If you have ever taken a complaint to the Financial Ombudsman Service — about a mortgage, an investment, a pension transfer, a bank’s handling of fraud, or anything else covered by FCA rules — the framework you used is about to change. The FCA and the Treasury have proposed the most significant reform of the FOS in two decades, anchored to a Consultation Paper (CP26/9) that closed for responses on 11 May 2026.
The shorthand version: where a firm has followed FCA rules, the FOS will (in future) be required to find that the firm acted fairly and reasonably on that element. The “spirit of the rules” route — the FOS’s long-standing ability to rule against a technically rule-compliant firm — is being narrowed. A 10-year absolute time limit on bringing complaints is also coming.
This piece explains what is changing, when it is likely to take effect, who is most affected, and what consumers with live or future complaints should think about doing in the meantime.
The short version
- The FCA’s Consultation Paper CP26/9 (“Modernising the Redress System”) was published on 16 March 2026 and closed for responses on 11 May 2026. Final FCA rules expected later in 2026.
- The Treasury (HMT) published its consultation response alongside CP26/9 on 16 March 2026, confirming legislation will follow “when Parliamentary time allows”.
- The headline change: where a firm has met its FCA rule obligations, the FOS must find it acted fairly and reasonably on that element. The FOS keeps discretion for non-rule-covered conduct.
- “Good industry practice” — the standard that has let the FOS reference what well-run firms were doing even when rules didn’t require it — is being removed from DISP 3.6.
- The FOS will be required to apply only the law, rules, and guidance in force at the time of the act or omission being complained about — no retrospective import of contemporary standards.
- A new FOS-to-FCA referral mechanism will let either party request the FCA’s view on rule ambiguity; the FCA must respond within 30 days; the FOS retains the final decision.
- A 10-year absolute longstop on bringing complaints (from the date of the act or omission) is coming via HMT legislation, with FCA power to create limited exceptions for long-term products.
- The FOS award limit is £455,000 (from 1 April 2026, CPI-adjusted) and is not changed by these reforms.
- Existing live complaints: no transitional provision has been confirmed. The position for complaints currently in the pipeline is genuinely uncertain.
How the FOS works today: the ‘fair and reasonable’ test
The Financial Ombudsman Service was created under the Financial Services and Markets Act 2000 (FSMA). Its core statutory mandate sits in section 228(2) of that Act and is deliberately sparse:
“A complaint is to be determined by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case.”
The statute itself says nothing about what factors the ombudsman must weigh. The detail comes from the FCA’s own Dispute Resolution rulebook — specifically DISP 3.6 — which currently lists four factors:
- Relevant law and regulations
- FCA rules, guidance, and standards
- Relevant codes of practice
- What was, at the relevant time, “good industry practice”
The combination of a broad statutory test and the “good industry practice” factor has given the FOS unusual scope. In a 2016 judicial review the High Court confirmed that “it is open to a rational Ombudsman to conclude that conduct in accordance with the relevant law was nevertheless not fair and reasonable in all the circumstances, as compliance with the relevant law is but one factor”. In short, a firm that followed the letter of every FCA rule could still lose at the FOS if the ombudsman judged the firm’s overall conduct fell below what a diligent firm would have done.
This is the “spirit of the rules” or “quasi-regulatory” route. For consumers, it has been a meaningful safety net. For firms, it has been a recurring source of uncertainty: a firm could read the rulebook, comply with every line, and still face a binding award based on the FOS’s own view of good practice — sometimes a view that had only crystallised after the conduct in question took place.
It is this safety net, and the firm-side uncertainty that goes with it, that the reform is targeted at.
What CP26/9 changes
CP26/9 is the second of two joint FCA-FOS consultations on redress modernisation (the first, CP25/22, closed in October 2025). The 2026 paper proposes four substantive changes to DISP 3 — the rulebook section that governs how the FOS decides complaints. Where those changes need primary legislation, the Treasury will deliver them separately.
1. Rule-anchored fair and reasonable test
The HMT consultation response (16 March 2026) put the change in its plainest form:
“Where firms have met their obligations under relevant FCA Rules, they must be found to have acted fairly and reasonably by the FOS.”
In practice this creates what lawyers are describing as a safe harbour: a firm that can demonstrate it followed the FCA rulebook on a particular element of a complaint will receive a mandatory finding in its favour on that element. The FOS keeps discretion only on conduct that is not covered by FCA rules — factual disputes, maladministration, fraud scenarios, and non-FCA-regulated conduct generally.
Stuart Maleno of Clyde & Co summarised the nuance: “This creates regulatory alignment but maintains broad discretion for non-FCA-regulated conduct areas.” The test becomes rule-anchored only where FCA rules are material to a complaint.
2. “Good industry practice” removed from DISP 3.6
The reference to “good industry practice” in the FOS’s list of factors will be deleted entirely. The FCA’s stated rationale is that the term is “subjective, creates uncertainty and risks potential misalignment with FCA rules”.
The practical effect: complaints that today rely on showing the firm’s conduct fell below what “well-run firms” were doing, even though no specific rule was breached, will lose that route. The new test asks a narrower question: did the firm comply with the specific rules that applied to it at the relevant time?
3. Temporal clarification — no retrospective standards
CP26/9 proposes a third change with quietly large effects. The FOS will be explicitly required to apply only “the law and regulations… at the time of the act or omission that is being complained about”.
This kills the “import contemporary standards into a historical complaint” approach. A pension transfer recommendation given in 2016 will be judged against the FCA rules that applied in 2016 (principally COBS 9, pre-PS18/6), not against the much more demanding standards the FCA introduced from 2018 onwards. Equally, a mortgage sold in 2008 will be assessed against the pre-MCOB Conduct of Business rulebook in force at the time.
For long-running complaint categories — pension transfers from the 2015 to 2020 window, interest-only mortgages from the mid-2000s, structured products from the 2010s — this is a meaningful narrowing.
4. FOS-to-FCA referral mechanism
Where a complaint turns on ambiguity in FCA rules, or has wider industry implications, the FOS will now be required to seek the FCA’s view. Either the complainant or the firm can request the referral at the provisional determination stage. The FCA must respond within 30 days. The FOS retains the final decision authority — the FCA’s view informs but does not bind.
The FOS will also be required to publish thematic reports — described as “lessons learned” documents — on how FCA standards are being applied across complaint categories. The intent is to surface inconsistency earlier and provide industry-wide guidance through the FCA rather than through case-by-case FOS decisions.
Addleshaw Goddard flagged that “exactly how the new FOS-to-FCA referral mechanism will work, for example any new statutory criteria for such referrals, will be particularly important”. The operational detail remains to be confirmed in the FCA’s Policy Statement later in 2026.
The separate 10-year longstop
Alongside the DISP rule changes, the Treasury intends to legislate a 10-year absolute time limit on bringing complaints to the FOS. Current FOS time limits are the longer of (a) six years from the event, or (b) three years from the point you knew or ought reasonably to have known you had grounds to complain. There is no overall longstop today, which is why some pension and long-term insurance complaints arrive 15 to 20 years after the original sale.
The new rule will set 10 years from the act or omission as an absolute ceiling, with FCA power to create exceptions “in exceptional circumstances” for long-term products. The scope of those exceptions is not yet defined.
Martin Lewis, writing for MoneySavingExpert, was direct: “The 10-year limit could discourage consumers from purchasing pensions, long-term insurance and mortgages due to weakened trust.” MSE specifically opposed extra time limits and argued exemptions must be made for pensions, long-term insurance, and mortgages. The final scope of FCA exceptions is unresolved.
This change requires primary legislation. HMT has committed to deliver it “when Parliamentary time allows” — a deliberately open-ended phrase. The DISP rule changes do not require legislation and could take effect first.
What changes for different complaint types
The reform does not affect every complaint equally. Some categories rely heavily on the “good industry practice” route; others turn primarily on specific rule breaches that are unaffected by the change.
Mortgage mis-selling (historical interest-only sales)
Interest-only mortgage complaints from the 2005 to 2014 era often rest on the argument that the adviser’s documentation, while technically compliant with the pre-MCOB Conduct of Business rules, fell below what a diligent firm would have done. Under the new regime, a firm that can show specific rule compliance gets the safe harbour for those rule-covered elements. Strongest post-reform claim route: identify specific rule breaches at the time of sale rather than departure from broader good practice.
Investment unsuitability
Suitability complaints sit at the heart of the change. COBS 9 (the suitability sourcebook) is principles-heavy: a firm can argue it complied with the principles as the FCA intended them at the time. However, factual disputes — what risk appetite was actually communicated, what portfolio decisions were actually documented — remain in FOS discretion. Moderate narrowing for rule-compliant suitability assessments; full FOS discretion remains on factual disputes.
Authorised Push Payment (APP) fraud
Banking conduct complaints around APP fraud may actually be less affected by the reform. Since October 2023 the Payment Systems Regulator’s mandatory reimbursement scheme has codified much of what was previously “good practice” in fraud detection and customer protection. Where the relevant PSR rules apply, the safe harbour applies — but those rules already require what the FOS would otherwise have demanded. Historical pre-October-2023 APP fraud complaints remain exposed to the temporal clarification.
Insurance claims handling
Complaints about slow claims handling or restrictive interpretation of policy terms often rely on showing the insurer fell below good industry practice. Post-reform, ICOBS compliance gets the safe harbour on rule-covered elements. Non-rule elements — processing delays, factual disputes about claim circumstances, communications quality — remain within FOS discretion. Moderate narrowing for claims that turn on the quality of conduct within a rules-compliant framework.
Pension transfer advice (DB-to-SIPP, 2015–2020)
This is the category most directly affected. The FOS has upheld many DB transfer complaints on good industry practice grounds, particularly for the 2015-to-2020 window before the FCA’s PS18/6 hardened standards. The temporal clarification means 2016 conduct is judged against 2016 rules. Removal of the good industry practice factor closes the most-used additional route. Material narrowing for historical DB transfer complaints; specific rule-breach arguments remain available.
For public-sector pension members whose private-sector transfers fall in this window, our companion site Pension Plain covers the scheme-specific implications: see Civil Service Pension delays and McCloud Remedy explained for related context.
Motor finance commission complaints
Motor finance complaints follow a distinct pathway. The FCA’s separate mass redress framework — strengthened by additional MRE powers under CP26/9 — covers the commission disclosure question. The fair-and-reasonable test reform is less central here; the dispute turns on specific FCA rules (CONC 4.5 disclosure obligations and the secret commission doctrine) rather than on broader industry practice. See our existing piece on car finance compensation for the redress scheme position.
Industry vs consumer reactions
Firm-side view
City law firms have broadly welcomed the reform as overdue. Freshfields framed it as a move “towards greater predictability and regulatory coherence — with the FOS more tightly anchored to FCA standards”. Addleshaw Goddard supported the direction but warned that “changes to the legal test for industry-wide consumer redress schemes could be problematic if they are redrawn at too low a level”.
Some industry bodies argue the reform does not go far enough — Osborne Clarke reported that some firms sought a formal court appeal right rather than just judicial review of FOS decisions, and equal case fees for all complaint types. Reform is the floor, not the ceiling, from a firm perspective.
Consumer-side view
Martin Lewis at MoneySavingExpert has been the most pointed consumer-side critic. He warned that there is “a whiff of ‘consumers be damned’ about moving away from a broad Fair and Reasonable Test” and that the reform creates a “protection gap” — “situations where consumers face manifestly unfair treatment but lack recourse if the regulatory rulebook doesn’t explicitly cover it”. His MSE write-up flagged three concerns: that the FCA’s move toward principles-based regulation creates uncertainty about what compliance actually means; that no impact analysis has been published showing how many consumers might lose protection; and that the 10-year longstop should carve out pensions, long-term insurance, and mortgages.
Government view
Economic Secretary to the Treasury Lucy Rigby said: “These reforms will make redress clearer, more consistent and easier to navigate, restoring confidence in the system and ensuring it works fairly and predictably for consumers and businesses.” HMT explicitly stated that “the proposals will not water down consumer protections” — though that is the question on which industry and consumer views diverge most sharply.
When does this actually take effect?
The timeline runs on two tracks:
- DISP rule changes (rule-anchored test, good industry practice removal, temporal clarification, referral mechanism, new registration and triage stage): final FCA rules expected later in 2026. These do not require primary legislation and can take effect via Policy Statement.
- Statutory changes (the fair and reasonable test in s228 FSMA, the 10-year longstop, Chief Ombudsman accountability reforms, mass redress event powers): require Treasury legislation, expected “when Parliamentary time allows”. No firm date.
There is a potential interim period in which the DISP test is narrowed but the underlying statute (s228) still says “fair and reasonable in all the circumstances”. How that interim plays out — and what transitional provisions cover live complaints — will be set out in the FCA’s Policy Statement.
What consumers should do now
If you have a live FOS complaint
- Do not withdraw or pause a live complaint. Live complaints in the pipeline are not at immediate risk; the window of certainty is closing rather than closed.
- If your complaint relies substantially on “good industry practice” arguments, document them explicitly now. Include evidence of what better-run firms in the industry were doing at the relevant time.
- Push for resolution where possible before the FCA’s Policy Statement lands. Once new DISP rules take effect, the framework for assessing your complaint may narrow.
- If your complaint is borderline under specific FCA rules, also document the specific rule breaches you are alleging. A rule-breach argument is more durable under the new framework than a “spirit of the rules” argument.
If you are considering a new complaint
- Act sooner rather than later. The 10-year absolute longstop is not yet in force, but “when Parliamentary time allows” could mean 2026 or 2027 with limited notice.
- Priority categories: pension transfer advice from 2010 to 2020; interest-only mortgage advice from 2005 to 2014; investment portfolio suitability complaints. These are the categories where the temporal clarification and the removal of good industry practice bite hardest.
- Frame your complaint around specific rule breaches, not just unfair outcomes. Identify which COBS, MCOB, ICOBS, or DISP rules were in force at the relevant time and how the firm fell short of them.
- For claims above £455,000 (the current FOS award limit), the FOS route was always capped. The courts remain available and are unaffected by the reform.
The FOS vs court question
The reform does not change the court option. For claims above the FOS cap, or where the consumer wants a legally binding precedent, the courts are available. Post-reform, the FOS may actually become less attractive for claims that depend on “spirit of the rules” arguments — those arguments carry more weight in court under general principles of fairness, contract, and tort than under the new narrower FOS framework.
If your claim is between £100,000 and £455,000 and depends primarily on a good industry practice argument, it may be worth getting legal advice on whether the court route is more appropriate, before the new rules land. This is precisely the situation where a regulated solicitor’s view of your specific facts is more useful than a general explainer like this one.
Common questions
Is the FOS being abolished?
No. The FOS continues. What is changing is the framework it uses to decide complaints — narrower in scope where FCA rules cover the conduct, and with a 10-year absolute time limit on bringing complaints. The free dispute resolution service, the £455,000 award limit, and the binding decision structure all remain.
Does the reform affect my existing complaint?
The honest answer is: not yet, and the position is unresolved. CP26/9 is silent on transitional provisions for complaints currently in the pipeline. The FCA’s Policy Statement later in 2026 will need to address what happens to live complaints when the new DISP rules take effect. If your live complaint relies heavily on “good industry practice” arguments, this is a meaningful uncertainty and is worth raising with your FOS caseworker.
What is the FOS award limit?
£455,000 as of 1 April 2026. The limit is CPI-adjusted each April. It is not changed by CP26/9. For claims above the limit, the FOS can still make a binding decision but the firm is only required to pay up to the cap; the consumer can seek the balance through court action. Complaints about acts on or before 31 March 2019 fall under earlier, lower limits.
Should I file my pension complaint now to get under the old rules?
If your complaint is in the categories most affected by the reform — DB-to-SIPP transfer advice from 2015 to 2020, defined benefit pension transfer suitability, advice on contingent charging arrangements — there is a legitimate case for filing while the broader “fair and reasonable” test still applies. However: FOS resolution timescales for complex pension cases run from six months to two years or more. Filing today does not guarantee resolution under the current framework, but it does put the complaint in the pipeline before the rule change.
Will the FOS still take my complaint about a 12-year-old pension sale?
Today, yes (subject to the current six-year / three-year rules). After the 10-year longstop comes into force, no — unless the FCA creates an exception for long-term products. The FCA has signalled it will have power to create exceptions “in exceptional circumstances” but the scope is unresolved. Anyone with a historical pension or long-term insurance complaint that is approaching 10 years from the date of the original advice should treat this as time-sensitive.
Does this affect motor finance commission complaints?
Not directly. Motor finance complaints turn on specific FCA rules (CONC 4.5 commission disclosure) and on the separate FCA mass redress scheme, which is being managed under its own framework. The fair-and-reasonable test reform is largely orthogonal. The FCA’s new MRE powers under CP26/9 add procedural tools (pausing DISP timescales, redirecting cases back to firms), but the underlying commission-disclosure question is unchanged. See our existing car finance compensation guide for the redress scheme position.
What about claims management companies (CMCs)?
The FOS introduced a £250-per-case fee for CMCs from April 2025. That alone has reduced CMC-driven complaint volume by around 30% year-on-year. The new mandatory pre-registration and triage stage under CP26/9 raises the procedural bar further — out-of-scope and inadequately documented complaints face dismissal before a caseworker is allocated. Genuinely strong consumer complaints filed direct (without a CMC) are not affected by these changes. The FCA’s separate review of CMC conduct in motor finance is covered in our claims management firms piece.
Savvy Investor’s take
The reform changes the balance between firms and consumers in financial services complaints. For firms, particularly larger ones with mature compliance functions, it is a meaningful win: rule compliance now creates a defined zone of protection from FOS awards. For consumers, the routes that remain are narrower but not gone. Specific rule-breach arguments still work. Court remains available for high-value claims. And the FOS’s discretion is unchanged on non-rule-covered conduct.
The biggest practical effect is on long-running complaint categories where the historical “good industry practice” route has been load-bearing — pension transfer advice and historical mortgage sales most obviously. Anyone with a complaint in those categories should treat the current period as a closing window. The free FOS route does not disappear, but the version that has been most generous to consumers in those categories is being reformed.
The 10-year absolute longstop is the other change worth keeping in view. Until HMT legislates, the existing time limits apply — but the longstop will land at some point. For any long-term financial decision where you suspect something went wrong, the dating clock is now part of the picture.
Information, not advice. This article explains the proposed reforms to the Financial Ombudsman Service under CP26/9 and the related HMT consultation response. It is general information based on publicly available regulatory documents and named legal-firm analyses as of May 2026. It is not financial, tax, or legal advice. Savvy Investor Guide is not authorised or regulated by the Financial Conduct Authority. If you have a specific complaint or are considering legal action, speak to a regulated financial adviser, a solicitor authorised by the Solicitors Regulation Authority, or contact MoneyHelper for free, government-backed guidance.
Key official sources
- FCA Consultation Paper CP26/9 — Modernising the Redress System: fca.org.uk — CP26/9
- HMT consultation response — Review of the Financial Ombudsman Service (16 March 2026): gov.uk announcement
- FSMA 2000 section 228 (the statutory fair and reasonable test): legislation.gov.uk — FSMA s228
- Financial Ombudsman Service: financial-ombudsman.org.uk
- FCA Financial Services Register (to check firm authorisation): register.fca.org.uk
- MoneyHelper — free guidance on making a financial complaint: moneyhelper.org.uk
- Related Savvy Investor guides:
This article describes the FCA’s CP26/9 consultation, the HMT consultation response, and the related industry and consumer reactions as of 19 May 2026. The final shape of the reform will be confirmed in the FCA Policy Statement expected later in 2026 and in Treasury legislation when Parliamentary time allows. Figures, rules, and timelines may change.
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