A View From The Exchange:  FOS Reforms – a ray of sunshine for the financial services industry

It is rare that consultation papers and policy statements bring a sense of positivity to the financial services community. However, with the optimism that spring brings it is fair to say that the proposals published in parallel by the Treasury, and the FCA and the FOS (jointly) on 16 March 2026 herald some sensible and pragmatic improvements to existing processes for assessing customer complaints and handling mass redress events such as PPI mis-selling and motor finance commission disclosure.

The proposed changes are intended to achieve four important objectives for the industry. These are to : (1) remove the FOS's role as a quasi-regulator; (2) increase certainty for regulated firms in the standards that they are required to meet; (3) increase the level of control that the FCA is able to maintain when an issue evolves into a mass redress event; and (4) reduce the overall bill for the industry where mass redress events occur.

We would give these papers a strong 8 out of 10 on the measures to be introduced to achieve these objectives, and this is not just because they adopt various of the suggestions that we had advocated for in response to the Treasury's initial call for input in November 2024.

The proposals will be implemented initially through a range of rule and policy changes by the FCA and the FOS, and subsequently through changes to primary legislation when Parliamentary time allows. Six key changes that I would pick as making a real difference are:

1. Introduction of a 10-year long stop limitation period for complaints: While the FCA will retain discretion to allow some exceptions (e.g., for certain long term products), a long-stop limitation period for complaints will be introduced. This will have a very significant impact on reducing unfair and disproportionate costs to the industry from consumer complaints (including as a result of non-retention of records of very historic sales, and through the accrual of large amounts of interest) in situations where regulatory or legal standards may have been misunderstood or misapplied over extended periods.
2. Greater powers for the FOS to pause, reject, refer back, or dismiss complaints: Equipping the FOS with the power to require complaints to be expressed clearly and accompanied by appropriate documentation at the outset; to dismiss complaints where the complainant has acted unreasonably or where the issue complained of is trivial; and to pause complaints where the FCA is considering whether there is a more effective way of handling an issue, will help firms to materially reduce the resources and costs involved (including case handling fees) in responding to large numbers of unmeritorious FOS referrals.
3. Changes to the 'fair and reasonable' test to be applied: The proposals will reduce the FOS's ability to apply its own judgement as to what is fair and reasonable, requiring decisions to be based on regulatory standards as they applied at the time of the relevant act or omission, and without regard to "good industry practice" as a basis for determining that a firm has not acted fairly and reasonably. Furthermore, legislation to be enacted will provide that where a firm has complied with applicable regulatory rules then it must be treated by the FOS as having acted fairly and reasonably.
4. Duty on the FOS to refer interpretations of FCA rules to the regulator where ambiguous or where the issue may lead to a mass redress event: Where a complaint requires interpretation of an FCA rule that is ambiguous, or the issue in question could give rise to a mass redress event, the FOS will be required to seek the FCA's view of what the rules actually require. The regulator must then provide its interpretation of the relevant standards to the FOS within 30 days. This is intended to ensure that interpretations of FCA obligations applied by the FOS are consistent with the regulator's approach.
5. Expanding the circumstances in which the FCA can put in place a s. 404 industry wide redress scheme: Under present rules, the FCA can only put in place an industry wide redress scheme under s. 404 FSMA where a widespread breach of regulatory rules give rise to a legal right to claim damages for the losses suffered. As such, where redress may become due as a result of FOS decisions (but where no private law cause of action applies) then the FCA is unable to set up an industry wide compensation scheme. The Treasury has proposed giving the FCA much broader discretion to put in place industry wide redress schemes, where to do so would be in furtherance of the regulator's statutory objectives.
6. Desire to take steps to remove precedent effect of individual FOS cases due to the read-across:. The Treasury has recognised the issues that flow from firms having to treat FOS decisions in individual cases as quasi-precedents, because of the need to apply a "read across" to their own complaints. Such decisions are often picked up by claims management companies and exploited through copycat complaints on behalf of other consumers, which over time can morph into mass redress events. Although the Treasury's proposals in this area are not yet finalised, it appears that one solution being considered is to cease publication of individual FOS cases and replace this with periodic thematic reports by the FOS describing the types of issues that it has been handling.

Each of these is a significant positive step towards creating a fairer system for resolving complaints and facilitating the efficient payment of redress in appropriate cases, while minimising the prospect of huge multi-billion mass redress events in the future.

However the proposals do give rise to a number of questions and there is a risk of unintended consequences from these new measures. These include:

• If neither firms nor the FCA are able to require the FOS to refer a question of interpretation of FCA rules to the regulator, will the FOS actually seek the FCA's interpretation where it ought to? If it does not, and there is no appeal mechanism, then will the FOS face repeated judicial review applications where firms take a different view as to the proper interpretation of an FCA provision?
• Will the FCA or the FOS be required to publish the FCA's interpretations of its own rules. This would be highly desirable for creating certainty for regulated firms as to the standards that they are required to abide by. Will the FCA's interpretations themselves be susceptible to judicial review challenges where there is disagreement as to what the proper meaning of FCA rules is?
• Do the Treasury's proposals confer too much power on the FCA to put in place industry wide redress schemes even where there is no legal liability on the part of firms to pay compensation? Guardrails will need to put in place when s. 404 FSMA is amended to ensure that the exercise of the FCA's powers in this area are suitably controlled.

There is a relatively short consultation period, expiring on 11 May 2026, for the industry to respond to these proposals. As a result it seems clear that the FCA, the FOS and the Treasury are keen to implement these proposals quickly, perhaps as one element in delivering on the Government's growth agenda. While the changes are very welcome, it is clear that some additional thought will be needed in getting the balance right between firms and their customers.

Author: Catherine Lathom-Sharp, Junior Associate

Ashurst has a multi-disciplinary team of specialists who support regulated firms in the strategy, design, operationalisation and delivery of redress schemes. For further information please contact Nathan Willmott or Tom Lodder.