The Financial Conduct Authority and the Financial Ombudsman Service plan to work together on high-volume complaints between consumers and firms to cut the time it takes to settle disputes.

Both bodies, like several City regulators, are under pressure to relax regulations to fall in line with the government’s growth agenda.

This comes as Economic Secretary to the Treasury Emma Reynolds completes a review today to ensure that the Financial Ombudsman Service does not act like a “quasi-regulator” with a greater level of deference to the FCA.

FoS has also confirmed that the compensation payouts it will direct firms to hand over to consumers will be lower.

The FCA says the joint approach on cases with FoS “will help firms identify and resolve issues before complaints escalate and aim to give greater predictability, so businesses have confidence to invest, innovate and support UK growth”.

The regulators will also work together “on specific or novel issues [that] can jam the system and cause significant delays”.

The bodies will expect to handle compensation claims from millions of motorists if they were mis-sold finance agreements when buying a car, after a Court of Appeal ruling last October.

The proposals by the two bodies include:

• A new referral process to improve regulatory alignment and a lead complaint process to look at “novel and significant” issues as they emerge
• Clearer guidance for firms on reporting issues to the FCA sooner, alongside good practice examples to help identify and resolve complaints
• Guidelines to help industry assess and trigger the need to resolve a situation with wider implications that could spike complaints
• Changes to the way the FoS processes complaints to ensure they are well-evidenced and ready before an investigation begins

FCA deputy chief executive Sarah Pritchard says: “When something goes wrong, it is right that people are compensated. But a lack of certainty in the financial redress system can hold back investment and innovation.

“Our changes will help create a system that is more predictable for firms and gives consumers quick and fair compensation where they’re owed it, supporting UK growth.”

FoS interim chief ombudsman James Dipple-Johnstone points out: “These reforms mark a significant step in modernising the UK’s redress system, making it more agile and responsive and a much better fit for today’s economy.

“Our changes will bring consistency and predictability for businesses and consumers, enabling us to better focus on our core purpose — resolving individual disputes quickly and with minimum formality.”

FoS also confirmed that the interest applied to some awards it directs firms to pay will be cut to track the Bank of England’s base average rate plus-1%.

This falls from the previous rate of 8%, which “had remained unchanged for nearly 25 years despite significant shifts in the economic landscape and interest rate environment”.

Fos adds the new rate: “Will be calculated as a weighted average over a period from when the money was due — when the loss to the consumer occurred — until the date the redress payment is made.

“Awards will still reflect any actual losses the consumer has suffered, as now.”

The Finance & Leasing Association director general Stephen Haddrill says: “The direction of travel contained in these proposals show a much more certain, consistent and confident dynamic between the FoS and FCA, which will benefit firms and consumers alike.”

Haddrill adds: “We look forward to working with Government, the FCA and FoS to ensure these changes are implemented as quickly and effectively as possible.”

FoS adds that if a consumer is found to have “lost out” because of a firm’s errors, it can order the business to pay compensation, plus interest.

It adds: “We aim to put the consumer back in the position they would have been in if their financial firm hadn’t got things wrong.”

It points out that it can also direct firms to pay 8% interest if it doesn’t pay compensation on time.

The body plans to introduce the new fee structure from 1 January 2026 “for new complaints referred to us from that date, but will confirm plans for implementation in due course”.