Modernising the Redress System is the aim of the Financial Conduct Authority (FCA)
The Financial Conduct Authority (FCA) and Financial Ombudsman Service (FOS) have announced a package of reforms aimed at modernizing the UK financial redress system. These changes are designed to better serve consumers and provide firms with greater certainty to innovate and invest.
Key elements of these proposals include enhanced collaboration between the FCA and FOS, clearer reporting obligations for firms, and changes to the way complaints are processed.
The FCA and FOS will work together more closely, with a new referral process for transparency and a lead complaint process to address novel or significant complaint issues early. This collaboration aims to ensure a consistent interpretation of regulations.
Firms will also have clearer and earlier reporting obligations to notify the FCA promptly about emerging issues that could lead to mass complaints or wider redress events. Good practice guidelines will support these obligations.
In terms of complaint processing, changes aim to ensure complaints are well-evidenced and ready for investigation to avoid delays and backlog.
The FOS plans to lower the standard interest rate on awards for consumers deprived of money from 8% to the Bank of England base rate + 1%, while retaining 8% for late payments. This change will be introduced for complaints referred from January 1, 2026.
Future consultation on case fees by the FOS will propose the introduction of different fee levels based on complaint circumstances, to make the system fairer and encourage early resolution.
These reforms respond to problems identified in recent complaint surges, such as PPI, APP fraud, and car finance mis-selling, that have clogged the current system, causing significant delays. The goal is to create a more predictable, transparent, and agile redress framework that reduces systemic risks and benefits both consumers and firms.
The FCA and FOS are currently seeking feedback on these proposals by October 8, 2025. In parallel, the UK Treasury is consulting on legislative changes aligned with these regulatory proposals, such as a 10-year complaint referral limitation period and enhanced tools for handling systemic issues.
In the motor finance sector, the FCA has extended the deadline for motor finance firms to provide a final response to customer complaints regarding discretionary commission arrangements (DCAs) until 4 December 2025. This extension is not related to the changes in the way complaints are processed or the government's proposals to modernize the financial redress system.
The FCA has also implemented new restrictions on claims management companies (CMCs) to prevent excessive fees for consumers owed compensation from financial services firms. These changes came into effect from today and aim to prevent the system from being overwhelmed and delaying consumer compensation.
James Dipple-Johnstone, Interim Chief Ombudsman at the Financial Ombudsman Service, mentioned that the reforms will make the system more agile and responsive. Sarah Pritchard, Deputy Chief Executive at the FCA, stated that the changes will help create a more predictable system for firms and consumers.
These reforms mark a significant modernization effort aimed at making the UK financial redress system more responsive and fit for a changing economic and regulatory environment. The changes will complement government proposals to modernize how the Financial Ombudsman assesses consumer complaints.
- The Financial Conduct Authority (FCA) and Financial Ombudsman Service (FOS) are seeking feedback on their proposals for modernizing the UK financial redress system, which include changes in complaint processing and regulation policies.
- The Financial Ombudsman Service (FOS) plans to lower the standard interest rate on awards for delayed compensation, while also considering changes in case fees to make the system fairer and encourage early resolution.
- The reforms in the financial redress system aim to create a more predictable, transparent, and agile framework that benefits both consumers and firms, addressing issues identified in recent complaint surges.
- The FCA's new regulations on claims management companies (CMCs) aim to prevent excessive fees for consumers and delay in consumer compensation, in line with their objective to modernize the financial redress system.
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