MPs have warned that the Treasury’s changes could undermine the independence of the Financial Ombudsman
The Treasury’s proposal to overhaul the Financial Ombudsman Service (FOS) is being watched closely by senior MPs, who have warned that the changes risk undermining the independence of the 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 Committee, expressed concern that key parts of the government’s proposals could change the role and appearance of the ombudsman’s neutrality. The changes, unveiled earlier this week, are aimed at addressing criticism that the FOS has turned into a “quasi-regulator” rather than a complaints resolution body. However, MPs argue that the changes could have unintended constitutional consequences.
Central to the criticism is the proposal which would see the chairman of the FOS appointed directly by the government. Hillier warned that the move risks undermining both the real and perceived independence of the agency, which plays a key role in adjudicating disputes across the UK’s financial services sector.
Writing to the committee, he stressed that the ombudsman “must be and appear to be an independent system” to resolve complaints, pointing out that public trust in the system depends on it being able to operate without political influence.
The committee called for more safeguards, including the introduction of a legal “lock” that would give Parliament, in particular the Treasury Select Committee, the power to approve or veto the appointment and dismissal of the FOS chairman. Such mechanisms already exist in other supervisory bodies, including financial watchdogs and auditors, and are designed to strengthen institutional independence.
Hillier also questioned why the government’s nomination proposal was not included in the previous consultation process, seeking clarity on what led to the change in approach. The intervention reflects a wider unease within Westminster about the balance between reformist parties and preserving their independence.
The debate comes at a critical time for the Financial Appeals Division, which has faced internal turmoil over the past year. Former chief executive Abby Thomas left abruptly in February following what was described in a Treasury Committee report as a “breakdown of trust” between her and the board over strategic direction. Shortly thereafter, chairwoman Baroness Zahida Manzoor announced that she would step down at the end of her term, leaving the organization’s senior leadership largely in temporary positions.
MPs have now sought assurances on whether the proposed changes will apply to future full-time employment, raising concerns about the stability of the administration during the transition.
Alongside the administrative changes, the Ministry of Finance’s reform package includes a series of structural changes aimed at reshaping the way the FOS operates. This includes the introduction of a 10-year time limit for bringing complaints, with the Financial Conduct Authority (FCA) retaining discretion to make exceptions in certain circumstances.
The government has also begun implementing changes to the costing system of the ombudsman program. From April, professional representatives such as claims management companies and law firms face a £250 fee for each case submitted above the initial quota, while financial institutions are exempt from their fees for their first three claims each year before charging £650 per case thereafter.
Ministers argue that the measures are designed to improve efficiency, reduce speculative claims and refocus the FOS on its core mission. However, critics warn that the cumulative effect of the changes – especially changes in governance – could reshape the institution in ways that reduce 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 intends to protect the ombudsman’s impartiality while carrying out its wider reform agenda.
