British banks and financial institutions are set to pay significantly higher fees to the Financial Ombudsman Service (FOS) next year as the watchdog recovers costs from a major Treasury-led overhaul.
The compulsory jurisdiction levy will rise to £86 million for the 2026/27 financial year, representing a substantial £16 million increase from current levels. This mandatory charge funds the dispute resolution service that handles consumer complaints against financial firms.
Modernising Redress Programme Drives Costs
The fee hike stems partly from inflation but primarily from the £8 million cost of implementing the FOS's 'Modernising Redress' programme. This initiative forms part of Chancellor Rachel Reeves' Leeds Reforms package, which aims to return the ombudsman to its original purpose as a simple, impartial dispute resolution service.
Former City minister Emma Reynolds had previously raised concerns that the body had evolved into a quasi-regulator, particularly as complaints approached Payment Protection Insurance (PPI) levels following a surge in motor finance grievances.
The caseload increased by over 50 percent in the year ending 31 March 2025, largely driven by more professional representatives bringing cases to the service.
Motor Finance Case Surge and BNPL Impact
The FOS anticipates resolving 60,000 motor finance cases in the coming year - a dramatic jump from just 15,000 in the current period. This projection assumes the Financial Conduct Authority will launch its motor finance redress scheme by early 2026.
Meanwhile, the service expects only 5,000 new car finance complaints, which will likely focus on how firms implement the new scheme.
Case fees will also increase for the first time in three years under the proposals currently under consultation until January 2026. The standard fee rises 4.6 percent to £680, while the charge for professional representatives increases to £260 from £250.
The regulatory clampdown on buy now, pay later products is expected to generate an additional 2,000 cases starting in the second half of 2026.
Leadership Challenges and Future Vision
Jenny Simmonds, interim chief executive at the Financial Ombudsman Service, described the coming year as crucial for the organisation. She pledged to build foundations for an agile, responsive and modern FOS.
The service has faced significant leadership turmoil following the abrupt departure of chief executive Abby Thomas in February. A Treasury Committee report revealed Thomas was dismissed after a mutual collapse in confidence stemming from fundamental disagreements with the board over strategy.
Just days later, Baroness Zahida Manzoor, chair of the FOS, announced she would step down at the end of her term on 1 August.
Despite these challenges, the FOS expects to receive 188,000 cases across various financial products including bank accounts, credit cards and insurance during the 2026/27 period.
