The FCA and Financial Ombudsman Service are to ‘modernise the financial redress system’ to closer align their complaint processes.

Currently, the majority of complaints are resolved by firms, and the FCA claims that the redress system works well for individual cases that come to the Financial Ombudsman. But high volumes of complaints on specific or novel issues can cause significant delays.

The FCA claims its changes will help firms identify and resolve issues before complaints escalate and aim to give greater predictability.

The changes are designed to complement Government proposals shared today to modernise how the FOS addresses consumer complaints.

The Government consultation includes plans to:

• Adapt the Financial Ombudsman’s ‘fair and reasonable’ test.
• Give the FCA more flexibility to manage mass redress events, including pausing complaints handling without industry consultation.
• Introduce a formal mechanism for the Financial Ombudsman to refer issues that arise through its casework to the FCA on the interpretation of the FCA’s rules, where there is ambiguity in how they apply.
• Allow firms and complainants to refer an issue to the FCA, for clarity on its rules, before the Financial Ombudsman issues a final decision.
• Introduce an absolute time limit for bringing cases to the Financial Ombudsman of 10 years, subject to exceptions, for example, for longer-term products.

The FCA proposals focus on improving how the FCA and FOS work together to “ensure consistency in the interpretation of regulations”. To achieve this a new referral process will be setup to improve transparency about regulatory alignment and lead a complaint process which will look at significant complaint issues as they emerge.

The FCA also proposed clearer guidance for firms on reporting issues to it sooner, alongside good practice examples to help identify and resolve complaints.

It will also add guidelines to help industry assess and trigger the need to resolve a situation with wider implications that could spike complaints.

The proposals also promise changes to the way the Financial Ombudsman processes complaints to “ensure they are well-evidenced and ready” before an investigation begins. 

Sarah Pritchard, deputy chief executive at the FCA, said: “When something goes wrong, it is right that people are compensated. But a lack of certainty in the financial redress system can hold back investment and innovation. Our changes will help create a system that is more predictable for firms and gives consumers quick and fair compensation where they’re owed it, supporting UK growth.”

Revealing plans to reform the FOS this morning to delegates at an event in Leeds, Chancellor Rachel Reeves said: “The Financial Ombudsman Service will be returned to its original purpose as a simple, impartial dispute resolution service which quickly and effectively deals with complaints against financial services firms under today’s reforms instead of acting as a quasi-regulator, with its decisions more closely aligned to the Financial Conduct Authority’s rules.”

James Dipple-Johnstone, Interim Chief Ombudsman at the Financial Ombudsman Service, said: “These reforms mark a significant step in modernising the UK's redress system, making it more agile and responsive and a much better fit for today's economy. Our changes will bring consistency and predictability for businesses and consumers, enabling us to better focus on our core purpose - resolving individual disputes quickly and with minimum formality."

The Financial Ombudsman has also confirmed that, following feedback from stakeholders, it will be changing the interest rate it applies to some awards it directs businesses to pay, from 8% to track the Bank of England’s base (average) rate +1%. Awards will still reflect any actual losses the consumer has suffered.