS published a Consultation Paper (CP26/9) on proposed reforms that can be made within the existing framework (in advance of HM Treasury’s legislative changes), as well as finalising some new pieces of guidance.
This overhaul of the redress framework was advanced as part of the Leeds Reforms, with HM Treasury, the FCA, and the FOS issuing consultations in July 2025 with a view to improving certainty, promoting more consistent outcomes, and ensuring that the FOS does not act as a “quasi-regulator” (see this Latham Client Alert).
Link to HM Treasury’s Legislative Changes HM Treasury’s Legislative Changes
HM Treasury’s consultation focused on legislative changes to the redress framework, which received broad support from respondents. HM Treasury saw a high level of engagement with its consultation, receiving 601 responses. Key legislative changes being taken forward include:
- Fair and reasonable test: This test will be recalibrated so that firms must be found to have acted fairly and reasonably when they have met their obligations under FCA rules. This change is intended to reduce the FOS’s discretion and therefore increase certainty around its decision-making. There will also be a power for the government to specify that certain rules should be dealt with in a different way, such as high-level, outcomes-focused obligations like the Consumer Duty, where it is more difficult to determine whether or not a firm has met its regulatory obligations.
- Referral mechanism: A formal referral mechanism between the FOS and the FCA will be introduced, which will require the FOS to seek a view from the FCA on matters of interpretation if the FOS considers the relevant FCA rules to be ambiguous, or if an issue may have wider industry implications (to assist with the early detection of emerging issues that might lead to mass redress events). In order to avoid unnecessary delays, there will be a 30-day limit for the FCA to provide a response to the FOS (although this may not be the end of the process). Secondary legislation will set out the criteria for making referrals to ensure that referrals are only made where necessary. Although one or more of the parties to the complaint will be able to request for the FOS to make a referral, the FOS will make the ultimate decision, and this decision will not be subject to any form of appeal mechanism.
- Mass redress events: The tools available to the FCA for dealing with mass redress events will be simplified and expanded to help it undertake an appropriate response. This will include removing the requirement on the FCA to consult in order to pause complaints-handling deadlines and making the FCA’s task of assessing the need for a statutory redress scheme more straightforward.
- Thematic reports: The FCA and the FOS will be required to publish regular thematic reports to provide useful information and clarification on how the FOS will consider certain types of complaints, using illustrative examples. The government plans to keep the overall approach to transparency under review.
- Time limit: An absolute time limit of 10 years will be introduced for bringing complaints to the FOS, although the FCA will be able to make exceptions focused on particular product features.
- Governance: The Chief Ombudsman will be given overall responsibility for FOS determinations, and their appointment will be subject to government approval. Further, the government will be responsible for appointing the Chair of the FOS.
Having considered the consultation responses, HM Treasury has decided not to make the FOS a subsidiary of the FCA. Respondents felt that this structure would risk undermining the FOS’s independence and impartiality, and that the other measures consulted on would be sufficient to achieve the desired reform.
Link to FOS Proposals FOS Proposals
In CP26/9, the FOS is seeking views on certain changes it can make within the existing framework, pending HM Treasury’s legislative amendments. In particular, the FOS proposes to alter its rules at DISP 3 to:
- Amend the factors it considers as part of the fair and reasonable test, to align with the future legislative position. The FOS proposes to remove “good industry practice” as a relevant consideration when determining what is fair and reasonable, to reduce the risk of potential misalignment with FCA rules. It also proposes to clarify that only the standards applicable at the time of the act or omission complained of should be taken into account, to avoid retrospective interpretation.
- Introduce a registration phase for complaints. The aim would be to reduce the volume of poorly evidenced or premature complaints by making sure that only well‑formed, appropriately evidenced complaints that are ready to be investigated are registered. The FOS would also have the ability to hold cases before registration or to move cases from the registered stage back to pre-registration, affording it greater flexibility. It stresses that the proposal is for a structured readiness check, not a long‑term holding stage. Eighty-one percent of respondents to the July 2025 consultation agreed with introducing some form of registration stage. The FOS notes that it would seek to include appropriate safeguards for accessibility and for those in vulnerable circumstances.
- Amend its dismissal grounds by introducing some new grounds and modernising some existing grounds. For example, it proposes to amend the ground that the complainant has acted vexatiously to add “abusively or otherwise unreasonably”, reintroduce a ground that the respondent has reviewed the complaint in accordance with prevailing regulatory standards, add a ground that the respondent has reviewed the complaint in accordance with the terms of a consumer redress scheme, amend the ground concerning further complaints about the same subject matter to clarify that only new factual evidence will suffice if a new complaint is to be admitted, and reintroduce a ground under which investment performance is the sole issue of the complaint.
Linked to the introduction of a registration phase, the FOS will also work on designing a formalised lead complaints process to make the handling of novel and significant issues more consistent and efficient. This proposal received support from respondents, but only on the basis that appropriate safeguards are put in place. The FOS may consult again once it has developed the process further to ensure the final framework is fair, effective, and transparent.
Link to FCA Confirmed Changes FCA Confirmed Changes
The FCA has finalised new guidance for firms, setting out good and poor practices for identifying and rectifying harm in FG26/2. This focuses in particular on when and how firms should carry out a redress exercise. The FCA notes that it will keep this guidance under review and consider adding further guidance or updating the examples in future.
Further, the FCA has confirmed new guidance in SUP 15, clarifying when firms should report serious redress risks or issues to the FCA, to enable early visibility. It has refined some of the language to clarify its expectations in places, for example, by amending “high number of complaints” to clarify that this is about a comparatively high number of complaints received by the firm, and clarifying that “significant total financial sum in redress” refers to 50% of the firm’s annual revenue for its last financial year from the financial service or product involved.
The FCA has also finalised its proposed criteria for considering whether an issue amounts to a mass redress event, reporting that respondents to the consultation supported the proposed criteria as a reasonable starting point. It has, however, refined aspects of the criteria to address respondents’ concerns that some were not clear enough or could lead to inconsistencies.
Link to Next Steps Next Steps
HM Treasury will take forward its legislative changes when Parliamentary time allows, so there is no clear timing for these changes at present. FG26/2 took effect immediately, while FCA’s confirmed changes to SUP 15 will take effect on 1 June 2026.
Responses to the consultation element of CP26/9 are requested by 11 May 2026, and the FCA and the FOS aim to publish a Policy Statement later in 2026.
Firms will likely welcome these efforts to ensure that the FOS acts as a genuine dispute resolution mechanism, not a rule-setter. Once implemented, these changes ought to make the complaints process more streamlined and predictable, and reduce the likelihood of unexpected outcomes and mass redress events emerging with little prior warning.