Financial Ombudsman reforms: faster complaints, or more barriers to redress?

The Financial Ombudsman Service is changing how it handles complaints. The stated aim is to resolve disputes more quickly and give consumers and financial firms greater certainty. But the changes also raise a question: will a simpler process make it easier to obtain redress, or make it easier to turn complaints away?

The distinction between what is confirmed and what is proposed matters. New dismissal rules are due to take effect on 1 October 2026. A separate package of statutory reforms remains in the Financial Services and Markets Bill, which had reached the House of Commons but had not become law as at 24 September.

The Ombudsman will gain an expanded set of grounds for dismissing complaints without considering their merits. These cover circumstances including a complaint better suited to a court or another process, an issue already being dealt with elsewhere, and certain cases previously considered through a regulatory review or redress scheme. The new rules apply to complaints referred to FOS on or after 1 October 2026.

That does not mean every complicated complaint will be sent to court. Dismissal remains a discretionary decision about the circumstances of the individual case. FOS says a complainant will have an opportunity to make representations before a final dismissal decision and should receive an explanation.

One ground needs particular care in reporting. It is inaccurate to say consumers will have to prove “material distress” before FOS can hear them. The published guidance identifies a possible reason for dismissal where the complainant has suffered, or is likely to suffer, no financial loss, material distress or material inconvenience. FOS removed the proposed requirement that financial loss itself be material, acknowledging that a small sum can matter greatly to someone on a low income.

FOS is also clarifying that it considers the legal and regulatory standards relevant when the disputed act or omission happened. It decided to retain “good industry practice” among the matters an ombudsman may consider while Parliament examines the wider proposed change to its statutory fairness test.

The government wants to alter the statutory “fair and reasonable” test. Under its proposal, if a firm met its obligations under the relevant FCA rules for an element of a complaint, FOS would have to find that the firm acted fairly and reasonably in relation to that element. Where no FCA rule covers the issue, the government says FOS would continue to assess what is fair and reasonable in the circumstances. Parliament has not completed its consideration of this proposal.

The Bill also proposes a ten year limit measured from the relevant act or omission. The FCA would be able to make defined exceptions, with the government pointing to longer term products such as pensions, where a problem may take years to emerge. The limit is not currently in force, and its final form depends on the legislative process.

A further proposal would require FOS to seek the FCA’s view when FOS considers an FCA rule ambiguous or identifies an issue with potentially wider implications. The government argues that the regulator should set regulatory standards while the Ombudsman resolves individual disputes. Critics worry that closer alignment could restrict the independent judgment that makes an ombudsman valuable, or delay cases while a regulatory view is sought.

FOS intends to introduce a more formal registration stage to check whether a complaint is within scope and ready for investigation. That stage is not scheduled to come into force on 1 October. FOS plans to pilot earlier information gathering in fraud and scams cases from October, while continuing to accept those cases under its existing arrangements. It says the formal stage will follow further work, including a consultation on case fees, with rollout planned for next year.

The distinction matters to people who cannot easily gather records at the outset, including those whose evidence is held by the firm they are complaining about. Respondents to the consultation warned that a readiness check must not become an early judgment on whether a complaint is likely to succeed. FOS says it does not intend to introduce an additional evidence threshold and will test the approach before wider implementation.

There is a reasonable case for avoiding duplicate investigations and directing disputes to a body that can provide the remedy needed. There is also a real access risk if a person with a valid complaint cannot get past an early filter, or is directed towards court without a practical route to pursue the matter.

Consumer group Which? has warned that parts of the wider reform package could reduce access to simple, impartial redress. FOS itself records concerns about barriers for vulnerable and unrepresented complainants, and says it will monitor the effect of the new dismissal powers after their first year. Those outcomes, rather than the promise of a faster process, will show what the reforms mean in practice.

For now, consumers should not assume the proposed ten year limit already applies, or that a complaint involving no large financial loss is automatically excluded. If FOS proposes to dismiss a complaint, the reason and the opportunity to respond will matter. Its decision should address the actual loss, distress, inconvenience and circumstances raised by the complainant.