The Financial Ombudsman Service is grappling with a series of challenges as the government seeks to "fundamentally" overhaul its regulatory structure.
The organisation was thrown into turmoil earlier this year following a leadership crisis triggered by the sudden exit of chief executive Abby Thomas in February, as reported by .
A Treasury Committee report, released in July, disclosed that Thomas had been sacked after a "mutual collapse in confidence" arising from "fundamental disagreements" with the board regarding strategy.
READ MORE: {}
Within days, Baroness Zahida Manzoor, chair of the FOS, declared she would stand down at the conclusion of her term on August 1.
Her exit was equally contentious after Manzoor declined to appear before the Treasury Committee during its investigation into Thomas's departure, contending her status as a peer exempted her from providing oral or written testimony.
The committee subsequently condemned her behaviour as "unnecessary and disrespectful."
Additional pressure mounted after The Times disclosed Thomas received a severance package of £229,879, comprising £100,000 for loss of office, £107,692 in lieu of notice, and £22,177 for gardening leave, which commenced on her departure date.
Meanwhile, the Financial Conduct Authority (FCA) launched an "unsuccessful" recruitment drive for Manzoor's replacement, ultimately appointing an interim chair in July.
Most Read
This leadership void emerges during a period of potential transformation as part of the Treasury's deregulation initiative. Chancellor Rachel Reeves outlined proposals for "the most significant reform to the Financial Ombudsman Service since its inception."
Abdulali Jiwaji, banking litigation partner at Signature Litigation, told City AM: the reforms were a "big shift psychologically because this ombudsman has always just been established in the market as a really user friendly service for consumers."
He added: "It did strike me as quite a fundamental move to shift some of the balance away from the consumer."
FOS back in banks favour
Alongside Reeves' Mansion House address, the Treasury released a review of the FOS setting out proposals to clarify its relationship with the FCA.
Under the revised framework, when FOS interpretations of FCA rules lack clarity, it would be obliged to seek the FCA's perspective, which the regulator must subsequently deliver.
This development follows escalating criticism from the banking sector, with 海角视频 Finance branding the FOS – which was established to resolve disputes between consumers and businesses providing financial services – a "quasi-regulator."
Opposition intensified as the industry contended the FOS' scope had expanded beyond complaints handling to wielding regulatory-style powers or influence, despite lacking formal regulatory designation.
Don’t miss
Charlotte Hill, partner at Charles Russell Speechlys, said the reforms would deliver "tighter coordination between the FOS and FCA, legislative changes to redress mechanisms, and a sharper focus on pro-growth regulation."
While Hill recognised that the reforms may introduce "greater predictability," she cautioned: "Consumers could face slower processes and narrower avenues of redress unless reforms are carefully balanced."
Jiwaji suggested that the changes would likely "flip the balance in favour of institutions", observing that the FCA would essentially become "the referee" in disputed interpretations.
He forecasted that the reforms could result in rulings that had previously favoured consumers being "prescribed" to now favour institutions instead.
Tensions between the FOS and financial behemoths have escalated in recent years.
City AM disclosed in July that the 海角视频's 'Big Six' banks – Barclays, HSBC, Lloyds Banking Group, NatWest, Santander and Nationwide – forked out a combined £38.8m in FOS administrative fees over the past year.
The banking industry body – 海角视频 Finance – lambasted the fee model, warning it "opened the door to penalising firms disproportionately, particularly in the context of mass-generated complaints driven by professional representatives."
In a bid to placate industry worries, the FOS rolled out a revised fee structure in April.
Under the revamped system, professional representatives are now charged £250 for every case lodged beyond the first 10 per financial year. Conversely, banks are exempt from fees for their initial three complaints.
From the fourth complaint onwards, a standard case fee of £650 is applicable, reduced to £475 for dismissed, withdrawn, or out-of-jurisdiction cases.
Staying relevant ;
The FOS has seen a surge in complaints to their highest levels since the PPI scandal, with over 305,000 cases reported in the year ending 31 March, 2025.
This significant increase was primarily driven by an almost 500 per cent rise in motor finance complaints, which skyrocketed to 73,328, up from a mere 12,604 the previous year.
Over the same period, the ombudsman's caseload increased by more than half.
Hill commented: "The ombudsman is under real strain," highlighting that "surging complaints, leadership gaps and governance questions have dented confidence."
However, there was some respite between April and June, when complaints dropped to their lowest in over a year.
Nonetheless, Hill emphasised the need for "quick wins on transparency and efficiency" for the FOS to stay relevant.
He suggested "Practical steps include clearer communication on leadership changes, streamlining complaint-handling with two-stage complaints, and tackling frivolous claims."
Despite calls for reform and stability, Jiwaji maintained that the FOS role remained secure.
He stated that the outcome of the Treasury's review "largely recognised the incredibly important role that the FOS plays," adding that the "momentum" is with the organisation to continue "in some form or another" due to its crucial role in diverting disputes away from the courts.