Financial Services and Markets Bill: FOS Reform and Consumer Redress — Detail of the Legislative Changes

Why should I read this?

Since the change of government in 2024, there have been a series of announcements and consultations about how to modernise the redress system for complaints about financial services and products. In March 2026, the Treasury confirmed at a high level the changes it intended to make to the Financial Ombudsman Service’s (FOS’s) framework. That process has now culminated in the Financial Services and Markets Bill (the Bill), which was announced in the King’s Speech, and has since been introduced into the House of Lords. If enacted, the Bill will make a wide range of significant changes across the regulation of financial services and markets.

This briefing focuses on the changes to the FOS and the framework for consumer redress schemes, summarising the key changes. Importantly, the reform process is twin track in nature. Alongside the proposed legislative changes introduced by the Bill, the Financial Conduct Authority (FCA) and the FOS are expected to make a number of changes to the Dispute Resolution: Complaints Sourcebook (DISP) in the nearer term. See our earlier briefing for further information. Taken together, these changes represent the most significant reform of the FOS since its inception.

Key legislative changes

1. Amendment to the ‘fair and reasonable’ test

The Bill replaces the existing broad “fair and reasonable’ test”¹ with a new two-limb test for determining complaints in favour of the complainant. Under the new test, a complaint may be determined in the complainant’s favour only if, in the opinion of the FOS: (a) at the time of the disputed act or omission occurred, either (i) the act or omission did not comply with an FCA rule applying to the respondent, or (ii) there was no FCA rule applying to the respondent that related to the act or omission; and (b) the disputed act or omission was not fair and reasonable in all the circumstances of the case.

"FCA rule" means any rule made by the FCA, whether under FSMA or another enactment. In determining whether such a rule applied, or was not complied with, the FOS must have regard to a defined set of matters including: (i) any law relating to the act or omission; (ii) any FCA opinion given under the new referral mechanism; (iii) FCA publications relating to the rule; and (iv) and any other matters specified in Treasury regulations. The limb (iv) appears to give effect to the Treasury’s stated intention to take a power to prescribe how particular categories of FCA rules are treated for the purposes of the “fair and reasonable” assessment - including the potential to exclude certain rules, or require them to be applied differently (for example, the Principles for Businesses or the Consumer Duty), although further information on that is awaited.

In determining whether the disputed act or omission was fair and reasonable, the FOS must take into account: (i) the effect on the complainant and respondent; (ii) the effect of the respondent acting differently (or not as the case may be); (iii) the general principle that consumers should take responsibility for their decisions; (iv) any law relating to the act or omission; (v) anything published by the FCA or other regulators; (vi) any voluntary codes of practice; and (vii) any other matters specified in Treasury regulations.

The new test will apply to complaints made after the section comes into force, irrespective of when the conduct occurred.

2. Referrals of matters to the FCA

The Bill introduces new provisions², establishing a formal mechanism for the FOS to refer matters to the FCA:

• First, the FOS must make a notification to the FCA where the FOS considers that a complaint raises issues with potential wider market implications and any conditions specified in Treasury conditions are met; and
• Second, the FOS must request an opinion from the FCA as to the interpretation of FCA rules if the FOS considers that the interpretation of those rules is relevant to the determination of a complaint, the rules are ambiguous as to how they apply to the complaint, and any conditions specified in Treasury regulations are met.

In both cases, the FCA is required to consider the potential market impact (including whether to consult relevant statutory panels) and whether the issue raises a point of law; if it does, the FCA must then decide whether to seek a court determination (where it has standing).

When it comes to the FCA’s response:

• In either case, the FCA may require the FOS to pause the determination of the complaint (by issuing a direction) where broader market issues or a point of law is being considered. Where no wider market or legal issue arises, the FCA is not required to respond to a notification by FOS, unless the referral was for an opinion.
• There are provisions detailing what the FCA must provide in an opinion, for example, the FCA must explain how the FCA interpreted, or would have interpreted, the rules at the time of the events in question. Nothing in an FCA opinion can be treated as guidance given by the FCA. 
• The FCA must consider whether any changes are required to the rules of guidance given by the FCA as a result of its opinion or response to a notification.
• The relevant timing requirements will be prescribed by the Treasury in regulations.

The Bill also requires FOS scheme rules to allow a complainant or a respondent to ask the FOS to give notice or make a request to the FCA for an opinion. Where such a request is made, the FOS will decide whether the conditions are met.

The amendments apply to complaints made after the section comes into force, regardless of when the underlying act or omission occurred.

3. Introduction of a 10-year time limit

The Bill introduces a new hard longstop for making complaints under the compulsory jurisdiction³.

The "applicable time limit" is the earlier of: (a) the end of the period of ten years beginning with the act or omission to which the complaint relates, and (b) a time determined in accordance with the FCA's rules, which may provide for different times in relation to different cases. However, the rules may provide in specified circumstances for the applicable time limit to be a later time. It is expected that the FCA may use this latter provision to set exceptions to the ten-year longstop for some long-term products.

The change will apply to any complaint made after the section comes into force, whether or not the act or omission to which the complaint related occurred before commencement.

4. Consumer redress schemes

Currently, a section 404 FSMA consumer redress scheme may be imposed where the FCA considers that:

• There may have been a widespread or regular failure by firms to comply with requirements;
• As a result, consumers have suffered (or may suffer) loss or damage in respect of which, if they brought legal proceedings, a remedy or relief would be available in those proceedings; and
• It is desirable to secure redress taking into account whether consumers could instead obtain redress in other ways.

The Bill makes key changes⁴:

• Removal of the “widespread or regular” threshold: The FCA no longer needs to establish systemic or repeated failings. 
• Removal of the litigation-based test for loss: The requirement that consumers’ loss be of a type for which a remedy would be available in court proceedings has been dropped. 
• Refocusing of the “desirability” assessment: The FCA must still consider whether it is desirable to secure redress, but this is now framed by reference to the availability of redress through the FOS, rather than broader alternative routes.

The definition of "consumer redress scheme" is clarified to include schemes that correspond to, or are similar to, a formal consumer redress scheme, which are established by virtue of FCA variation of a permission or authorisation, or by agreement between a person and the FCA.

The Bill also provides that where the subject matter of a complaint falls under a consumer redress scheme, the FOS must refer the complaint to the respondent for the complaint to be dealt with under the consumer redress scheme instead.

The amendments will apply to complaints already made before the amendments come into force, but do not apply to consumer redress schemes established before commencement.

Further, a new section 404H is inserted into FSMA, granting the FCA a power to issue directions to the FOS or firms (or persons acting on behalf of either) to take or refrain from specified action or in relation to complaints. This applies where it appears to the FCA that there may have been a failure by a relevant firm to comply with applicable requirements. FCA directions may specify the way in which, and time by which, a thing is to be done, may be varied, and may be expressed to have effect during a specified period or until revoked. Notably the FCA can give such directions in writing to the relevant person(s) or publish them.

5. Joint reporting by the FOS and FCA

The Bill inserts a new provision requiring the FCA and FOS to jointly publish reports about matters relating to the FOS at such times as they consider appropriate. The report may include such information, guidance, or advice as they consider appropriate⁵.

6. Governance

The Bill provides for: (a) The Financial Ombudsman to be appointed by the Financial Ombudsman Service Limited, with the approval of the Treasury⁶; and (b) The Chair of the FOS to be appointed by the Treasury⁷.

Further, the reforms replace the existing panel-based structure - under which complaints are determined by individual ombudsmen overseen by a “Chief Ombudsman” - with a single statutory “Financial Ombudsman,” whose functions may be exercised by authorised staff⁸.

These changes appear to centralise responsibility for determinations within a single office while preserving operational flexibility through delegation. The removal of the panel marks a shift away from a decentralised adjudicative model towards a more unified structure, with potential implications for accountability, transparency, and consistency of decision-making.

Next steps and comment

The Bill had its first reading in the House of Lords on 19 May 2026, and its second reading is scheduled for 8 June 2026. The second reading will provide the first opportunity for members of the House of Lords to debate the Bill’s key principles and overall purpose, and to identify areas of concern or provisions that may merit amendment. The Bill will then proceed to Committee Stage, where it will be subject to more detailed, line-by-line scrutiny and proposed amendments will be considered. The timeframe for the Bill’s passage will depend on a range of factors, including the extent of parliamentary scrutiny and debate, the volume of proposed amendments, and the degree of pressure on the legislative timetable.

Taken as a whole, the Bill is a significant step forward in setting out the architecture of reform and points to a material recalibration of the FOS and the redress landscape. Its direction of travel is to constrain the breadth of the FOS’s current decision-making framework, align outcomes more closely with FCA rules and policy, and give the FCA a more explicit role in shaping how significant complaint issues are handled. However, a number of important elements have been left to secondary legislation and therefore remain uncertain. Further, the output of the FCA/FOS consultation on non-legislative changes is awaited. Until all of the details are available, it is difficult to assess with confidence how the new regime will operate on the ground or where the practical balance will ultimately be struck between complainant protection, firm certainty, and regulatory control.

1. Amendment to s228 FSMA 2000.
2. Sections 227A-D of FSMA 2000.
3. Amendment to paragraph 13, Schedule 17 to FSMA 2000.
4. Amendment to section 404 FSMA 2000.
5. New section 230B in Part 16 of FSMA 2000.
6. New Part 1A in Schedule 17 FSMA 2000.
7. Amendment to paragraph 3 of Schedule 17 FSMA 2000.
8. New Part 1A in Schedule 17 FSMA 2000.