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 received over 600 responses from firms, consumer groups and other stakeholders.
At a high level, the reforms are focused on improving alignment between the FOS and the FCA, supported by legislative change as well as updates within the existing Dispute Resolution: Complaints sourcebook (DISP) framework.
Key areas include:
- Updating the ‘fair and reasonable’ test
- Introducing a formal referral route between the FOS and FCA
- Setting a ten-year limit for complaints
- Making changes to improve consistency in decisions
- Increasing transparency around how determinations are used
- Strengthening the FCA’s role in mass redress events
A more defined approach to decision-making
The most notable change is how complaints will be assessed. The ‘fair and reasonable’ test has traditionally allowed some flexibility in how outcomes are reached. Under the proposed reforms that approach is being clarified. Where firms have met relevant FCA rules, the FOS will normally be required to conclude that they have acted fairly and reasonably.
This provides greater certainty, but it does not remove judgement altogether. Firms are still expected to act in line with the intent of FCA requirements and be able to demonstrate how those decisions were made.
Stronger alignment with the FCA
The introduction of a referral mechanism between the FOS and FCA is intended to support a more consistent interpretation of rules.
Where there is uncertainty, the FOS will refer to the FCA for clarification rather than reaching its own view in isolation. This should help outcomes align more closely to regulatory intent.
For firms, that reduces variation but also means that issues identified in individual complaints could develop into wider regulatory considerations where common themes emerge.
A more structured framework
The reforms also introduce more structure to the complaints process, including a ten-year time limit and changes to governance to strengthen consistency in decision-making.
These changes are designed to make outcomes clearer over time, but they do not reduce the need for firms to manage complaints carefully and consistently.
Areas to focus on
The shift is straightforward – there is likely to be more consistency in outcomes but greater expectations around how firms reach and evidence their decisions.
Firms should be reviewing:
- whether FCA rules are applied consistently in practice
- how well decision-making is documented and supported
- whether similar cases would lead to the same outcomes
Stronger links between complaints, conduct risk and oversight will also be important.
Preparing for change
This is a good point for firms to take stock. The changes should make outcomes easier to anticipate, but only where firms can demonstrate that their approach is consistent and aligned with regulatory expectations.
Momenta supports firms in meeting that regulatory challenge by providing experienced compliance leaders and interim resource across a wide range of programmes, including change and transformation, complaints and remediation.
Get in touch to discuss how we can help your firm.
