The Financial Ombudsman Service (FOS) has initiated a public consultation to revise the interest rates applied to consumer compensation awards.

Announced on June 4, 2025, this consultation follows a collaborative call for input with the Financial Conduct Authority (FCA), which sought insights on enhancing the UK’s financial dispute resolution system.

Background on Compensation Interest

When a financial firm’s error results in a consumer’s financial loss, the FOS can mandate compensation, often accompanied by interest to account for the period the consumer was deprived of funds. Known as Statutory Interest, this applies, for example, when an investment has failed and years have passed by before redress can be calculated. The current standard interest rate is set at 8%, applied both to the compensation amount and as a penalty for delayed payments by firms.

Feedback from the joint call for input highlighted that the 8% rate may not adequately reflect current market conditions. In response, the FOS proposes aligning the interest rate with the Bank of England’s average base rate plus an additional 1%, calculated over the period the consumer was out of pocket until the redress is paid, which could represent a significant decrease in redress calculations for claimants dependent on their individual circumstances.

Consultation Details and Objectives

The consultation, open until July 2, 2025, seeks stakeholder input on the proposed interest rate adjustment and explores alternative rate structures. Key objectives include ensuring the rate is fair, proportionate, and reflective of economic realities. The FOS is also gathering feedback on implementation strategies to ensure a smooth transition for new complaints.

James Dipple-Johnstone, FOS interim chief ombudsman, emphasized the importance of modernisation:

“Our service plays a critical role in resolving disputes for thousands of consumers and businesses annually. This consultation is a vital step toward ensuring our processes remain effective and equitable in a dynamic economic landscape. We encourage stakeholders to share their views on whether our proposed rate achieves the right balance.”

Broader Modernisation Efforts

The FOS is undertaking a broader transformation to strengthen its dispute resolution system. This includes collaborating with the FCA and HM Treasury to address systemic issues and improve handling of large-scale redress events. Further proposals are expected in the summer of 2025.

The organisation has already implemented changes, such as introducing fees for professional representatives like us, a first among UK ombudsman services. Additionally, the FOS has managed rising demand, resolving over 200,000 complaints last year as a cost-effective alternative to court proceedings.

Cost Savings for Businesses

In April 2025, the FOS announced it would maintain reduced case fees of £650 and lower compulsory and voluntary jurisdiction levies. These measures, adjusted for inflation, save the industry approximately £70 million compared to 2023/24 pricing, supporting businesses while maintaining accessibility for consumers.

Next Steps

The FOS invites stakeholders to submit feedback by July 2, 2025, to shape the future of its compensation framework. This consultation underscores the organisation’s commitment to a fair, modern, and efficient dispute resolution system tailored to the needs of today’s economy.

Our thoughts

8% per annum has always been generous. In a world of increasing claims, creating a framework which adjusts to market conditions makes sense. However, it likely isn’t fair to all and could lead to opportunistic claimants (or their representatives) sandbagging claims waiting for ideal market conditions before making submissions.

There likely isn’t a framework that works for all parties, but we believe that what should be the priority is uniformity, both in how the FOS, the FSCS , the Pension Ombudsman and other parties empowered with making decisions assess claims, and quantify customer losses. We see this as another positive step towards achieving that goal. One thing that will not change however is that when it comes to financial services claims, acting now matters.

If you believe you may be owed compensation, don’t wait. Start your claim with Claim My Loss today.