Friday, September 5, 2025
2025 redress system reforms in financial services
In July 2025, the FCA, the Financial Ombudsman Service, and HM Treasury launched consultations to modernise the United Kingdom's redress system. The proposals aim to deliver quicker decisions, more consistent outcomes, and clear lines of responsibility between the FCA, the FOS and firms (including a separate consultation on motor finance).
This blog covers the system-wide reforms. For sector-specific changes in motor finance complaints, see our motor finance redress scheme explainer.
“In too many areas, regulation still acts as a boot on the neck of businesses, choking off the enterprise and innovation that is the lifeblood of economic growth.”— Chancellor Rachel Reeves, Mansion House speech, 15 July 2025
What's changing and why?
The proposals aim to deliver faster, fairer outcomes by clarifying roles, aligning tests with rules, and revising how compensation is calculated.
A refreshed framework designed to give consumers quicker access to fair redress
Clearer guidance so firms and customers know how rules will be applied in disputes
Stronger coordination between the FCA and FOS to cut duplication and delay in resolutions
What do the proposals mean for the Financial Ombudsman Service?
The FOS would refocus on dispute resolution with clearer guardrails and the ability to refer points of rule interpretation to the FCA.
Re-anchor the service to its core role as an impartial dispute resolver
Introduce a formal route for the FOS to refer unclear rule questions to the FCA
Align the fair and reasonable test - the FOS’s legal duty to decide cases based on what is fair and reasonable in all the circumstances, not just strict legal rules - more closely with published FCA rules and guidance
Increase transparency about how alignment between the FCA and the FOS works in practice
What's the proposed ten-year time limit?
The consultation proposes a ten-year long stop — a hard deadline after which new complaints would generally no longer be accepted by the FOS. Certain long-term products, such as some pensions and investments, would be exempt.
Improves the predictability of liability horizons for firms and consumers
Supports quicker resolution by reducing very old cases
Allows exceptions where product features or consumer circumstances justify it
How will compensation interest change from 2026?
From 1 January 2026, the pre-determination interest (the extra interest the FOS adds to some awards to reflect the time a customer has been out of pocket before a decision) will move to the time-weighted average Bank of England base rate plus one percent. If a firm delays payment after a decision has been issued, the current fixed rate of eight percent will continue to apply.
Applies to complaints submitted to the FOS from 1 January 2026
Calculated as a weighted average of the base rate over the relevant period, plus one percent
Awards will continue to reflect actual losses
The eight percent simple rate will still apply to late payment after the decision
How will FCA and FOS alignment work?
To make the system more consistent and less fragmented, the proposals include a new referral mechanism, a lead complaint process, and clearer guidance for firms.
A formal referral route from the FOS to the FCA when clarification of rules is needed
A lead complaint process to surface systemic issues earlier
Updated reporting guidance and good practice material to improve consistency and transparency
Clearer alignment only works when the evidence behind it is consistent. Our blog What Is Complaint Case Management Software? explores how structured workflows give teams a reliable way to manage cases and deliver fair, predictable outcomes.
What is the timeline, and what should complaint leaders do now?
The consultation windows are tight, and the proposed changes carry operational, legal, and customer impacts. Firms should be planning their response now, while also preparing teams and systems for the practical adjustments that will follow.
By 8 October 2025: submit responses to CP25/22 and the HMT FOS review with evidence from live cases
This quarter: audit FOS-bound cases and evidence quality; identify where an early FCA referral would have reduced uncertainty
Before year-end: update calculators/templates for the pre-determination interest formula and retain eight percent simple for post-determination late payment; train teams and refresh playbooks
Planning: prepare MI and process changes for a potential ten-year-long stop with exceptions for certain long-duration products
How Complyr helps you prepare
Complyr provides structured workflows, a single view of each case, and downloadable documentation that stands up to audit. By bringing everything into one place, teams can follow a consistent process, capture decisions as they happen, and create a reliable evidence trail. The result is clearer reasoning, fewer avoidable escalations, and stronger support for dispute resolution.
FAQs
What is an FCA redress scheme?
A redress scheme is a formal process set out by the FCA requiring firms to review past business and, where necessary, provide remedies to affected customers. The FCA can establish a scheme under section 404 of FSMA, setting out which firms are covered, which customers are eligible, and how redress must be calculated and delivered (FCA, DISP App 1).
Who is eligible for redress
Customers are eligible for redress if they have suffered loss, detriment, or unfair treatment due to a firm’s act or omission, as defined under the FCA’s DISP rules. This applies to consumers, small businesses, and guarantors within DISP’s scope. Eligibility depends on the product or service involved and the redress scheme in place, but firms must always assess cases consistently against FCA rules and guidance.
Is this different from the motor finance proposals?
Not entirely. The motor finance consultation focuses on one sector, but it sits within the broader redress reforms outlined here. Both are intended to improve fairness, consistency, and confidence in the complaints system.
When do the changes take effect?
Consultations run to 8 October 2025. The change to interest on some awards applies from 1 January 2026. Other changes will depend on the final policy statement and implementation timetable.
What should we change in our handling process now?
Strengthen evidence collection, document rationale at key decision points, and identify cases where an early FCA view would have helped.
What is the maximum award the Financial Ombudsman Service can make?
For complaints referred on or after 1 April 2022, the FOS can require firms to pay compensation up to £375,000 for acts or omissions after 1 April 2019. For earlier cases, the maximum is £160,000. The FOS can also recommend higher amounts, but firms are not legally obliged to pay above the statutory limit (FOS, “awards limits” guidance).