On 15 July 2025, the Government announced a package of measures known as the “Leeds Reforms” aimed at boosting the financial services sector.  These include reform of the Financial Ombudsman Service (FOS) and “streamlining” the Senior Managers and Certification Regime (SMCR).

Reform of FOS

The Government has published a consultation on changes to the FOS regime following a review which found a range of industry concerns around FOS, including the suggestion that it has sometimes acted as a quasi-regulator and applied today’s standards to actions that took place in the past.  FOS and the FCA simultaneously published their own consultation “Modernising the Redress System” which largely covers the same issues as the Government consultation and includes proposed changes to the wording of the FCA Handbook.

Under the proposed reforms:

• FOS will be required to find that a firm’s conduct is fair and reasonable where it has complied with relevant FCA rules applicable at the time, in accordance with the FCA’s intent for those rules;
• where there is ambiguity  in how the FCA rules apply to the types of issues raised by a case,  FOS will be required to seek a view from the FCA and the FCA will be obliged to respond (generally within 30 days).  In some cases, a party to a complaint will be able to request that FOS seeks an FCA interpretation;
• FOS will be obliged to refer potential wider implications issues or “mass redress events” to the FCA and the FCA will be obliged to consider the issues.  The FCA will have power to direct FOS to pause relevant complaints while the FCA considers issues with wider implications;
• the FCA will be able to respond to mass redress events more easily; and
• there will be an “absolute” time limit for bringing FOS complaints which will be 10 years from the date of the conduct complained of.  This will be in addition to existing time limits.  However, the Government proposes to give the FCA power to set out exceptions where some services or issues will be subject to a longer limit “to ensure appropriate treatment of long-term products”.

Both consultations close on 8 October 2025.

Changes to interest rate on FOS compensation

FOS has published a policy statement setting out its revised position on applying interest to compensation awards.  Historically FOS has applied a standard 8% simple interest rate to compensation awards.  FOS plans to change this to a time-weighted average of the Bank of England base rate plus one percentage point.  This rate will generally apply to the period during which the complainant was unreasonably deprived of the money up to the compensation payment deadline set by FOS.  However, if compensation is not paid by this deadline, businesses will be expected to apply a fixed 8% interest rate from the deadline date set by FOS to the date compensation is actually paid.

FOS says that it aims to implement the interest rate changes from 1 January 2026 for all complaints submitted to it from that date onwards.  However, it will confirm this implementation date “in due course”.

Reform of the Senior Managers & Certification Regime

The Leeds Reforms also include an FCA consultation and HM Treasury consultation on reforming the Senior Managers & Certification Regime with the aim of streamlining processes and reducing burdens on firms while maintaining the core principles of the regime. 

Our thoughts

One key issue not addressed in the proposed reforms is the overlap in jurisdiction between FOS and the Pensions Ombudsman (TPO) regarding complaints relating to the administration of personal pension schemes, and the inconsistency in decision-making that this can produce.  TPO is required to apply the law whereas FOS has a broad discretion to make decisions based on what is fair and reasonable in all the circumstances of the case, including making a money award in circumstances where the claimant would not have had grounds to bring a claim in the courts.  

The differences in approach between the two ombudsman services have been particularly stark in relation to the issue of whether a scheme administrator is under any duty to carry out due diligence in relation to a member’s proposed investments.  TPO’s position is broadly that a scheme administrator’s duties will be governed by the scheme rules and any contractual provisions. Therefore a scheme administrator is under no duty to consider the appropriateness of scheme investments in the absence of a provision to that effect in the scheme’s governing documentation.  In stark contrast, FOS takes the view that a SIPP administrator should identify high risk investments, consider whether they are “appropriate” for a pension scheme, and ensure that the investment is not a scam and can be independently valued.  The FOS view is that this is part and parcel of complying with the Principles in the FCA Handbook, meaning that a scheme administrator cannot avoid such duties via contractual clauses and disclaimers.

The focus of the proposed FOS reforms is ensuring alignment between FOS decisions and FCA rules, not alignment between TPO and FOS.  In the Berkeley Burke case before the High Court and the Carey Pensions case before the Court of Appeal, the courts have expressly found FOS decisions regarding a scheme administrator’s due diligence duties to be consistent with FCA rules.   It is therefore not clear that the requirement to find a firm’s conduct to be fair and reasonable where it has complied with FCA rules will make a difference or bring greater certainty to FOS decisions relating to due diligence on SIPP investments.

The government has expressly rejected the idea of requiring FOS to apply the law rather than decide what is fair and reasonable.  The government suggests that this would duplicate the approach of the courts and move FOS away from simple and quick dispute resolution.   In our view the requirement on TPO to decide cases in accordance with the law does not prevent it from providing a simpler, quicker and cheaper dispute resolution forum than the courts.

SIPP providers would no doubt welcome a 10 year long-stop time limit for bringing complaints.  However, we think the proposed power for the FCA to make exceptions is significant here.  The long-term nature of pension products makes them an obvious potential candidate for an exception.