Resetting the Redress System: How FCA, FOS and HMT Reforms Signal a New Chapter for Complaint Resolution

July 2025 has brought the most significant set of proposed changes to the UK’s financial redress system in over a decade. Through two major consultation papers — HM Treasury’s Review of the Financial Ombudsman Service (FOS) and the FCA and FOS joint CP25/22: Modernising the Redress System — the regulatory landscape is shifting decisively toward clarity, consistency and confidence.

These reforms do not stand alone. They are part of a broader deregulatory agenda outlined by Chancellor Rachel Reeves in her Mansion House speech on 15 July, in which she described aspects of the post-crisis regulatory regime as a “boot on the neck” of enterprise and innovation. That speech laid the groundwork for what’s now being referred to as the “Leeds Reforms” — a package of measures aimed at ensuring financial services regulation enables growth, rather than constraining it.

For firms navigating complex complaint handling challenges — particularly in high-volume, high-impact areas like motor finance — this reset offers both reassurance and important signals about what’s to come.

Summary of Key Proposals

1. Reframing the FOS Role

   The government proposes restoring the FOS to its original purpose: a simple, impartial dispute resolution service — not a quasi-regulatory body. This includes an adapted “fair and reasonable” test that must now align with FCA rules. If a firm has complied with FCA standards, the FOS will be expected to find it acted fairly.

   
   

2. Regulatory Consistency and Referrals to FCA

   A new statutory referral process would enable FOS — and, in some cases, the parties to a complaint — to request FCA input on the interpretation of relevant rules. This mechanism is intended to avoid inconsistency and ensure complaints involving wider implications are handled with regulatory coherence.

   
   

3. Mass Redress Events (MREs)

   A more structured framework is proposed for identifying and managing large-scale complaints. The FCA will be empowered to pause complaint handling during significant events and may introduce faster, market-wide remedies. The framework includes six assessment criteria to identify potential MREs — including scale, systemic failings, and financial impact.

   
   

4. 10-Year Time Limit for FOS Complaints

   A proposed longstop would bar complaints being brought to FOS more than 10 years after the act or omission — subject to very limited exceptions. This is likely to be welcomed by firms still dealing with open-ended exposure from historic conduct.

   
   

5. New ‘Lead Complaint’ and Registration Process at FOS

   FOS intends to introduce a “lead complaint” process to allow for representative testing of novel or high-impact issues. In parallel, a new registration stage would filter incomplete or inappropriate complaints before they progress to investigation — potentially reducing case fees and operational burden.

   
   

6. Modernising Redress Calculations

   The longstanding 8% simple interest rate is likely to be replaced by Bank of England base rate +1%, ensuring redress awards better reflect actual financial loss.

   
   

7. Operational Improvements and Lessons Learned

   Proposals include empowering the Chief Ombudsman to delegate determinations in a more structured way and introducing quarterly thematic “lessons learned” publications to drive transparency and consistency.

   
   

Implications for Motor Finance and DCA Complaints

While the motor finance sector continues to await the outcome of the Supreme Court’s ruling on discretionary commission arrangements (DCAs), the relevance of these proposals is already clear:

• Greater alignment between FOS and FCA standards could reduce the scope for unpredictable redress outcomes — especially important in DCA complaints, where firms have operated under evolving regulatory guidance.

  
  

• The Mass Redress Event framework offers a new vehicle for managing large-scale issues that impact multiple firms and consumers. This could influence how the FCA approaches any future redress activity in motor finance — whether via DISP-led complaints or a potential Section 404 scheme.

  
  

• Time limits will provide increased certainty for firms modelling exposure across older books. Clarity on backstop dates is critical when assessing risk on historic agreements.

  
  

• The ‘lead complaint’ model, coupled with enhanced FOS registration processes, may help reduce the administrative and financial impact of high-volume, CMC-driven submissions — a growing issue in the motor finance space.

  
  

• Redress interest reform may reduce overall payout values in some cases and offer a more defensible methodology for calculating loss.

  
  

• Reviewing DISP alignment is now critical. Firms should take this opportunity to revisit how their complaint-handling frameworks align with DISP — particularly where past interpretations, discretionary decision-making, or inconsistent root cause analysis may come under renewed scrutiny.

  
  

The Bigger Picture: Regulation for Growth

In her Mansion House speech, the Chancellor made it clear that redress reform is not just about improving complaint handling — it's a pillar of a wider strategy to unlock investment, remove friction from the system, and support responsible lending and innovation. The Government is now aiming to replace regulatory caution with proportionate, principles-led oversight.

For firms handling motor finance complaints — or operating in adjacent high-risk sectors — this means more than operational change. It’s an opportunity to reassess complaint-handling frameworks, DISP interpretation, and back-book strategy in the context of a modernised regulatory environment.

Next Steps

Both consultations are open until 8 October 2025, and the final direction of travel will depend on industry engagement. At Profexx, we’ll be reviewing both sets of proposals in detail and working closely with clients, legal partners and trade bodies to help shape responses and prepare for implementation.

We also encourage firms to begin reviewing their DISP governance and documentation frameworks, ensuring that current and historic complaint-handling decisions can be clearly mapped to FCA expectations.

If you’d like to discuss what these reforms mean for your business — particularly in the context of motor finance complaints, MRE risk, or DISP alignment — please get in touch.