Summary of July 2025 consultation document on the review of the Financial Ombudsman Service (FOS)

Purpose of the review

The UK government initiated a review of the FOS to ensure it remains a simple, impartial, and effective dispute resolution service for complaints against financial services firms.

The review addresses concerns that the FOS has, at times, acted as a quasi-regulator, creating uncertainty for firms and consumers.

Key issues identified

• Regulatory misalignment: inconsistencies between FOS decisions and Financial Conduct Authority (FCA) rules have led to unpredictability.
• Impact on innovation: uncertainty around redress has discouraged investment and innovation.
• Mass redress events (MREs): FOS handling of MREs has strained resources and delayed complaint resolution.
• Time limits: lack of an absolute time limit for complaints has led to challenges in handling historic cases.

Proposed reforms

The government proposes a series of reforms to enhance the effectiveness, clarity, and fairness of the FOS within the UK’s financial regulatory framework.

A key reform involves adapting the Fair and Reasonable Test. Under the new approach, the FOS will be required to determine that a firm’s conduct is fair and reasonable if it complies with relevant FCA rules, interpreted in line with the FCA’s intended purpose. This change reinforces that fairness must apply equally to both complainants and firms.

To support consistent interpretation of FCA rules, a formal referral mechanism will be introduced. When ambiguity arises, the FOS must seek the FCA’s view. Additionally, complainants and firms will be able to request such referrals. The FCA will also assess whether issues have wider implications and may instruct the FOS to pause complaint handling during such investigations.

In cases involving Mass Redress Events (MREs), the FCA will take the lead in both investigation and response. It will be empowered to pause complaint handling at both firms and the FOS to ensure coordinated and consistent outcomes. The legal threshold for launching Section 404 redress schemes will be simplified to allow for quicker and more flexible responses to systemic issues.

To provide greater certainty and manage historic liabilities, a 10-year absolute time limit for bringing complaints to the FOS will be introduced. The FCA will retain the authority to define exceptions for long-term financial products such as pensions and mortgages.

Institutional changes are also under consideration. One proposal is to make the FOS a subsidiary of the FCA to enhance collaboration and information sharing. While this could improve regulatory coherence, it also raises concerns about the FOS’s perceived independence and the complexity of implementation.

Finally, reforms will address transparency and consistency. The Chief Ombudsman will be given overall authority for determinations to ensure strategic oversight and uniformity. The government is also considering replacing or supplementing the publication of individual decisions with quarterly thematic guidance, which would provide clearer expectations for consumers and firms.

Impacts for firms

The proposed reforms to the FOS framework are likely to bring several positive impacts for firms. Most notably, the introduction of a 10-year absolute time limit for bringing complaints will provide a clear backstop, reducing the risk of exposure to historic claims and aiding firms in managing data retention and liability planning. Additionally, aligning the FOS’s decision-making more closely with the FCA rules and intent should enhance regulatory coherence and predictability, giving firms greater confidence that compliance with FCA standards will be recognised in dispute resolution.

These changes are expected to support investment and innovation by reducing uncertainty. However, it is likely that consumer groups and advocacy organisations may raise concerns, particularly around the potential narrowing of redress avenues and the perceived shift in balance away from consumer protection. These perspectives will be important to consider as the reforms are implemented.

Next steps

The consultation closes on 8 October 2025. Responses can be submitted via email or post. The government will publish its response and outline implementation plans, including any transitional arrangements.