Bereavement support under scrutiny for investment firms
The government has recently set out its plans to reform
01/06/26
Read more
How FOS reforms will affect financial services firms
The government has recently set out its plans to reform the Financial Ombudsman Service (FOS) to ensure clarity and predictability for the consumers and firms who use it.
This follows a consultation period from July to October 2025, which saw over 600 responses from stakeholders including financial services firms, consumer groups and trade associations.
A core part of the reforms will be a more significant collaboration between the FOS and the FCA. This will be achieved through legislation, although the government acknowledges that some changes can be made within the existing framework, which is currently set out in the Dispute Resolution: Complaints sourcebook (DISP).
The core areas the government intends to introduce legislation for include:
- Revise the ‘fair and reasonable’ test
- Create a referral process between the FOS and the FCA
- Introduce a ten-year limit for complaints brought to the FOS
- Reform the FOS’s structure to support more consistent decision-making
- Improve how firms and consumers access and learn from FOS determinations
- Give the FCA the tools it needs to respond effectively to mass redress events
Reforming the ‘fair and reasonable’ test
One of the most significant changes is the proposed reform to how FOS determines complaints. Historically, the ‘fair and reasonable’ test has given the FOS reasonable discretion, allowing it to look beyond strict rule compliance and consider broader interpretations of fairness. This, in turn, has often caused firms a degree of unpredictability.
Under the proposed changes discretion is being narrowed. For instance, where a firm has complied with the FCA’s relevant rules, the FOS will normally be required to conclude that the firm has acted reasonably and fairly.
But this will not remove judgment entirely, as the FOS will still apply a test just within a more structured framework. This is not a shift to a purely rules-based system – the underlying expectation is that firms still act in line with the intent of the FCA rules.
A formal route back to the FCA
Alongside this, the government is introducing a more structured relationship between the FOS and FCA. Where there is uncertainty about how the FCA rules should be interpreted, the FOS will be required to refer those questions back to the FCA.
This, in practice, reduces the likelihood that the FOS will develop its own interpretation of the rules in isolation. Instead, it reinforces the FCA as the primary authority on regulatory intent, with the FOS applying that interpretation in individual cases. For firms, this should improve consistency particularly in areas where previous decisions have appeared disconnected from FCA guidance.
However, it also introduces a new dynamic. Issues that previously played out within individual complaints may, in some cases, become broader regulatory questions with wider implications.
Tightening the framework around complaints
The review introduces changes to bring more structure to the wider complaints’ framework. This includes an absolute time limit of ten years for complaints being brought to the FOS, alongside provision for the FCA to make exceptions where appropriate.
There is also a stronger focus on structural changes to the FOS to provide greater consistency in decision-making. This includes giving the Chief Ombudsman – whose appointment will be subject to government approval – overall responsibility for FOS determinations.
Additionally, legislation will be introduced to make the government responsible for the appointment of the Chair of the FOS too.
What this means in practice
On the one hand, assuming appropriate governance and interpretation, the reforms should reduce the likelihood of unexpected outcomes, allowing firms to demonstrate clear compliance with FCA rules. On the other, they reinforce the importance of interpreting those rules correctly in the first place – and being able to evidence that interpretation.
The introduction of referral mechanisms to the FCA also means that issues may move more quickly from firm-level complaints into industry-wide scrutiny. That creates a different kind of exposure, particularly in areas of ambiguity or emerging risk.
And while greater structure around time limits and mass complaints should help with long-term certainty, it does not reduce the expectation that firms identify and address issues early before they escalate.
Preparing for the shift
It’s a useful time for firms to reassess how their complaints frameworks align with regulatory intent. This includes reviewing how the FCA rules are interpreted internally, how consistently they are applied across products and customer segments and whether decision-making can be clearly evidenced if challenged. Strengthening the link between complaints data, conduct risk, governance and oversight are particular themes to pay attention to.
With this kind of transition, firms can often benefit from an independent review.
TCC supports firms in assessing how their current complaint-handling, governance and conduct frameworks will stand up to regulatory scrutiny – and help to ensure compliant delivery. As the role of the FOS becomes more clearly defined and FCA-aligned, seeking external expertise is a prudent step.
Get in touch today to learn more about how TCC’s experts can help.