FCA and FOS publish joint Call for Input on Modernising the Redress System

The Financial Ombudsman Service (FOS) and the Financial Conduct Authority (FCA) jointly launched a Call for Input on modernising the redress system in November 2024¹. It closed on 30 January 2025 and received over 140 responses from firms, industry bodies, consumers, consumer groups and professional representatives¹. The Call for Input asked how the current redress framework could be modernised, what problems mass redress events cause, and how the two organisations could work together so their views on regulatory requirements are consistent¹.

The FOS said a recurring theme in the responses was the discretionary 8% interest rate applied to compensation awards¹. Several respondents said the rate may no longer reflect prevailing economic conditions, could overcompensate in some cases, and was not aligned with market rates or rates used in other redress or legal contexts¹. Some firms and trade bodies said the 8% rate was excessively high, and some questioned the period over which interest is applied, arguing interest should not accrue during a pause in complaints². Suggestions included a more flexible, market-linked approach, shorter interest periods and regular rate reviews¹.

The FOS then consulted separately on interest applied to compensation awards. That consultation opened on 4 June 2025 and closed on 2 July 2025¹, and received 78 responses: 40 firms, 11 financial services trade associations, 8 consumer groups, 7 individuals and consumers, 5 consultants and 7 professional representatives and their trade bodies¹. The FOS set out four rate options and four implementation options². Its recommended rate option was a tracker at 1% above the Bank of England base rate, calculated as an average over the period the money was due until the date redress payment is made². Its recommended implementation option was to apply a new rate to complaints referred to the FOS from the date the new rate is implemented².

In its policy statement, the FOS said it will change the rate to a time-weighted average of the Bank of England base rate plus one percentage point, applied on a simple basis, generally for the period from when the complainant was unreasonably deprived of the money to the payment deadline set by the FOS¹. The 8% rate is retained for late payment, from the payment deadline to the actual date compensation is paid, also on a simple basis¹. The FOS said it aims to apply the new interest rate to new complaints submitted from 1 January 2026, with the date to be confirmed, and will review the rate at least every two years¹.

Why it matters for households

The Call for Input itself changed nothing for individual complainants; it gathered views. The practical change that followed is the interest rate on FOS compensation awards. Consumers who can demonstrate an actual loss will not be affected by the interest change, because actual losses are dealt with in the primary money award¹. For others, interest added on top of an award to reflect being deprived of money will move from a flat 8% to a time-weighted average of the Bank of England base rate plus one percentage point, applied simply¹. The 8% rate continues to apply where a firm pays late¹. The FOS says the new rate is intended to apply to complaints submitted from 1 January 2026, subject to confirmation¹. The FOS handles complaints from individuals, small businesses and charities, and its service is free for consumers². Its final decisions are legally binding if accepted by the complainant; if not accepted, the complainant remains free to pursue the dispute through court¹. The FOS publishes over 20,000 decisions a year³.

What happens next

The FOS said it will confirm the implementation date in due course and will provide detailed guidance, case studies and calculations to stakeholders before that date¹. It said it will initially review and confirm whether any changes are required at least every two years¹. Separately, HM Treasury announced on 17 March 2025 that the Economic Secretary to the Treasury would conduct a review of the FOS, including current compensation practices². That review's consultation document states that the FCA and the FOS will begin implementing changes from the day of publication where they can, ahead of legislation needed for the government's proposed reforms³. It also states that the government is considering whether there would be benefits to making the FOS a subsidiary of the FCA³. The consultation document says the consultation will remain open for 12 weeks, closing on 8 October 2025³.