Financial ombudsman reforms welcomed, but questions still remain

The UK government has published its response to the review of the Financial Ombudsman Service, alongside final guidance from the Financial Conduct Authority. Measures include complaint time limits, improved regulatory alignment, and a more structured approach to large-scale redress events.

Industry groups have welcomed the proposals, highlighting increased clarity and consistency for firms, while also noting areas, such as the Fair and Reasonable test, where practical application will be key to success.

Phil Smith, Head of Redress at leading independent financial services consultancy Broadstone, said:

“The government’s response marks an important step towards bringing greater clarity and consistency to the UK’s redress framework. Ensuring that the Financial Ombudsman Service places greater weight on firms’ compliance with FCA rules should provide much-needed certainty for firms, while the proposed referral mechanism between the FOS and FCA could help resolve areas of regulatory ambiguity and inconsistency.

A time limit of 10 years for bringing complaints to the FOS may enable firms to improve future planning and increase investment. The flexibility of exceptions is important, especially for longer-term financial products where the cause for complaint may take longer to be established, particularly for cases with less financially aware consumers. 

Recent large-scale cases, such as PPI, and the motor finance investigation, highlight why a more structured framework for mass redress events is needed. A system that allows issues to be identified and resolved earlier should benefit consumers through faster and more consistent outcomes, while also helping firms manage costs and avoid problems escalating into industry-wide redress programmes.

Greater transparency through thematic reporting and a clearer structure for FOS decision-making should also help firms better understand how complaints will be assessed. Taken together, these reforms aim to strengthen confidence in the redress system by making it more predictable, more transparent and better aligned with the UK’s regulatory framework.”

Responding to HM Treasury’s response to its review of the Financial Ombudsman Service, Simon Harrington, Head of Public Affairs at PIMFA, comments: 

“HMT have published a considered set of proposals, which we believe will strike the right balance between providing firms across the financial services landscape with more certainty in their interactions with the FOS while also maintaining consumer protection.  

Whilst we believe this package of measures is overwhelmingly positive, we still have questions around how they will work in practice. For our sector, the adaptation of the Fair and Reasonable test is superficially welcome. However, we retain concerns around how useful it will be when the FOS is required to reach judgments on issues such as an assessment of suitability.

In considering how the adaptation of the Fair and Reasonable test is reflected in legislation, we would encourage HMT to ensure that FOS gives full and balanced consideration to the evidence provided in all circumstances of any case. Doing so will provide firms with extra certainty and remove the risk of subjective judgment that this package of measures is intended to address.”