For two decades the most consequential question in British financial regulation was not always settled by the regulator. It was settled, case by case, by the Financial Ombudsman Service, whose remit is to decide what is “fair and reasonable in all the circumstances” of a complaint. That test, set out in the rulebook at DISP 3.6.4R, gives the ombudsman wide discretion to take account of good industry practice and its own sense of fairness, not only the letter of the Financial Conduct Authority’s rules. In effect, Britain has run two standard-setters for retail finance: the FCA, which writes the rules, and the ombudsman, which could decide a firm had behaved unfairly even where it had followed them.
On 11 August 2026 the FCA and the ombudsman published the policy statement that begins to close that gap. It is the culmination of CP26/9, “Modernising the redress system”, the joint consultation the two bodies opened on 16 March 2026 and closed to responses on 11 May 2026. The package is not a compensation scheme and does not order payouts. It is a reform of the machinery of redress itself, and its centre of gravity is a single idea: the ombudsman should apply the regulator’s standards, not compete with them.
The fair-and-reasonable test, recalibrated
The core change is to the fair-and-reasonable test. The government and industry had argued that the test, as written, was insufficiently anchored to the regulatory standards the FCA actually sets, and that the resulting discretion made liability hard to predict. Firms complained that they could meet every applicable rule at the time and still be found to have acted unfairly years later against a standard that had since shifted.
The reform tightens that link. The ombudsman is to align its determinations more closely with the regulatory requirements that applied at the time of the disputed act or omission. A firm that met the FCA’s rules as they stood when it acted has a far stronger footing than before. This is the structural shift the rest of the package is built around: it moves the ombudsman from a body that could set its own effective standard toward one that interprets and applies the FCA’s.
A registration stage, and clearer grounds to dismiss
The second change is procedural but material. The ombudsman is introducing a new registration stage, a formal gate at the front of the process. Complaints referred to the service will have to be confirmed as within its jurisdiction and ready to be investigated before they are allocated to a caseworker. In practice that is meant to stop out-of-scope or half-formed cases from consuming investigation capacity, and to give firms and consumers an earlier, clearer read on whether a complaint will proceed.
Alongside it, the grounds on which the ombudsman can dismiss a complaint without a full merits investigation are being updated. Taken together, the registration stage and the revised dismissal powers are designed to triage the caseload earlier and reduce the backlog that has dogged the service through successive waves of mass complaints.
Keeping the two bodies aligned
To stop the old divergence from reappearing, the reform builds in machinery for the FCA and the ombudsman to interpret the rules consistently. A new referral process is intended to improve transparency where a case turns on how a regulatory requirement should be read, and a lead complaint process will let the ombudsman take a defining view on novel or significant issues as they emerge, rather than resolving thousands of similar cases in inconsistent ways.
That lead-complaint mechanism is a direct answer to the mass-redress episodes of recent years, where a single legal or regulatory question sat behind enormous volumes of individual complaints. The reform also sits next to finalised FCA guidance, published as FG26/2, on identifying and putting right harm, and a clarification of the Handbook’s SUP 15 reporting expectations so that firms flag emerging problems to the regulator sooner.
The legislative track behind it
Some of the wider changes need Parliament, and they are moving on a separate but parallel line. The Treasury’s own review of the Financial Ombudsman Service proposed putting the closer alignment of the fair-and-reasonable test to FCA rules onto a firmer legislative footing, and floated a long-stop of a ten-year absolute time limit for bringing cases, with limited exceptions. That statutory element runs through the government’s financial-services legislative programme rather than the regulators’ rulebook, and its final shape will be set by ministers and Parliament, not by the 11 August policy statement alone.
The distinction matters for what has actually changed. The operative recent milestone is the policy statement itself: the regulators have now confirmed the direction and much of the detail, with implementation to follow through changes to the FCA Handbook and the ombudsman’s own processes. What began as a Mansion House call for input in late 2024 is now a settled programme.
Who gains, and the trade-off
For firms, the prize is predictability. A redress system in which liability is judged against the rules that applied at the time, triaged at a registration stage, and interpreted consistently between the two bodies is one they can price, provision for and, the regulators hope, invest around. That is the explicit rationale: greater certainty to support the competitiveness and growth objectives Parliament handed the FCA.
For consumers, the calculation is finer. A more predictable system should mean faster, more consistent outcomes and fewer cases lost in a backlog. But consumer advocates will watch closely for the other edge of the same reform: tying redress more tightly to the FCA’s rules narrows the room for the ombudsman to find for a complainant where a firm followed the rulebook yet the outcome still looks unfair. Britain has decided that the ombudsman should not be a second rule-maker. The test of that decision will be whether the FCA’s rules prove good enough to carry the weight the ombudsman’s discretion used to bear.
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