Friday, September 5, 2025
2025 redress system reforms in financial services
In July 2025, the Financial Conduct Authority (FCA), the Financial Ombudsman Service (FOS), and HM Treasury launched consultations to modernise the UK's redress system.
The reforms respond to long-standing concerns regarding complaint handling across financial services. The current redress framework can be slow, inconsistent and unpredictable, particularly when large volumes of complaints or novel issues escalate to the FOS at a high pace.
For consumers, it often means long delays before fair compensation is paid.
For firms, it creates uncertainty around outcomes, costs and long-term liability exposure.
For the UK market, it risks discouraging investment, innovation and growth.
As Chancellor Rachel Reeves put it in her Mansion House speech on 15 July 2025:
“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.”
The proposed redress system reform aims to resolve this tension. Preserving consumer protection while removing systemic friction that slows decision-making, increases duplication and undermines confidence in the complaints process.
This blog covers the broad system-wide reforms. For sector-specific changes in motor finance complaints, see our motor finance redress scheme explainer.
What’s changing and why?
At a system level, the proposals are designed to modernise the redress framework so consumers receive quicker and fairer compensation. They aim to provide firms with clearer certainty on how FCA rules apply to disputes, help reduce duplication and delays by clarifying responsibilities between the FCA and the FOS, and improve the system’s ability to handle high volume and emerging issues without becoming gridlocked.
This is not a minor process tweak. It is a material redesign of how redress decisions are supported, escalated, and resolved.
What do the proposals mean for the Financial Ombudsman Service?
The reforms would re-anchor the FOS more firmly to its core role as an impartial dispute resolution body.
Key changes include closer alignment between the fair and reasonable test and published FCA rules and guidance, a formal mechanism for the FOS to refer questions of unclear rule interpretation to the FCA, and greater transparency around how FCA and FOS alignment operates in practice.
The intention is to reduce inconsistent decisions and provide clarity earlier in the complaint lifecycle, before volumes escalate unnecessarily.
The consultation proposes a ten-year-long stop for referring new complaints to the FOS, with limited exceptions for certain long-duration products such as some pensions and investments.
How will compensation interest change from 2026?
From 1 January 2026, the way in which pre-determination interest is calculated on the majority of FOS redress awards will change.
Pre-determination interest will be calculated as the time-weighted average Bank of England base rate +1%.
The existing 8% simple interest rate will be applied as a penalty for late payment after a final decision.
Awards will continue to reflect actual financial loss.
The FOS has indicated it expects to publish a calculator from January 2026 to provide indicative illustrations.
How will the FCA and FOS alignment work?
To reduce fragmentation, the proposals introduce clearer coordination mechanisms, including a formal referral route from the FOS to the FCA for rule interpretation, a lead complaint approach to surface systemic or novel issues earlier, and updated reporting guidance and good practice materials.
Together, these measures are intended to prevent high volumes of similar complaints from progressing without regulatory clarity.
For firms, this increases the importance of applying early issue identification, robust evidence, and consistent complaint reasoning.
These factors only work when there is operational control over the complaint lifecycle. 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’s 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 the 8% simple rate 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
The reforms favour structured, well-evidenced complaint handling and expose weaknesses where processes are informal or fragmented.
How Complyr helps you prepare
Complyr enables teams to create 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 evidence for dispute resolution in a redress system increasingly focused on early clarity and consistency.
Complaint teams using complaint management software have reported a 92% reduction in FOS referrals and a 47% reduction in FOS upheld complaints.
FAQs
What’s a 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’s eligible for redress under the FCA rules?
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 compensation scheme?
Not entirely. The motor finance discretionary commission 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 regulated complaint system.
When do the reform 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’s a time-weighted average?
A time-weighted average reflects the average interest rate over a period, giving more weight to rates that applied for longer. Here, it applies from the date of loss to the payment date.
How do the new interest rates work in practice?
For complaints referred from 1 January 2026, pre-determination interest tracks the weighted average Bank of England base rate +1%. If compensation is not paid by the due date, an 8% penalty rate applies.
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’s 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).
Is there still time to change our complaint handling process?
Yes. Modern complaint case management systems such as Complyr, can be implemented quickly and configured around existing workflows. Teams using structured systems consistently report fewer escalations, better oversight of key dates, and reduced regulatory risk.