Consumer Scotland responds to HM Treasury consultation on the review of the Financial Ombudsman Service

Consumer Scotland published its response to the HM Treasury consultation on the review of the Financial Ombudsman Service on 7 October 2025¹. The statutory body for consumers in Scotland, established by the Consumer Scotland Act 2020 and accountable to the Scottish Parliament, set out its positions on the fair and reasonable test, the proposed longstop, referrals to the Financial Conduct Authority and the ombudsman's institutional status¹.

On the fair and reasonable test, Consumer Scotland said it favours retaining the current test, under which an ombudsman decides what is fair and reasonable in all the circumstances, taking account of the law, FCA rules and guidance, codes of practice and good industry practice¹. The government intends to legislate so that, where conduct is in scope of FCA rules, complying with those rules in line with the FCA's intent means a firm has acted fairly and reasonably¹. Consumer Scotland said it does not believe the ombudsman is currently prevented from considering whether a firm complied with FCA rules, and asked what the practical differences in consumer outcomes would be, including for consumers in vulnerable circumstances¹.

On time limits, the government proposes an absolute limit of 10 years for bringing cases to the ombudsman¹. The existing limits are six years from the event complained of, or, if later, three years from when the complainant became aware, or ought reasonably to have become aware, they had cause for complaint; out of time complaints can still be accepted in "exceptional circumstances" or if the firm consents¹.

Consumer Scotland said it would welcome publication of data on how many and what kind of cases would be excluded under a 10 year absolute limit, and argued that harms in lifetime products such as long term investments, life insurance and protection policies and pensions may go undetected for long periods¹. It described the option of going to court as insufficient to protect consumers, citing power and resource differences between providers and consumers, the expense and delay of court action and potential liability for judicial costs¹.

On institutional arrangements, Consumer Scotland opposed making the ombudsman a subsidiary of the FCA, saying consumers need confidence that it is independent of government, industry and regulators¹. On referrals, it said it does not support the proposal, arguing that although the option is in theory open to both parties it is far more likely in practice to be used by firms, and that it adds a procedural step to a service designed to be simple, free and accessible¹. It said any referrals should follow strict timetables and that monitoring of case levels should show a rise in first tier resolution¹.

A separate Consumer Scotland response to the FCA and Financial Ombudsman Service consultation on modernising the redress system, published 2 October 2025, took the same positions on the fair and reasonable test, the 10 year longstop and an FCA merger². It supported the proposal to assess potential mass redress events against a framework of six criteria, and supported a quarterly thematic "lessons learned" document². It also noted that from 1 April 2025 the ombudsman introduced a new charging model for fee charging professional representatives such as claims management companies and legal firms².

Why it matters for households

The consultation concerns the rules for taking a complaint to the ombudsman, which handles disputes between consumers and financial firms. The existing time limits run from the event or from when a consumer became aware of grounds for complaint, with discretion in exceptional circumstances¹. An absolute 10 year limit would set a fixed cut off, so complaints about older events could not be brought to the ombudsman even where a consumer only became aware of the issue later¹. Consumer Scotland said it has not been reported how many cases would be excluded, and asked for that data to be published¹.

The fair and reasonable test determines how complaints are decided. Consumer Scotland said retaining it matters for consumers in complex markets, and that a more rule based approach could affect how individual circumstances, such as vulnerability, are weighed¹. Its response also covers how complaints are handled day to day, including the proposed referral route to the FCA and the ombudsman's independence from the regulator¹.

What happens next

The responses were published on 2 October 2025 and 7 October 2025¹. HM Treasury is consulting on the longstop, and the FCA and Financial Ombudsman Service are consulting on modernising the redress system¹. No dates for decisions or implementation are given in the responses.