Government consults on proposals to reform the FOS

HM Treasury has set out its final plans to reform the Financial Ombudsman Service (FOS) after a consultation that ran between July and October 2025 and received 601 responses from firms, trade associations, consumer groups, academics, individuals and other ombudsman services¹. The Chancellor had set out the conclusions of the government's review of the FOS in July 2025, finding that the service plays an important role but that changes were needed to the framework in which it operates "to prevent it acting as a quasi-regulator"¹.

The FOS was established by the Financial Services and Markets Act 2000 as a dispute resolution service intended to deal with complaints about financial services firms quickly and efficiently, as an alternative to the courts¹. Under that Act it must determine complaints "by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case"¹. The government intends to legislate so that, for any element of a complaint where firms have met their obligations under relevant FCA rules, the FOS will be required to find that the firm acted fairly and reasonably on that element¹. It also intends to require the FOS to apply the rules that applied at the time of the act or omission complained about, rather than contemporary rules¹.

Where the FOS considers there may be ambiguity in what FCA rules require, it will be required to request a view from the FCA, and the FCA will be obliged to provide one, with a 30-day limit for that response¹. One or more parties will be able to ask the FOS to seek such a view, but there will be no mechanism to appeal or circumvent the FOS's decision on whether a matter is referred, and no means to appeal FOS determinations to the courts in general¹.

The government also plans:

The government concluded it will not make the FOS a subsidiary of the FCA, deciding the wider package of reforms is sufficient¹. It also intends to exclude the FOS from the new Alternative Dispute Resolution regime being established under the Digital Markets, Competition and Consumers Act 2024¹. The FOS and FCA have updated their Memorandum of Understanding to set out further commitment to cooperation when an issue with wider implications is suspected or identified¹.

Why it matters for households

The changes would affect anyone with a complaint against a financial firm, and the firms facing those complaints. The 10-year absolute limit would set a backstop on how far back a complaint can reach, with exceptions expected for products such as pensions where a cause for complaint may take longer to come to light¹. The adapted fair and reasonable test would mean that where a firm has complied with FCA rules, the FOS must find it acted fairly and reasonably on that element of a complaint, which the government says provides greater certainty for consumers and firms¹. Consumer groups responding to the consultation questioned whether the existing test was enough of a concern to warrant the change, and raised concern that it could limit the FOS's ability to tailor determinations to individual circumstances¹. Some respondents also warned the change could cause delays at the FOS¹.

What happens next

Delivering the reforms to the FOS's legislative framework requires primary legislation, which the government says it will take forward when Parliamentary time allows¹. Some changes can be made by the FOS and FCA within the existing framework through rules in the Dispute Resolution: Complaints sourcebook, and the two bodies have published a paper seeking views on amending the fair and reasonable factors, introducing a registration phase for complaints and amending dismissal grounds¹. That paper also finalises rule and guidance changes consulted on in July 2025 and sets out criteria the FCA intends to use to identify mass redress events¹.