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Regulatory body, FCA, aims to overhaul the redress mechanism for better modernization

Examine the Financial Conduct Authority's (FCA's) redress scheme and its influence on financial dispute resolutions and consumer reimbursement procedures.

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FCA Aims to Update the Resolution Process with Modern Techniques
FCA Aims to Update the Resolution Process with Modern Techniques

Regulatory body, FCA, aims to overhaul the redress mechanism for better modernization

UK Financial Regulators Propose Major Reforms to Enhance Redress System

The UK's Financial Conduct Authority (FCA) and Financial Ombudsman Service (FOS) have announced a series of reforms aimed at modernizing and improving the financial redress system. These reforms, part of the Leeds Reforms announced in July 2025, seek to create a more agile, predictable, and fair system for resolving individual consumer disputes while protecting firms from uncertain or protracted liability.

The proposed changes include:

  1. Introduction of a 10-year absolute time limit (longstop) for bringing cases to the FOS, providing certainty on complaint handling deadlines, with some exceptions for long-term products.
  2. Adapting the Financial Ombudsman’s “fair and reasonable” test to align more closely with FCA rules, ensuring consistency between regulatory standards and dispute outcomes.
  3. Giving the FCA greater flexibility to manage mass redress events, including powers to pause complaint handling without needing prior industry consultation, helping to prevent system overload during large-scale compensation claims.
  4. Establishing a formal referral mechanism allowing the Financial Ombudsman to refer ambiguous rule interpretation questions to the FCA and permitting firms and complainants to seek FCA clarity before the FOS issues final decisions.
  5. Introducing differentiated case fees for firms based on complaint circumstances, encouraging early resolution and making the system fairer for businesses while maintaining consumer protections.
  6. Changing the interest rate on some FOS awards from a fixed 8% to one linked to the Bank of England base rate +1%, better reflecting actual economic conditions.
  7. Enhancing collaboration between the FCA and FOS through improved referral and lead complaint processes to handle novel or significant complaint issues efficiently.
  8. Providing clearer guidance and good practice examples for firms to report emerging issues quickly, identify potential redress concerns, and monitor redress risks proactively.

These reforms are designed to prevent the redress system from becoming overwhelmed and delaying consumer compensation. The FCA and FOS are currently inviting feedback on these proposals, with consultations open until 8 October 2025.

In a separate development, 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 specific to the motor finance sector and is not related to the proposed introduction of differentiated case fees for financial services firms or the redress system modernization.

The Financial Ombudsman Service has also confirmed that it will be changing the interest rate it applies to some awards it directs businesses to pay, from 8% to track the Bank of England's base rate +1%.

Additionally, new restrictions for claims management companies (CMCs) on excessive fees charged to consumers owed compensation from financial services firms come into effect today. These changes are aimed at making the system more agile and responsive, as stated by James Dipple-Johnstone, Interim Chief Ombudsman at the Financial Ombudsman Service.

These reforms mark a significant step towards creating a more efficient, fair, and modern financial redress system in the UK.

[1] FCA (2025). Leeds Reforms: Proposals for modernising the financial redress system. [online] Available at: https://www.fca.org.uk/publications/consultation/ps21-21

[3] FOS (2025). Leeds Reforms: Proposals for modernising the financial redress system. [online] Available at: https://www.financial-ombudsman.org.uk/news/press-releases/leeds-reforms-proposals-for-modernising-the-financial-redress-system

[5] FCA (2025). Consultation Paper 21/21: Leeds Reforms: Proposals for modernising the financial redress system. [online] Available at: https://www.fca.org.uk/publications/consultation/cp21-21

  1. The UK's Financial Conduct Authority (FCA) and Financial Ombudsman Service (FOS) propose to introduce a 10-year absolute time limit for bringing cases to the FOS, aiming to enhance the predictability and fairness of the financial redress system.
  2. The FCA and FOS reforms involve changing the interest rate on some FOS awards from a fixed 8% to one linked to the Bank of England base rate +1%, reflecting the actual economic conditions more accurately.
  3. The Financial Ombudsman Service's reforms also include adopting a more consistent "fair and reasonable" test with FCA rules, and providing clearer guidance for firms to proactively monitor redress risks in the banking-and-insurance industry, thereby reinforcing the industry's innovation and compliance with regulations.

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