Redress system reforms to prevent compensation delays and provide predictability needed for innovation

Currently, the majority of complaints are resolved by firms, and the redress system works well for individual cases that come to the Financial Ombudsman. But high volumes of complaints on specific or novel issues can jam the system and cause significant delays.

The changes will help firms identify and resolve issues before complaints escalate and aim to give greater predictability, so businesses have confidence to invest, innovate and support UK growth. The proposals include:

• Improving how the FCA and Financial Ombudsman work together to ensure consistency in the interpretation of regulations. This includes a new referral process to improve transparency about regulatory alignment and a lead complaint process to look at novel and significant complaint issues as they emerge.
• Clearer guidance for firms on reporting issues to FCA sooner, alongside good practice examples to help identify and resolve complaints.
• Guidelines to help industry assess and trigger the need to resolve a situation with wider implications that could spike complaints.
• Changes to the way the Financial Ombudsman processes complaints to ensure they are well-evidenced and ready before an investigation begins.  

Sarah Pritchard, Deputy Chief Executive at FCA said:

When something goes wrong, it is right 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 at the Financial Ombudsman Service said:

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 changes will complement government proposals to modernise how the Financial Ombudsman assesses consumer complaints, published today. The consultation includes plans to:

• Adapt the Financial Ombudsman’s ‘fair and reasonable’ test.
• Give the FCA more flexibility to manage mass redress events, including pausing complaints handling without industry consultation.
• Introduce a formal mechanism for the Financial Ombudsman to refer issues that arise through its casework to the FCA on the interpretation of the FCA’s rules, where there is ambiguity in how they apply.
• Allow firms and complainants to refer an issue to the FCA, for clarity on its rules, before the Financial Ombudsman issues a final decision.
• Introduce an absolute time limit for bringing cases to the Financial Ombudsman of 10 years, subject to exceptions, for example for longer-term products.

The changes come as the Financial Ombudsman proposes to further modernise its processes by, later this summer, consulting on the introduction of different levels of case fees for financial services firms depending on the circumstances of a complaint, to make the system fairer and support early resolution.

The Financial Ombudsman has also confirmed that, following feedback from stakeholders, it will be changing the interest rate it applies to some awards it directs businesses to pay, from 8% to track the Bank of England’s base (average) rate +1%. Awards will still reflect any actual losses the consumer has suffered, as now.

Notes to editors

1. Read the FCA’s and Financial Ombudsman’s joint consultation on modernising the redress system
2. Read HMT’s consultation 
3. Read the Financial Ombudsman’s announcement on compensation interest rates