The financial redress system in the UK is to undergo sweeping reforms in a bid to reduce delays in consumer compensation and provide firms with greater certainty around regulatory outcomes.
The Financial Conduct Authority and the Financial Ombudsman Service are jointly proposing changes intended to ensure the system remains resilient in the face of high volumes of complaints while encouraging business investment and innovation.
Although the majority of financial complaints are currently resolved without escalation, the system can struggle under the weight of mass claims, particularly where issues are novel or complex.
The new proposals aim to address this vulnerability by enhancing cooperation between the two bodies and equipping firms with clearer guidance to manage and mitigate potential redress issues before they escalate.
NEW REFERRAL PROCESS
Among the changes proposed is a new referral process to ensure early transparency and alignment between regulators on matters of interpretation, alongside a lead complaint mechanism to allow emerging systemic issues to be addressed in a more targeted and efficient manner.
The reforms also include improvements to how the Financial Ombudsman Service assesses cases, ensuring complaints are sufficiently evidenced 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.”
James Dipple-Johnstone, interim chief ombudsman, added: “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 FCA is also consulting on plans that would give it more control in mass redress situations, including the power to pause complaint handling without prior consultation with the industry.
Other proposals would give both firms and consumers the option to seek clarification from the FCA on rule interpretation before a final ombudsman decision is issued, and introduce a new 10-year absolute time limit for bringing complaints, with exceptions for certain long-term products.
In tandem, the Financial Ombudsman Service is expected to consult later this summer on a tiered case fee structure for financial services firms. The move is intended to encourage early resolution of complaints and make charges more proportionate to the circumstances of each case.
Separately, the ombudsman has confirmed that it will change the interest rate applied to certain awards. Following stakeholder feedback, the rate will shift from the long-standing 8% flat rate to track the Bank of England’s base rate, plus 1%.
This adjustment is designed to better reflect actual market conditions while still ensuring consumers receive appropriate redress for losses suffered.
