UK Treasury unveils largest financial services overhaul in decades

Anthony Harrison, a financial services expert at Pinsent Masons and former financial ombudsman, was commenting after the UK government announced a major package of reforms to the FOS.

HM Treasury said the reforms would mark the biggest overhaul in the financial services watchdog’s 25-year history and were designed to address growing concerns that the ombudsman was acting as a ‘quasi-regulator’ that was “creating uncertainty for consumers and businesses that was holding back investment.”

The announcement follows the government’s response to a public consultation held last year that sought industry views on the FOS’ role and ways it could deliver a simpler, impartial dispute resolution service. It proposed recalibrating the ombudsman’s remit, including an adapted ‘fair and reasonable’ test, and formalising the interaction between the FOS and the Financial Conduct Authority (FCA) to reduce regulatory inconsistencies and uncertainty for businesses.

The government has confirmed it will legislate to introduce these and a number of other significant changes to the FOS’ role. These include reforming the legislative framework that governs the FOS to strengthen consistency in its decision-making and enhance regulatory alignment with the FCA.

The FOS will also be subject to a new 10-year time limit for consumers to complain, while the FCA will be empowered to “make exceptions to this time limit.”

Harrison said the reforms were “broadly positive” and crucially would introduce “greater predictability into an arena where firms have long struggled with uncertainty.”

He said greater alignment between the FCA and the FOS would be a welcome development for the financial services sector more broadly. “One of the core tensions in the current system is the perception that the ombudsman can edge into setting de facto regulatory standards through individual decisions,” he said. “The proposals – including the clarification that FOS should apply only the rules and standards in force at the time, not wider ‘good industry practice’, and the introduction of a referral mechanism allowing FOS to pause and hand cases with broader regulatory questions across to the FCA – go some way to addressing that concern.”

The government plans to introduce a referral mechanism between the FOS and the FCA that would require the ombudsman to seek the FCA’s views on cases. This move is aimed at streamlining case handling and ensuring decisions are taken at the right level in the organisation following public outcry over the ombudsman’s handling of mass consumer redress events.

Raam Hargun of Pinsent Masons said the reforms would give firms greater clarity and predictability in how complaints will be assessed. “The new referral mechanism between the FOS and the FCA should also reduce inconsistent or quasi‑regulatory decisions, which have historically created uncertainty for firms,” he said. “This should support the industry by preventing inconsistent precedent‑setting in mass complaint situations, which has previously fuelled significant litigation and large‑scale remediation exercises.”

The FCA and FOS have launched a joint consultation – C926/9: Modernising the redress system – to finalise proposals to modernise the redress framework ahead of legislation being presented to parliament.

In the meantime, Harrison said the proposed changes would carry ‘transitional’ risks for the industry while it waits for the reforms to become law. “If not implemented carefully, a new registration stage and expanded dismissal grounds could unintentionally raise access barriers for vulnerable consumers or create bottlenecks,” he said. “The safeguards built into CP26/9 are clearly designed to avoid that, but the system will need close monitoring as it beds in.”

However, Harrison warned that firms should not become complacent. “The reforms go hand‑in‑hand with a more structured, earlier‑intervention model for identifying systemic issues, tighter cooperation between FCA and FOS, and clearer routes for pausing and sequencing cases. That all increases the onus on firms to spot and fix redress issues early, and to notify the FCA promptly.”

These proposals come amidst the government’s continued efforts to ease the regulatory burden on the UK’s financial services sector to stimulate growth and boost consumer protection.