“The Great FOS Reset”, what is changing?

The Government has confirmed the most significant reform since its creation of the Financial Ombudsman Service (FOS). The intention is to return the FOS to a quick and impartial route for resolving complaints, while aligning outcomes more closely with the Financial Conduct Authority (FCA), so results are clearer and more predictable for consumers and firms.

A recalibrated “fair and reasonable” test

When a dispute turns on matters covered by FCA rules, the FOS will be required to find that a firm acted fairly and reasonably on any aspect where the firm met the relevant rules in force at the time. The practical effect is to anchor determinations to the rulebook and to the FCA’s intended outcomes for those rules, reducing uncertainty that previously arose from a broad, free‑standing ‘fairness’ discretion.

 A new referral route to the FCA

Where a complaint raises ambiguity about how FCA rules should be interpreted, or points to issues with wider implications, the FOS will seek the FCA’s view. Parties may ask the FOS to make a referral, but the decision to refer will sit with the FOS, and the FCA will generally respond within 30 days. This mechanism is intended to deliver quicker alignment on the regulatory position before individual cases are concluded.

 A stronger governance at the FOS

Overall responsibility for determinations will sit with the Chief Ombudsman. This central accountability is designed to support a more consistent approach across casework and to reinforce confidence in the predictability of outcomes.

 Greater transparency through thematic reports

The FOS and the FCA will publish joint thematic reports that explain the approach to particular categories of complaint. Individual decisions will continue to be published but are not intended to operate as precedent, and firms should look first to the thematic material when seeking to understand how the FOS will approach a given issue.

A ten-year absolute longstop

An absolute ten-year limit will cap how long after an event a complaint can be brought to the FOS, sitting alongside the existing Dispute Resolution (DISP) time limits. The FCA will have scope to create limited exceptions for longer term products. For insurers, this brings more certainty to record keeping and data retention strategies while preserving access to redress for appropriate cases.

Mass redress

For market wide issues, the FCA will have clearer tools to manage complaints in an orderly way. That includes the ability to pause the handling of complaints, even where cases have already reached the FOS, and to channel in scope matters back to firms once a redress scheme is established. The intention is to avoid inconsistent outcomes during investigations and to deliver resolution faster once a scheme is in place.

What is changing now within the current framework?

Following the July 2025 exercise, the FCA and FOS are consulting on additional refinements to FOS processes and are moving ahead with operational changes that do not require legislation. These are intended to improve speed, consistency and readiness.

• Registration stage: a new front-end check that a complaint is in scope and properly evidenced before it is allocated to a caseworker.
• Modernised dismissal grounds: clearer scope to close complaints without a merits determination where they are very complex or better suited to other processes, including determination in court.
• Targeted DISP amendments to the fair and reasonable test: aligning the handbook position with government policy so that only the standards in force at the relevant time apply.
• Guidance and notifications: finalised guidance on identifying and rectifying harm and clarified expectations on when firms should notify the FCA about emerging redress risks. 

Responses to the consultation are due by 11 May 2026, with a further policy statement expected later in 2026.

What does this mean for insurers?

• Defending complaints through rule compliance: where insurers can evidence contemporaneous compliance with the rules that applied at the time, the recalibrated test should strengthen the defence position.
• Less reliance on isolated determinations: joint thematic reports should reduce arguments built on ‘cherry picked’ decisions and give a clearer framework for how the FOS approaches recurring issues.
• A cleaner forum split: modernised dismissal grounds should make it easier to divert legally complex disputes away from the FOS and into the courts, preserving the FOS for quicker, informal disputes.
• Operational predictability in mass events: the ability to pause and redirect complaints should produce a more orderly consistent path to resolution, assisting with reserving, customer communications and alignment with any firm led remediation.
• Records remain critical: the longstop supports data minimisation, but insurers will still need accessible, dated evidence to demonstrate compliance.

What next?

In practical terms, The Great FOS Reset is about restoring predictability while rewarding good claims discipline. Insurers who can tell a clear, evidence-led story of compliance with the rules in force at the time and keep proportionate records to the ten-year longstop will find the new framework works with them, not against them. Where disputes are genuinely complex or turn on difficult points of law, insurers should be ready to explain why court is the more suitable forum. Overall, this is a reset that returns the FOS to resolving disputes rather than setting rules in order to make complaint handling more efficient and outcomes more predictable.

If you would like to discuss any of this further, please get in touch.

Sam Burtwistle: Associate – Property Risks & Coverage

E: sburtwistle@keoghs.co.uk