MPs warn Treasury reforms could undermine Financial Ombudsman independence

The Treasury’s proposed overhaul of the Financial Ombudsman Service (FOS) has come under scrutiny from senior MPs, who have warned that the reforms risk undermining the independence of a body tasked with resolving disputes between consumers and financial firms.

In a letter to City minister Lucy Rigby, Dame Meg Hillier, chair of the Treasury Select Committee, raised concerns that key elements of the government’s proposals could fundamentally alter the role and perceived neutrality of the ombudsman. The reforms, unveiled earlier this week, are intended to address criticism that the FOS has evolved into a “quasi-regulator” rather than a complaints resolution body. However, MPs argue that the changes could have unintended constitutional consequences.

At the centre of the criticism is a proposal that would see the chair of the FOS appointed directly by government. Hillier warned that such a move risks eroding both the actual and perceived independence of the institution, which plays a critical role in adjudicating disputes across the UK’s financial services sector.

Writing on behalf of the committee, she emphasised that the ombudsman “must be and must be seen to be an independent mechanism” for resolving complaints, highlighting that public trust in the system depends on its ability to operate free from political influence.

The committee has called for additional safeguards, including the introduction of a statutory “lock” that would give Parliament, specifically the Treasury Select Committee, the authority to approve or veto the appointment and dismissal of the FOS chair. Such mechanisms are already in place for other oversight bodies, including fiscal and audit watchdogs, and are designed to reinforce institutional independence.

Hillier also questioned why the proposal for government appointment was not included in earlier consultation processes, seeking clarity on what prompted the shift in approach. The intervention reflects broader unease within Westminster about the balance between reforming regulatory bodies and preserving their autonomy.

The debate comes at a sensitive time for the Financial Ombudsman Service, which has faced significant internal upheaval over the past year. Former chief executive Abby Thomas departed abruptly in February following what was described in a Treasury Committee report as a “mutual collapse in confidence” between her and the board over strategic direction. Shortly afterwards, chair Baroness Zahida Manzoor announced she would step down at the end of her term, leaving the organisation’s senior leadership largely in interim positions.

MPs have now sought assurances on whether the proposed reforms would apply to forthcoming permanent appointments, raising concerns about governance stability during a period of transition.

Alongside the governance changes, the Treasury’s reform package includes a series of structural adjustments aimed at reshaping how the FOS operates. These include the introduction of a 10-year time limit for bringing complaints, with the Financial Conduct Authority (FCA) retaining discretion to make exceptions in certain cases.

The government has also begun implementing changes to the cost structure of the ombudsman system. Since April, professional representatives such as claims management companies and law firms have faced a £250 fee for each case submitted beyond an initial allowance, while financial institutions are exempt from fees on their first three complaints each year before incurring a £650 charge per case thereafter.

Ministers argue that these measures are designed to improve efficiency, reduce speculative claims and refocus the FOS on its core function. However, critics warn that the cumulative effect of the reforms — particularly changes to governance — could reshape the institution in ways that weaken its independence and credibility.

The Treasury Select Committee has made clear that it expects a detailed response from the government, particularly on how it intends to safeguard the ombudsman’s impartiality while pursuing its wider reform agenda.

Jamie Young

Jamie is Senior Reporter at Business Matters, bringing over a decade of experience in UK SME business reporting.
Jamie holds a degree in Business Administration and regularly participates in industry conferences and workshops.

When not reporting on the latest business developments, Jamie is passionate about mentoring up-and-coming journalists and entrepreneurs to inspire the next generation of business leaders.

Advertisement