The Financial Inclusion and Markets Centre (FIMC) has responded to two major consultations on the reform of the financial services redress system. The consultations are: HM Treasury’s Review of the Financial Ombudsman Service and The Financial Conduct Authority (FCA) and Financial Ombudsman Service (FOS) CP25/22 Modernising the Redress System. FIMC responses can be found here: CP 25-22 modernising the redress system FIMC response October 2025 final and HMT Review of FOS FIMC response October 2025 final
Summary of our response
- We support the goals of ensuring that consumer harm is identified and addressed more effectively, and consumers get access to redress more swiftly. But, we are very concerned about the potential impact of the proposals in the consultations produced by HMT and FCA/FOS. The combined effect of the proposals is likely to weaken consumer protection and undermine the ability of consumers to obtain due redress.
- Unless robust governance measures and safeguards are added, the key proposals in the consultations on the fair and reasonableness test, wider implications issues, and mass redress events, and referral mechanisms would give firms and industry lobbies greater opportunities to: i. delay consumer access to redress and/or reduce firms’ liability for redress, and ii. influence the direction of financial services policy and regulation eg. on the interpretation of the FCA’s Consumer Duty.
- The overall proposals would undermine the operational independence of FOS. Specifically, adapting the fair and reasonable test would bring FOS closer within the FCA’s orbit. This would undermine the concept of an Ombudsman service being separate from regulators and making independent decisions, an important safeguard for consumers.
- The governance arrangements for mass redress events and wider implications issues are weak and would allow industry lobbies to influence outcomes to the advantage of firms and to the disadvantage of consumers. The proposals could lead to situations where the FCA/FOS is pressured to limit consumers’ rights to redress to protect the industry. Worryingly, the FCA has already signalled, in the case of motor finance redress, that it is willing to limit consumers’ access to redress to protect the finance sector.[1]
- The impact of the proposals would not be limited to consumers rights to redress. The proposals could be a Trojan Horse to allow industry to influence consumer protection policy. A core feature of the FCA’s flagship Consumer Duty is that firms have significant discretion as to how to interpret the Duty outcomes.[2] It is easy to envisage situations where there are differences of opinion on the intention of a particular Duty outcome and firms pressuring the FCA/FOS to activate the referral process to obtain favourable ‘clarifications’. Even if the FCA/FOS held firm and protected consumers, these proposals would obviously provide industry lobbies and individual firms with the opportunity to delay and undermine enforcement action and access to redress by invoking the referral process and tying up the FCA/FOS in disputes.
- FCA/FOS have limited resources. The current proposals could create opportunities for industry lobbies and individual firms to mount regular challenges to the FCA/FOS causing them to divert resources from pursuing core consumer protection and redress objectives.
- Remember that finance industry lobbies already exercise significant influence over financial services policy and regulatory policy. Compared to civil society the finance industry: dominates working groups/task forces while civil society is hugely underrepresented; has the resources to contribute significantly more responses to government and regulator consultations; and has far more meetings with senior policymakers and regulators. Regulated firms are also protected by commercial confidentiality provisions in legislation undermining transparency and accountability.
- Currently, six of the seven FOS board directors have current or previous direct links to the financial services industry.[3] Excluding the CEO, the FCA board has 12 members. Seven have current or previous links to financial services. One is a regulator (PRA), and one is an academic. Only three are recognised consumer/public interest representatives.[4] Moreover, there are three industry panels compared to one consumer panel.[5] This is not intended as a criticism of those individuals with links to financial services, it is to highlight the serious imbalance in representation at decision making level.
- Overall, the proposals in CP25-22 and HMT’s consultation would further strengthen the influence of industry lobbies in the regulatory system to the detriment of consumers.
- The potential impact of the proposals cannot be considered in isolation. A number of deregulatory and ‘market supporting’ initiatives are currently in train to support the finance sector growth and competitiveness agenda. What was supposed to be a secondary growth and competitiveness objective is becoming a de facto primary objective.
- Worryingly, the consultation documents repeat industry narratives that the current redress regime ‘suppresses investment and innovation due to concerns about potential future redress’, that FOS ‘acts as a quasi-regulator’, and ‘FOS retrospectively applies different rules and standards’. Yet, HMT/FCA/FOS provides no evidence nor reasoning to back up these claims.
- Weakening consumer protection and access to redress might give the finance sector a short term fillip. It might encourage firms to ‘innovate’ and sell more products in the expectation of reduced redress bills for poor consumer outcomes. This is short-termist thinking and would undermine consumer trust and confidence in the longer term.
- Overall, we think HMT/FCA/FOS has not properly considered the potential for these proposals to allow the industry to: disrupt the ability of consumers to obtain due redress; and adversely influence regulatory policy.
[1] See: https://www.ft.com/content/e12010f4-8af8-4443-9e21-6575438bf58a?shareType=nongift
[2] Industry lobbies have complained about overly prescriptive rules and now they complain about rules not being prescriptive enough and too open to interpretation.