Mansion House: FOS to reduce interest rate applied before a decision to base rate plus 1%

The UK Financial Ombudsman Service (FOS) has published a final policy statement and accompanying press release, confirming that the FOS is changing the interest rate applied to compensation awards to a time-weighted average of the Bank of England base rate plus one percentage point, applied on a simple basis. This change is being made as a result of feedback to the joint FOS and UK Financial Conduct Authority call for input published in June, which conveyed the view that the 8% interest rate does not reflect prevailing market conditions. This change will not impact complainants able to demonstrate actual loss (where the loss is considered in the primary compensation award) nor late payments (i.e. payment made after the deadline date set by the FOS for paying compensation, where the 8% interest rate is being retained in respect of the post-determination period). The FOS is aiming to implement the changes as of 1 January 2026 but will confirm the date in due course. The FOS also confirms that it has taken on board industry feedback on the potential complexity of having dual rates and will be developing and implementing calculators for both the existing and new rates, plus guidance, which will be developed in advance of the implementation date.

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