FCA / FOS Reforms: consultation response and publication of new consultation paper

On 16 March 2026, HM Treasury (HMT) published its consultation response confirming the Government's final policy position on reforms to the Financial Ombudsman Service (the FOS). On the same date, the Financial Conduct Authority (the FCA) and the FOS published a further joint consultation paper and policy statement (CP26/9), finalising certain changes to FCA rules and guidance and consulting on further FOS proposals. The FCA has also published finalised guidance on identifying and rectifying harm to consumers. Together, these publications confirm significant changes to the UK consumer redress system. 

Background

The announced reforms are the latest stage of a process that began with a joint FCA/FOS call for input in November 2024. On 15 July 2025, HMT published a consultation setting out proposed reforms of the FOS, with a deadline for responses of 8 October 2025. The reforms form a key part of the UK Government’s Financial Services Growth and Competitiveness Strategy launched in July 2025 and directly respond to concerns raised by the financial services sector regarding the FOS. 

Response to July 2025 consultation on FOS reforms

The reforms will be implemented in two ways:

• Legislative reforms (HMT): Longer-term changes requiring primary or secondary legislation, to be taken forward when Parliamentary time allows.
• Regulatory changes (FCA/FOS): Changes being implemented now within the existing framework ahead of the anticipated legislation. 

Legislative reforms

The HMT response notes that stakeholder consultation responses were broadly supportive and confirms the following changes:

• Adapted 'Fair and Reasonable' test: The government will legislate to require the FOS to apply the test consistently with FCA rules - compliance with relevant rules will mean the FOS must find the firm acted fairly and reasonably on that element.
• Formal referral mechanism: The government will require the FOS to refer issues to the FCA where there is ambiguity in FCA rules material to the complaint, or where an issue may have wider implications across the financial services industry (with such issue being a WII). The FCA will have 30 days to respond. Parties will be able to request a referral, but the decision will rest with the FOS.
• Authority of the FOS’s Chief Ombudsman: The Chief Ombudsman will have overall responsibility for FOS determinations. The Chair of the FOS will become a government appointment.
• Joint thematic reports: The FOS and FCA will be required to publish regular joint thematic reports on the FOS's approach to different types of complaints. Individual determinations will continue to be published but are not intended to have precedent-setting effect.
• 10-year time limit: Complaints concerning acts or omissions more than 10 years old will not be eligible for FOS consideration. The FCA will have power to set limited exceptions for products where complaints may take longer to come to light.
• Mass redress event (MRE) framework: The government will legislate to enable the FCA to act more quickly, including by: (a) removing the requirement to consult before pausing complaints-handling; and (b) requiring the FOS to return unresolved complaints to firms for handling under redress schemes. The government will also simplify the statutory requirements for establishing such schemes.

The HMT response also confirms that the Government will not proceed with the following changes consulted on or otherwise raised in consultation feedback:

• Making the FOS a subsidiary of the FCA: The consultation had proposed making the FOS a subsidiary of the FCA to simplify the regulatory environment. The consultation responses highlighted concerns about preserving the FOS's independence and impartiality. The government has decided not to proceed with this change.
• Formal appeals mechanism for FOS decisions: The Government considered calls from industry respondents in the consultation response for a formal mechanism to appeal FOS determinations (including decisions on referrals to the FCA), but considered the introduction of such a process would be at odds with the aim for the FOS to resolve disputes quickly and cost effectively. The government confirmed that no such appeal mechanism will be introduced.

Regulatory changes

The FCA and the FOS have confirmed the following changes in the policy statement section of their paper (CP26/9):

• MRE identification criteria: Revised criteria for identifying MREs have been finalised. The FCA and FOS have also developed an MRE-specific operational process and developed internal guidance.
• Amendments to guidance on identifying, reporting and rectifying harm: The FCA has made amendments to guidance to give additional details of good and poor practice on identifying and rectifying harm and to refer to SUP 15.  The SUP 15 guidance will also be updated from 1 June 2026, clarifying when firms should report redress issues to the FCA.
• Other changes to improve operational efficiency: The policy statement also finalises a number of other changes to improve operational efficiency, including additional DISP guidance on firms' duty to cooperate with the FOS and COMP changes to streamline the Financial Services Compensation Scheme framework.

The paper also confirms that there was a positive response to the proposed introduction of a lead complaints process. The FOS will work with stakeholders to develop a process for investigating representative lead cases on novel and significant issues, with related complaints paused in the interim. The FOS may consult further before finalising the framework.

Further consultation on FOS proposals

The FCA and the FOS have, following the July 2025 consultation, identified further changes to be made within the existing framework. The FCA and the FOS are now consulting on the following proposals concerning the handling of FOS complaints:  

• Registration stage: The FCA and FOS are proceeding with the proposal to introduce a formal complaint registration phase. The new consultation relates to the details of the proposed rules and proposal for case readiness to be assessed at registration stage.
• Dismissal grounds: The FCA and FOS are proposing wider grounds for dismissal (without consideration of merits), including where complaints are vexatious or are being dealt with under other schemes. The FCA and FOS are also proposing changes to DISP 3 on ADR and dismissals.
• ‘Fair and Reasonable’ test: The FCA and FOS are proposing targeted amendments to the ‘Fair and Reasonable’ test to align with the government’s legislative direction.

The deadline for response to the consultation is 11 May 2026. The FCA and FOS intend to publish a further policy statement later in 2026. The FOS will also consult separately on funding model changes, including potential differential case fees for the registration stage, in November 2026 as part of its Plans and Budget for 2027/28. 

Practical consequences

The reforms and further proposals have practical consequences for complaint handling, FOS engagement and regulatory risk:

• ‘Fair and Reasonable’ test: The adapted ‘fair and reasonable’ test means compliance with applicable FCA rules should now be determinative. Firms could consider how to more clearly signpost compliance in complaint files and FOS submissions.
• FCA referrals: The requirements for the FOS to refer ambiguities or issues raising wider implications to the FCA should improve certainty for all parties. Firms have the opportunity to request a referral and are likely to be well placed to identify where a referral would be appropriate. Firms could consider systems that might be put in place to ensure such issues are identified and logged at an early stage of the complaints process.
• Scattergun complaints: The proposed registration stage, expanded dismissal grounds and lead complaints process should better equip the FOS to efficiently manage high volumes of speculative or vexatious complaints at an early stage. That should help limit costs that such complaints can impose on firms (e.g. in the ongoing Vanquis v TMS Legal litigation, where the Court found it properly arguable that a law firm's submission of large volumes of minimally investigated, meritless complaints to the FOS could give rise to liability in economic tort). Firms could consider how to signpost factors relevant to those tools in complaint files and submissions to highlight to the FOS where it would be appropriate for them to use the new tools at their disposal.
• FCA redress schemes: The reforms strengthen the connection between the FOS's regime and the FCA's redress powers. The BlueCrest proceedings highlighted a tension in the existing framework (covered in our separate update here). The reforms simplify the process and empower the FCA to pause complaint-handling timelines and later direct the FOS to refer relevant complaints back to firms for consideration under a Section 404 FSMA redress scheme. The FCA has a more streamlined route to imposing formal redress schemes, reducing its need to rely on its broader power under Section 55L FSMA (the limits of which remain untested following the BlueCrest settlement). This makes early engagement with the FCA on emerging redress risks all the more important.

Please get in touch if you would like to discuss the implications of these reforms in more detail and understand what they mean for your business.