Leeds Reforms: Focus on the Financial Ombudsman Service and modernising the redress system

The Government considers that the ‘fair and reasonable’ test should be retained, but adapted to link it more closely with the wider regulatory framework, avoiding potential inconsistency between FOS determinations and FCA rules.  

In particular, the Government proposes to legislate to make clear that a firm will be judged to have acted ‘fairly and reasonably’ if the conduct complained of complied with FCA rules in place at the relevant time, and was consistent with the FCA’s intention for what those rules should achieve. This is a positive change, although some in the industry may have hoped for the Government to have gone further in adapting the test. 

In a significant and particularly welcome change, the Government proposes that referrals to the FOS will be subject to a longstop date of 10 years from the conduct complained of (with the pre-existing time limits to remain). The FCA will be granted the power to set out limited exceptions to that longstop date, and the Government has in mind longer-term products such as mortgages, pensions and long-term investments. The FCA will consult on rules for any such exceptions. 

Various proposals are made to enable (or require) the FOS to refer issues arising in individual cases to the FCA (although the FCA will not determine those individual complaints).  

On interpretation of the Rules

Mandatory referral by the FOS:  The Government intends to introduce a formal mechanism requiring the FOS to request a view from the FCA on the interpretation of FCA rules, where the FOS considers there is ambiguity in how they apply to issues raised in a particular case.  The Government emphasises that the FCA’s view should be limited to clarifying what the relevant rules are intended to achieve and should not stray into considering the merits of a case or directing the FOS on its determination of it.  

Option for parties to request referral:  The Government also proposes to legislate to give parties the ability to request that the FOS refers an issue of rule interpretation to the FCA.  Detailed grounds for a party to make such a request would be set out in the FCA Handbook and the FOS would determine whether these have been met before granting the request.  

On ‘wider implications’ issues

The Government also intends to legislate to provide that where the FOS considers the subject matter of a complaint may raise a ‘wider implications issue’ (whether or not this also involves a question of interpretation) the FOS must refer it to the FCA which in turn must consider it.  As with interpretation issues, the parties would also have the ability to request that the FOS refers a matter to the FCA on this ‘wider implications’ basis.  

In assessing a referral, the FCA will be required to consult its statutory consumer and industry panels, before determining what its response should be (which may include giving guidance on or changing rules, and/or referring a point of law to the Courts).  The FCA will also be able to direct that relevant complaints are paused where necessary while assessment is ongoing.  

The approach to mass redress events (MREs) is addressed in both consultations.  The Government’s focus is on ensuring that the FCA is able to minimise disruption and uncertainty while a potential MRE is being investigated, simplifying the statutory test for establishing a consumer redress scheme under s.404 of the Financial Services and Markets Act 2000 (FSMA), and that the FCA can issue directions to the FOS to ensure complaints are dealt with in accordance with, or as part of, relevant redress schemes. The proposed changes to s.404 of FSMA would involve an expansion of the FCA’s powers to impose an industry wide redress scheme and it will be important to examine the detail of these proposals closely when they are published. 

The FCA/FOS paper proposes a framework of 6 criteria against which a MRE may be identified, albeit without setting rigid thresholds/requirements around this. This is to build in flexibility and enable the FCA to use its judgement when considering the issues against these criteria to decide whether there is, or potentially is, an MRE. 

To ensure greater consistency, the Chief Ombudsman will be given overall authority and responsibility for all FOS determinations (while remaining able to delegate that function to their team within suitable parameters).  With regards to transparency, the Government seeks views on making the FOS’s rationale/approach to certain cases more accessible from the very high volume of individual decisions published – for example through the FOS also publishing quarterly thematic reports, subject to the FCA’s approval, instead of the current approach of publishing all Ombudsman decisions. 

The Government has concluded that an appeal mechanism to the Courts would not be appropriate, essentially as this would undercut the aim of a more coherent and consistent regulatory regime with its own simple, quick and effective dispute resolution service.  Therefore, the only way to challenge a FOS decision will continue to be by way of judicial review. This may come as a disappointment to some in the industry, although the other more wholesale changes being made may mean that there are fewer cases which firms consider may ultimately need to be challenged. 

Similarly, there is no indication in the consultation papers that the test case procedure under DISP 3.4, which currently requires the complainant’s consent, will be amended. This may be viewed as a missed opportunity. It is understood that the FOS has never previously used this procedure and, with this in mind, it is perhaps difficult to see why this might change unless there are amendments to the provision. 

The Government also intends to make changes to the ADR Regulations, which will (re)enable the FOS to dismiss a complaint, prior to considering its merits, on the basis it would be more appropriately dealt with in another forum (including but not limited to the Courts).    

The FCA/FOS propose to introduce a new registration stage in the FOS complaints-handling process. This would serve as a checkpoint to ensure that only well-formed, appropriately evidenced complaints progress to the chargeable investigation stage, and is intended to improve the quality and speed of investigations, as well as supporting a more proportionate and transparent charging model. Complaints could be held at the pre-registration stage without incurring case fees. This change will be well received by firms. The new end to end case journey is set out via a flowchart in Annex 5 of the FCA/FOS consultation. 

Separately to the two consultation papers, also on 15 July 2025 the FOS published a Policy Statement confirming its revised position on interest applied to compensation awards. The new rate will be a time weighted average on the Bank of England’s base (average) rate +1%. This is change that many will feel is long overdue given the FOS’s current approach of awarding interest at 8% p.a., notwithstanding the interest rate environment over the last 15 years or so. 

Finally, the FCA has published proposed guidance on Good and Poor Practice on identifying and rectifying harm, which is outlined at Annex 4 of the FCA/FOS consultation. This contains helpful guidance for firms and is worth considering in full.