Bite-size: Modernising the redress system
The FCA and Financial Ombudsman overhaul complaints from the ground up
On 16 March 2026, the FCA and the Financial Ombudsman Service jointly published CP26/9, Modernising the Redress System. The paper is both a consultation and a part-policy statement, finalising aspects of last July's CP25/22 while introducing new proposals on how complaints are triaged, investigated, and resolved. It arrives alongside the government's confirmation that it will legislate, when parliamentary time allows, to underpin these reforms with primary powers. The consultation closes 11 May 2026, with certain new rules taking effect as early as 17 March 2026 and the remainder on 1 June 2026.
The paper contains three headline proposals. First, the Financial Ombudsman will introduce a formal two-stage complaints process, a pre-registration triage stage and a registration stage, replacing what is currently an informal and inconsistent readiness assessment. Only sufficiently evidenced complaints will progress to a caseworker; others may be held, returned, or dismissed at the earlier stage. This is a significant structural change to DISP 3.
Second, the Financial Ombudsman's dismissal grounds are overhauled and expanded to nine, including a new ground for vexatious or abusive complainants and a reinstated ground allowing dismissal where a firm has reviewed a complaint in line with FCA regulatory standards, a provision removed in 2015.
Third, ‘good industry practice’ is removed from the fair and reasonable test in DISP 3.6.4R, with the Ombudsman directed to apply only standards that were in force at the time of the act or omission complained about. In parallel, the FCA finalises new SUP 15 guidance, effective 1 June 2026, requiring firms to notify the FCA immediately of any emerging systemic or recurring redress issue where a potential redress bill exceeds £10m, average consumer loss exceeds £10,000, or a significant complaints spike is identified.
Published alongside the consultation paper is FG26/2, the FCA's finalised guidance on good and poor practice for firm-led redress exercises. If CP26/9 sets out the architecture of the future redress system, FG26/2 is the FCA's answer to the question firms have long been asking: what does good actually look like? The guidance covers the full lifecycle of a redress exercise, from root cause analysis and scoping decisions, to opt-in versus opt-out approaches, customer communications and governance. The FCA is unambiguous that opt-out is the preferred default, that vulnerable customers must be actively provided for, and that firms cannot design their way around redress liability through blanket exclusions or minimum thresholds. Also published today, FG26/2 sets out with immediate effect the FCA's expectations of what good practice looks like for firm-led redress exercises. Any firm with a live or pending redress exercise should be reading it now.
From a market perspective, the package will broadly be welcomed by firms. The removal of "good industry practice" from the fair and reasonable test and the new dismissal grounds, particularly the "compelling reasons" discretion, address long-standing complaints about unpredictability and the perceived creep of Ombudsman decisions into de facto rulemaking. The registration stage should, over time, reduce the volume of poorly-evidenced and speculative complaints that currently absorb significant firm resource to respond to.
The risks lie in implementation. The SUP 15 reporting threshold of ‘may lead to harm’ is deliberately low, and firms will need robust internal monitoring frameworks to avoid inadvertent non-disclosure. The new DISP 1.6.1R obligation to include FRL deadlines in acknowledgement letters sounds minor but requires a systematic review of correspondence templates across all complaint types.
And the registration stage, while conceptually sound, introduces new process complexity at the Financial Ombudsman that will require close monitoring during roll-out, particularly its impact on vulnerable consumers whose complaints may not meet initial readiness thresholds.
Key takeaway:
Firms should treat 1 June 2026 as a hard deadline for two distinct compliance tasks: updating complaint acknowledgement letter templates to include FRL deadlines, and embedding the new SUP 15 reporting triggers into existing escalation frameworks. The broader proposals on registration, dismissal grounds, and the fair and reasonable test represent a genuine structural shift in the complaints landscape, one that favours firms willing to engage with the consultation by 11 May 2026. Those that do not respond risk having their practical concerns overlooked as the FCA and Financial Ombudsman move toward a final policy statement later this year.
Auxillias is supporting lenders and brokers across all aspects of motor finance redress preparation – from interpreting the rules and governance planning to complaints strategy, operational delivery and regulatory engagement.
If you would like to discuss how the scheme may affect your firm, please get in touch with jo.davis@auxillias.com or daksha.mistry@auxillias.com or find out more about our redress support here.
