Government overhauls FOS to curb ‘quasi-regulator’ role
The government has announced the most significant overhaul of the Financial Ombudsman Service (FOS) since its inception.
Following a public consultation held last year that sought views on how to address concerns, it was found that in a small but significant minority of cases, the FOS has acted as a ‘quasi-regulator’.
As part of the Treasury’s aim to boost the competitiveness of the UK financial services sector, it sought a redress system for the ombudsman, with plans to return the FOS to its original role as an impartial dispute-resolution service that resolves complaints “quickly and effectively”.
The government will legislate on the introduction of a 10-year time limit for bringing complaints to the FOS, while giving the FCA the ability to make exceptions to this time limit.
It will seek a new referral mechanism that requires the FOS to consult the Financial Conduct Authority (FCA) when a case involves ambiguous rules or issues that could impact the wider financial industry.
Other changes will include making structural changes to the FOS to provide consistency in decision-making by giving the chief ombudsman overall responsibility for FOS determinations.
We are laying the foundations for an agile, responsive and modern service… which has the confidence of consumers and firms alike,” explained James Dipple-Johnstone, interim chief ombudsman.
City minister Lucy Rigby added, “By setting clearer boundaries, we are restoring confidence in the system and ensuring it works fairly and predictably for consumers and businesses alike.”
Fee shift crackdown
The Treasury plans to overhaul the FOS, which has been on its agenda for some time after its financial crackdowns came into play last April.
The measure was the introduction of a new charging regime for professional representatives, claims management companies, or law firms, at £250.
If the firm wins the case for the consumer, they get £175 back, but if they lose or the case is withdrawn, they lose the full £250.
The changes also dictate that banks will not be charged for the first three complaints they receive in the financial year, while from the fourth complaint onward, a case fee of £650 applies.
Following these changes last April, complaints to the ombudsman fell to the lowest level in two years in the last quarter of 2025. Between October and December, the FOS received 47,300 complaints, a drop from the 68,400 lodged the year prior.
This comes after the motor finance row dragged complaints to the FOS to the highest level since the PPI scandal, following 305,726 complaints lodged in the year ending March 31 2025.
Commenting on the proposed changes, Phil Smith, head of redress at Broadstone, stated, “Recent large-scale cases such as PPI and the motor finance investigation highlight why a more structured framework for mass redress events is needed.”
“A system that allows issues to be identified and resolved earlier should benefit consumers through faster and more consistent outcomes, while also helping firms manage costs and avoid problems escalating into industry-wide redress programmes,” he added.