On 16 March 2026, the Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS) published CP26/9, "Modernising the Redress System", which both consults on further reforms to the FOS framework and finalises elements of earlier consultations. This was accompanied by HM Treasury’s consultation response on reform of the FOS, which confirms the Government’s intention to legislate for wider structural change when Parliamentary time allows.

Taken together, these publications signal a decisive recalibration of the UK redress regime. The direction of travel is towards greater predictability and regulatory coherence - with the FOS more tightly anchored to FCA standards - and earlier, more coordinated handling of systemic consumer harm. 

Re‑setting the “fair and reasonable” test

One of the most significant elements of the reform package concerns the “fair and reasonable” test used by the FOS when determining complaints. Under FSMA, the FOS must determine complaints “by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case” and the FCA Handbook currently permits the Ombudsman, when applying the test, to take into account relevant law and regulations, regulator rules and guidance, codes or practice and, where appropriate, good industry practice. 

The Government has confirmed its intention to legislate so that where a firm has complied with relevant FCA rules in relation to a particular element of the complaint, the FOS must find that it acted fairly and reasonably in respect of that element of the complaint. This is designed to create greater regulatory certainty and alignment between FOS determinations and FCA standards. 

As a result of this, the FCA will make consequential amendments to the handbook. It proposes removing reference to “good industry practice” as a factor when making determinations, as the term can appear subjective, create uncertainty and risks potential misalignment with FCA rules, guidance and standards. Second, CP26/9 proposes clarifying that the FOS should apply only the law, rules and guidance in force at the time of the act or omission complained of, responding directly to industry concerns about the potential for retrospective interpretation. Together, these changes would provide greater transparency about how an Ombudsman exercises their judgment in complaints related to FCA regulation.

However, it should be noted that these changes are only a slight narrowing of the fair and reasonable test and the FOS’ discretion remains broad. In complaints where FCA rules are not at issue – for example, complaints regarding maladministration, factual disputes, some fraud scenarios, operational failings etc. - there remains a degree of uncertainty as to the outcome of FOS complaints. This is because the FOS is not bound by legal precedent. This, combined with, at times, perceived inconsistencies in the application of the law (for example, in relation to causation), can lead to surprising results which would likely not have occurred if the complaint was in the Courts. 

However, the Government is seeking to temper some of this uncertainty around the FOS process and outcomes. First, it intends to legislate to give the Chief Ombudsman overall responsibility for FOS determinations, aiming to improve internal consistency and coherence across cases, which should go some way towards more predictable outcomes. Second, to introduce an absolute 10‑year time limit for referring complaints to the FOS, subject to limited exceptions to be defined by the FCA for certain longer‑term products (for example, pensions). This is intended to provide greater clarity and finality for firms by preventing very old cases - where records may be incomplete and factual reconstruction difficult - from entering the FOS process. 

It remains the case that once a determination has been accepted by the complainant, it is binding on the firm and that neither is bound if the complainant rejects the determination. Further, there continues to be no appeal process - in fact, the Government explicitly rejected calls for a formal appeals mechanism because it said it would undermine the FOS’s purpose as a quick and simple dispute resolution system. Parties can only seek judicial review of FOS decisions on very narrow grounds. 

A more structured and filtered complaints process

At an operational level, CP26/9 proposes a new pre‑registration stage at the FOS. Complaints will be subject to an early readiness and triage assessment before being accepted for full investigation. The FOS would also have expanded and clarified dismissal grounds, including where complaints are frivolous, vexatious, previously considered, or more appropriately dealt with elsewhere. For insurers, this should reduce the volume of weak or speculative complaints progressing through the FOS pipeline - a historic driver of defence costs and nuisance settlements. While there may be an initial period of adjustment, the longer‑term effect should be a more disciplined complaints flow and clearer procedural exit points.

Earlier identification of systemic redress risk

In CP26/9, the FCA and the FOS also set out their final policy on issues consulted on in their first consultation on modernising the redress system (CP25/22), which was published in July 2025. This includes the criteria for identifying and reporting potential mass redress events (MREs) to the FCA. The Government response confirms that the FCA will be given enhanced statutory tools to intervene earlier and more decisively in MRE scenarios, including powers to pause FOS complaints and to deploy redress schemes under an enhanced statutory framework. The Government also intends to introduce a referral mechanism between the FOS and the FCA where the FOS considers there may be ambiguity in what FCA rules require, or where it considers an issue raised may have wider implications across the financial services industry.

For insurers, this is likely to bring earlier visibility of exposure. Circumstances notifications may arise sooner, often before complaint volumes or litigation escalate. While this may increase short‑term engagement, earlier intervention could help contain tail risk and reduce the likelihood of late‑stage loss amplification.