A View From The Exchange: the government will be reforming the FOS

On 17 March 2025, the government published its Action Plan, setting out its new approach to ensure regulators and regulation support growth. According to the government, the current regulatory landscape is not functioning as effectively as it should, as it is holding back growth and inhibiting private sector investment. In order to aid regulatory efficiency, we know that the Treasury has already announced it will be merging the Payment Systems Regulator with the FCA, and other regulators risk being abolished or swallowed up. The Financial Ombudsman Service (FOS) is another independent public body which is very much under scrutiny.

In particular, the Economic Secretary to the Treasury, Emma Reynolds, has been asked to examine whether the Ombudsman is delivering its role as a simple, impartial dispute resolution service which quickly and effectively deals with complaints against financial services firms and which works in concert with the FCA. Ms Reynolds has been asked to focus on concerns around:

• The framework in which the FOS operates which has resulted in it acting, at times, as a quasi-regulator;
• Whether the FOS is applying today’s standards to actions that have taken place in the past; and
• The practices that have grown up over time on compensation.

This work is expected to conclude by the summer and the government stands ready to legislate in order to ensure that the UK has a dispute resolution system which is fit for a modern economy.

This is a positive development, and one which will please the financial services industry. There is a compelling case for reform – the FOS has long been accused of applying retrospective standards and its consumer-friendly approach has led to financial services firms laying out significant compensation as part of 'mass redress events' like PPI, bank charges and motor finance. Another cause of criticism has been that the FOS has been misaligned with the FCA, finding certain practices to be 'unfair' even if they have been endorsed by the FCA. One would hope that Ms Reynolds may also take a fresh look at the time limits for customers to refer their cases to the Ombudsman, as these are overly generous to consumers and allow for certain claims to go on and on; which leads to uncertainty for firms and has a negative effect on growth and competitiveness.

The FOS needs to return to being a quick, complaint resolution process which focuses on delivering prompt and fair redress to consumers in appropriate cases, and not the arbiter for industry standards for consumer finance or the cause of mass redress events.

If you are looking for further ideas on FOS reform – do check out my colleague Nathan's excellent recommendations for 10 key changes to the FOS which should be implemented, and the insightful podcast discussion between Nathan, Adam Jamison and Adam Temple here.