A fair but sustainable model: FCA and FOS calling for redress reform and fee-model overhaul

The Financial Conduct Authority (FCA) and Financial Ombudsman Service (FOS) have jointly issued a Call for Input (CFI) to gather industry views on improving redress schemes to better-support consumers, while promoting stability for firms to innovate and grow. Alongside this, the FOS has released its feedback on a consultation proposing changes to its fee structure.

Both bodies believe the current rules don’t fully reflect the realities of today’s complaints landscape and are seeking ways to update them.

The joint publication focuses on modernising the redress system. The aim of the CFI is to understand if the UK redress framework operates effectively, or if it's perceived to be hampering a stable and predictable trading environment, which may in turn affect the FCA’s primary and secondary objectives.

The CFI proposes that the current rules don't account for the realities of the complaints landscape and want to explore improvements to bring them up to date. Two key areas of change have evolved the complaints environment since the complaints-handling rules were last reviewed in 2014; the prevalence of mass-redress events and the role played by professional representatives (PRs) and claims management companies (CMCs) within this. 

The CFI: core questions

The CFI includes seven core questions which asks about the challenges mass-redress events pose for consumers, firms, and regulatory bodies, as well as looking at ways to improve stakeholder collaboration for early issue-identification, and ways to enhance the redress system to create a stable regulatory environment. The questions also address potential changes to better support effective dispute resolution and for maintaining the FOS as an accessible alternative to the courts.

The CFI is primarily focused on responses from consumers and groups representing consumer interests, policy-makers and other regulatory bodies, as well as firms and industry bodies. However, the FCA and FOS are also inviting views from industry advisers and consultants, experts and commentators, academics and think tanks, and professional representatives (PRs) to consumers making complaints.

The FCA and FOS are using this platform to ask what a mass redress event is, and if this should be defined, as there's currently no formal definition within the FCA’s handbook. The introduction of a formal definition could help enable clearer and earlier identification of events where significant issues may be emerging, which may need to be carefully managed before becoming systemic. 

The FCA and FOS have requested all responses to be submitted by 30 January 2025. The considerations are expected to encompass ensuring the FCA's alignment with its strategic and operational objectives, as well as promoting the international competitiveness of the UK economy. The assessment will also look at how effectively and fairly the FOS resolves complaints, the importance of the issue for businesses and the market, the potential impact on consumers, and the costs and benefits of any proposed changes.

Proposed amendments to the FOS fee-model

Alongside the CFI, the FOS recently shared feedback on its May 2024 consultation, which closed in July 2024, proposing a new fee structure.

The plan would charge professional representatives (PRs) and claims management companies (CMCs) £250 for each case they refer to the FOS.

The proposal aims to create a fairer and more sustainable funding model, ensuring those who use the service the most contribute proportionally to its costs.

Key elements include a £175 refund for cases resolved in the complainant’s favour and an increased allowance of up to ten free cases per year for PRs and CMCs, up from three. Consumers who access the FOS directly would remain exempt from any fees.

However, the proposed changes have sparked mixed reactions across the industry. Supporters, often those responding to complaints, believe the model would ensure fairer cost-sharing among professional users and discourage frivolous or low-value claims that place unnecessary strain on FOS resources.

To address concerns about smaller entities or innovative legal practices being deterred, the FOS noted that 80% of PRs wouldn’t face fees due to the ten-case allowance.

On the other hand, critics, particularly from the claims management and legal sectors, have raised concerns about the potential impact on access to justice.

They argue that the fees might discourage professional representation, leaving vulnerable consumers without crucial support—especially in complex cases. Many also feel that the £175 refund for successful complaints does little to offset the barriers the fees could create.

For CMCs, which often deal with a high volume of low-value claims, the proposed fees present significant challenges. Critics argue that even a modest fee could make the model unsustainable for many PRs, threatening their ability to support consumers effectively.

It's clear the proposal reflects broader regulatory changes, such as those under the Financial Services and Markets Act 2023, aimed at increasing accountability and efficiency in financial redress systems. However, opponents worry it could deepen the power imbalance between consumers and financial institutions, potentially discouraging legitimate complaints from being made.

We expect that the FOS will publish a full Policy Statement confirming its proposals, together with an implementation pathway, in the next few months. If the changes go ahead, the FOS has promised to closely monitor their impact, including how the fees affect consumer outcomes, and make adjustments through annual reviews if needed.

While the goal of building a more sustainable system is clear, finding the right balance between efficiency and fair access to justice will remain a challenging and hotly-debated issue.​

What firms should be thinking about now

Firstly, we recommend that firms take the time to respond to the CFI as it's important that the FCA and FOS receive as wide a range of input as possible, from a variety of industry participants.

Secondly, we recommend that firms adopt a proactive approach to remediation by addressing potential issues early, rather than waiting for FCA or FOS interventions to force changes. Getting ahead of problems helps prevent them from escalating and ensures smoother, more effective resolutions.

Finally, we recommend that firms set themselves up for success by capturing incoming information, eg, from customer complaints/ enquiries, etc) in a structured, logical way even when regulatory outcomes remain uncertain. This approach will help you progress with confidence in the spirit of ‘get it right the first time’ and avoid costly rework or delays.

For more insight and guidance on any redress-related challenges you're facing, please get in touch with Phil Tregurtha and Rory Caird.