Financial Conduct Authority Appoints Temporary Head of Financial Ombudsman Service Following Unexpected Change in Leadership
Financial Ombudsman Service Under Scrutiny Amid Motor Finance Scandal and Leadership Changes
The Financial Ombudsman Service (FOS) is facing intense scrutiny as the UK government, regulatory bodies, and banking giants grapple with a surge in consumer complaints related to the motor finance sector. The controversy surrounding the FOS has led to leadership changes, reforms, and a debate over the organization's powers and effectiveness.
The car finance scandal, which involves undisclosed commission arrangements, has seen a significant increase in complaints. In the past year alone, FOS complaints related to motor finance, irresponsible lending, and fraud have skyrocketed, with car finance commission complaints increasing sharply from 12,604 in 2023-24 to 73,328 in 2024-25. This surge has put immense pressure on the FOS, as overall complaints rose by 54% in 2024-25 compared to the previous year.
Critics argue that the FOS decisions can be arbitrary and erratic, with binding decisions on firms but not on consumers. This perceived imbalance has led to calls for the government to curb the FOS’s powers, specifically by involving the Financial Conduct Authority (FCA) more directly in complaint handling and redress awards.
In response to the escalating scandal and complaint volume, the UK government and Treasury are working with the FCA and FOS to modernize the financial redress system. This includes potential regulatory reforms to limit the FOS's discretionary powers, implementing changes in compensation interest rates, and appointing new leadership to navigate these challenges.
Against this backdrop, the FCA recently appointed Liam Coleman as interim chair of the Financial Ombudsman Service board. Coleman, a former chief of The Co-operative Bank and Treasury group director at Nationwide, will take up the role on 10 October. His arrival follows the unexpected departure of Abby Thomas, the former CEO of the Financial Ombudsman Service, in February. The reasons for Thomas' departure were not explained by Baroness Zahida Manzoor in a Treasury Committee hearing in February, citing a "mutual agreement."
The controversy surrounding the FOS has led to the organization being labeled a "quasi-regulator" by the Treasury's regulatory reform. A report released earlier this month criticized Baroness Zahida Manzoor for obstructing scrutiny. Her term ends in August, and the Financial Ombudsman Service is currently without a permanent chair due to its initial recruitment campaign being unsuccessful.
The surge in complaints was due to an increase in motor finance grievances and a rise in professional representatives. The latest hike in complaints figures came before the Financial Ombudsman Service began charging professional representatives £250 for each case referred beyond the first ten per financial year. This increase in the regulator's caseload has put additional strain on the FOS, which is already grappling with the car finance scandal and calls for reform.
Chancellor Rachel Reeves' Leeds Reforms aim to crackdown on the Financial Ombudsman Service, returning it to its original purpose as a simple, impartial dispute resolution service. The banking giants have argued that the Financial Ombudsman Service was given too much power over handling complaints. As the FOS navigates these challenges, it remains to be seen how the organization will adapt and respond to the changing landscape of financial disputes.
On 10 October, Liam Coleman will take up his role as interim chair at the Financial Ombudsman Service. Coleman has expressed his honor at taking on the role and his intentions to work closely with the board, executive team, and stakeholders, including the Treasury and the FCA, to ensure the FOS is fit for the future financial dispute landscape.
The surge in motor finance grievances, combined with the accusations of arbitrary decision-making, have led to intense scrutiny of the Financial Ombudsman Service (FOS) in the economy, prompting discussions about its powers and effectiveness in the finance industry. This scrutiny has been further intensified by the rise in complaints related to motor finance, irresponsible lending, and fraud, with car finance commission complaints increasing significantly over the years.
In an attempt to modernize the financial redress system and address these concerns, the UK government, regulatory bodies like the Financial Conduct Authority (FCA), and the FOS have been working together, considering regulatory reforms to limit the FOS's discretionary powers, Changes in compensation interest rates, and the appointment of new leadership to navigate these challenges.
