The FCA and Financial Ombudsman Service (FOS) have now completed consultation on the latest phase of redress reform, with feedback having closed on 11 May 2026 and a further policy statement expected later this year. The direction of travel is clear: more predictability, earlier issue identification, and tighter alignment between firms, the FCA and FOS when significant complaints trends emerge.

For ABI firms, that objective is hard to quarrel with. A redress system should be clear, accessible and trusted by consumers, while also giving firms confidence about the standards against which they will be judged. The challenge is not whether reform is needed, but how it is delivered. From the perspective of someone who has seen the system both as an adviser and from within ombudsman decision-making, the key test is whether these changes improve consistency without eroding the essential character of an ombudsman.

The most important proposal for many firms may be the change to the fair and reasonable test. FOS proposes removing “good industry practice” as a standalone factor and clarifying that the standards to be applied are those relevant at the time of the act or omission complained of. The rationale is straightforward: some stakeholders saw “good industry practice” as subjective and a source of uncertainty, while firms were concerned about the risk of retrospective interpretation.

That reform is, in principle, a sensible one. It should help reduce the perception that standards can evolve through individual ombudsman decisions after the event. For insurers in particular, where complaints often sit close to judgment calls on underwriting, claims handling and product design, legal certainty matters. Firms should be able to assess historic conduct against the rules, guidance and codes applicable at the time, rather than against a more fluid sense of what the market might later regard as best practice.

But it would be a mistake to assume that wording changes alone solve the wider problem. The consultation itself recognises ongoing concern about the so-called “read-across” effect: the idea that individual ombudsman outcomes can, in practice, come to be treated as if they were new regulatory standards. The FCA has expressly acknowledged those concerns and signalled that it will return to them in a later publication. That is important. If firms are to gain real certainty, reform must deal not only with the formal test, but also with how FOS reasoning is used in the wider market.

The proposed new pre-registration and registration stages may also bring real benefits. FOS says the aim is to ensure that only complaints which are properly evidenced and ready for investigation proceed into the full casework pipeline. It also wants the ability to hold or move cases back into pre-registration where wider legal or regulatory issues are still being worked through, including in potential mass redress scenarios.

For firms, there is obvious appeal in a process that filters out premature or poorly evidenced complaints earlier, and creates a more structured route for dealing with issues that may have broader implications. The consultation records strong support for a registration stage, especially from firms, and support in principle for pausing or passing back cases where wider issues are being considered.

Used well, that could reduce duplication, avoid parallel handling of the same underlying issue, and create space for firms and regulators to address emerging problems coherently. But there is also a real discipline required here. A referral or pause mechanism should not become an open-ended holding pattern, nor a substitute for clear decision-making. The consultation itself notes stakeholder concern about delay, uncertainty for complainants, and the need for transparent safeguards and timeframes.

That matters for ABI firms too. A system that parks complaints for too long risks increasing operational cost, customer dissatisfaction and regulator friction. The right model is one where pauses are exceptional, time-bound and linked to a genuinely wider issue, not simply a difficult issue. 

The wider reform package also sits alongside the Government’s intended legislative changes, including the introduction of an absolute time limit for referral, with scope for FCA exceptions, although that longstop is not itself the main subject of this consultation. FOS is clear that the current registration proposals do not alter existing referral time limits or the Government’s plan for an absolute time limit.

For firms, especially insurers dealing with long-tail exposures, the attraction of a longstop is obvious: finality matters. It

• improves reserving
• limits indefinite liability drift, and
• supports confidence in the overall framework.

But the longstop should not be viewed in isolation. Its value depends on the surrounding architecture being coherent - in particular, on clear rules as to when complaints are paused, returned, investigated or dismissed, and on transparency about the circumstances in which the FCA may intervene.

That brings us to the most important wider point. FOS is an ombudsman, not a regulator. It exists to resolve individual disputes fairly and informally, not to make policy by accretion. The consultation itself captures industry concern that boundaries have at times become blurred, especially where ombudsman reasoning is treated as creating market-wide expectations. At the same time, the reforms envisage stronger cooperation between FOS and the FCA, including enhanced mechanisms for wider implications and mass redress events.

That cooperation is understandable and, in many cases, desirable. But it must not come at the cost of institutional clarity. If the FCA wishes to set or change standards, it should do so through its own rulemaking and consultation processes. FOS should remain what it is meant to be: an independent dispute resolution service for individual complaints, applying the framework transparently and consistently, but not stretching into quasi-regulatory territory. The real prize is not a tougher or looser ombudsman. It is a more predictable one.

As the FCA and FOS work through consultation responses, ABI firms should focus on three practical questions.

1. Will the revised fair and reasonable test genuinely improve predictability in live complaint handling?
2. Will registration and referral mechanisms be supported by firm safeguards, clear criteria and time limits?
3. Will the next phase of reform tackle the deeper boundary issue between ombudsman adjudication and regulatory policymaking?

If reform gets those points right, the result could be a redress system that is faster, clearer and more credible for all sides. If not, firms may gain new process, but not the certainty they were promised.

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