The Treasury’s proposed overhaul of the Financial Ombudsman Service (FOS) has come under scrutiny from senior MPs who have warned the reforms could undermine 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 change the role and perceived neutrality of the Ombudsman. The reforms, unveiled earlier this week, are designed to address criticism that the FOS has become a “quasi-regulatory body” rather than a complaints resolution body. However, MPs argue the changes could have unintended constitutional consequences.
At the center of the criticism is a proposal that would see the chair of the FOS appointed directly by the government. Hillier warned that such a move could undermine both the real and perceived independence of the institution, which plays a crucial role in resolving disputes across the UK financial services sector.
In a letter on behalf of the committee, she stressed that the ombudsman “must be and be viewed as an independent complaint resolution mechanism” and stressed 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 “lockdown” that would give Parliament, particularly the Treasury Select Committee, the power to approve or veto the appointment and dismissal of the FOS chair. Such mechanisms already exist for other supervisory authorities, including financial and audit regulators, and are intended to strengthen institutional independence.
Hillier also questioned why the government appointment proposal had not been included in previous consultation processes and wanted to provide clarity on what led to the change in approach. The intervention reflects general unease in Westminster about the balance between reforming regulators 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 abruptly resigned in February after a finance committee report said there was a “mutual loss of trust” between her and the board over strategic direction. Shortly thereafter, Chair Baroness Zahida Manzoor announced that she would step down at the end of her term, leaving the organization’s leadership largely in interim positions.
MPs have now sought assurances about whether the proposed reforms would apply to upcoming permanent appointments, raising concerns about the stability of governance during a transition period.
In addition to the governance changes, the Treasury reform package includes a number of structural adjustments aimed at reshaping the way the FOS works. This includes the introduction of a ten-year deadline for lodging complaints, although the Financial Conduct Authority (FCA) reserves the right 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 firms and law firms have had to pay a fee of £250 for each case lodged, over and above an initial fee, while financial institutions have been exempted from fees for their first three complaints each year, before charging a fee of £650 per case thereafter.
Ministers argue that these measures aim to improve efficiency, reduce speculative claims and refocus the FOS on its core mission. But critics warn that the cumulative effect of the reforms – particularly changes in governance – could reshape the institution in ways that weaken its independence and credibility.
The Treasury Select Committee has made it clear that it expects a detailed response from the Government, particularly on how it will maintain the impartiality of the Ombudsman while pursuing its wider reform agenda.
