Aegon and The Investing and Saving Alliance (TISA) have welcomed plans to modernise the UK’s redress system, but warned that the proposed new referral mechanism could create fresh risks if not carefully designed and governed.

The Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS) have launched a consultation seeking views on proposals to modernise the redress framework, aiming to better serve consumers while giving firms greater certainty to invest and innovate.

The consultation paper, Modernising the Redress System, follows the regulators’ joint Call for Input in November 2024 and outlines plans to deliver greater predictability, consistency and transparency in how redress decisions are made.

Notably, it also proposes a new formal referral process between the FOS and the FCA, allowing the Ombudsman to refer cases where there is perceived ambiguity in FCA rules or guidance.

According to the FCA, the goal is to reduce uncertainty for both consumers and firms, and to improve cooperation between the regulators under an updated 'Memorandum of Understanding.'

While the industry has broadly welcomed the reforms, both Aegon and The Investing and Saving Alliance (TISA) have warned that the proposed referral mechanism could introduce new risks if not carefully designed and governed.

Aegon pensions director, Steven Cameron, said the reforms could mark “a step forward for regulatory certainty and consistency”, but cautioned that there could be “devil in the detail” in how the process operates in practice.

“In an ideal world, there wouldn’t be any ambiguity in FCA rules, although this may be challenging in an outcomes-based approach to regulation,” Cameron explained.

“We’d welcome the FCA improving clarity upfront through the greater use of ‘good and poor practice’ examples, particularly in new areas.

This was helpful when introducing the consumer duty, and we’d welcome a similar approach to aid the introduction of targeted support.”

Cameron added that clear criteria should be established to determine when a referral is
appropriate, to prevent the mechanism being “used too frequently, misused or ‘weaponised’ by claims management companies”.

“When the FCA provides clarification to address ambiguity, this must be made generally available so all firms can access and learn from this,” he continued.

“We agree that when simply clarifying existing rules or guidance, the FCA should typically respond within 30 days to avoid delays.

"However, if a response is effectively new FCA rules or guidance, there should first be a formal consultation, which will clearly take much longer than 30 days,” stressed Cameron.

TISA also welcomed the reforms’ intent to bring greater consistency and fairness to the FOS process, but warned the Treasury and FCA against creating “constitutional or operational risks” through the proposed referral mechanism.

The alliance’s head of policy, Sophie Legrand-Green, cautioned that the mechanism could risk giving the FCA powers to “make law through the back door”, with interpretive statements potentially setting binding precedents for firms without due consultation.

“We support the aim of creating a fairer, more transparent redress system,” she stated.

“However, it is imperative that interpretations given by the FCA within the proposed referral mechanism are transparent and subject to appropriate governance," Legrand-Green argued.

"If a position would bind firms or change expectations, it must be published openly, and there must be a full consultation. Without that, regulatory opinions risk becoming de facto law with no proper constitutional basis.”

TISA’s response also urged the FCA and FOS to ensure transparency and consistency by publishing interpretive decisions and decision-making frameworks, thereby giving firms and consumers confidence in predictable outcomes.

It further warned that the Treasury’s proposed 10-year time limit for complaints could unfairly disadvantage long-term product consumers, such as pension savers, who may not identify issues until decades later.

Legrand-Green also supported the introduction of decision-making frameworks and greater individual accountability across the FOS, suggesting that a model similar to the Senior Managers and Certification Regime (SMCR) could enhance culture, clarity, and responsibility in complaints handling.

“The FOS reforms represent a chance to build confidence in the UK’s consumer redress system,” she added, warning that it depends on clarity of process, consistency of decision-making, and constitutional discipline in how rules are interpreted and applied.

The FCA and FOS are seeking feedback on the proposals until 8 October 2025.

After reviewing responses, they will consider next steps and finalise any changes to the redress framework.

---