Evidencing "reasonable steps" under the Consumer Duty: why FOS decisions matter more after the 2026 reforms

Reading time: 9 minutes

Key points

• The Consumer Duty’s hardest requirement to evidence has always been the cross-cutting rule to “take all reasonable steps to avoid causing foreseeable harm” — because foreseeability is partly a comparative concept that depends on signals from outside your own book.
• Internal MI is necessary but not sufficient. A reasonable firm is judged against what it could have known from looking at the wider market, not only against what it actually knew from looking at itself.
• The March 2026 reforms to the Financial Ombudsman Service — the HM Treasury consultation response and the joint FCA/FOS paper CP26/9, both published on 16 March — sharpen the link between Consumer Duty compliance and FOS outcomes, not weaken it.
• FOS decisions are becoming a more direct expression of how FCA rules — including the Duty — apply to specific customer journeys, and remain one of the cleanest external signals available to firms.

The hardest part of the Duty

The Consumer Duty has been in force across new and existing products since July 2023, and across closed products since July 2024. Year three is when the FCA’s expectations are sharpest, the board-reporting practice clearest, and the cost of evidence gaps highest.

The hardest part of the Duty to evidence has always been the cross-cutting requirement to “take all reasonable steps to avoid causing foreseeable harm.” That phrase asks two things at once. It limits the obligation — a firm is not expected to prevent every possible harm. It also raises the standard — the firm must be able to demonstrate the steps it took, and explain why those were reasonable in the circumstances. Foreseeability is partly a comparative concept. A firm cannot fully judge what was foreseeable using only its own data. It also needs to see what is emerging across the market.

The March 2026 reforms to the Financial Ombudsman Service — confirmed in HM Treasury’s consultation response of 16 March and the joint FCA / FOS paper CP26/9 published the same day — have sharpened, not weakened, the relevance of FOS decisions to that judgement. The reforms align the FOS “fair and reasonable” test more directly with FCA rules: where a firm has met its obligations under relevant FCA rules, the FOS will be required to find that the firm acted fairly and reasonably. The corollary is that FOS decisions become a more direct expression of how FCA rules — including the Duty — apply in practice.

This piece sets out what “reasonable steps” requires, why internal MI alone struggles to evidence it, the external signals firms can use, where FOS decisions fit in 2026, and what good operational practice looks like.

What “reasonable steps” actually requires

Principle 12 — “a firm must act to deliver good outcomes for retail customers” — sits at the top of the Duty. It is fleshed out by three cross-cutting rules in PRIN 2A:

• Act in good faith.
• Avoid causing foreseeable harm.
• Enable and support retail customers to pursue their financial objectives.

Each is qualified by “take all reasonable steps.” Underneath the cross-cutting rules sit four outcomes: products and services; price and value; consumer understanding; and consumer support.

The FCA’s Finalised Guidance FG22/5 makes clear that “foreseeable” is a dynamic concept. What counts as foreseeable today may not be what counted as foreseeable two years ago. New patterns emerge. New customer behaviours surface. New products create new harms. The FCA’s own framing is that firms must monitor in a way that reflects this fluidity, and act on what they find.

That dynamism is the heart of the evidential challenge. A firm needs to be able to show — at any moment — that it has been looking at the right things, in the right way, with appropriate frequency, and that it has acted on what it found.

Why internal MI alone struggles to evidence foreseeability

Internal MI is where firms naturally start. Complaints data, customer feedback, call-listening, sales-conduct monitoring, product-performance metrics, vulnerability indicators — all useful, all necessary, none sufficient.

The reason internal MI is not enough is structural, not effort-based. “Reasonable steps to avoid foreseeable harm” is judged in part by what a reasonable firm should have known. That is a comparative standard. A firm cannot fully meet it using only data from inside its own walls. Three illustrative scenarios make the point:

1. A common product feature is producing distress in customers across the market. Your own book may not yet have produced the volume of complaints needed to spot it internally. The pattern is already visible externally.

2. A regulatory rule is being interpreted by the FCA — or by the FOS, applying FCA rules — in a way that diverges from your firm’s interpretation. Your internal MI cannot show you that drift; it only shows you the consequences once your own customers complain.

3. A demographic group — for example, customers with a particular type of vulnerability — is being underserved across the market, in a way that is not yet showing up as harm in your own book. The risk is foreseeable; it is just not yet visible inside.

The FCA’s own approach reflects the same logic. The regulator operates multi-firm reviews, portfolio letters, market studies, and thematic work — all designed to surface patterns across firms that no single firm could see alone. The FCA’s 13 March 2026 review on consumer understanding explicitly praised firms that analysed insights from multiple sources, including external ones, to identify where customers struggle.

Foreseeability is not the same as predictability with hindsight. It is about whether a reasonable firm should have spotted the signal in advance. That requires looking outside.

The external signals available, ranked by usefulness

A reasonable enumeration of the external signals available to firms today, with honest pros and cons:

FCA portfolio letters and Dear CEO letters. High authority. Sector-specific. Published infrequently and at a high level of abstraction. Useful for confirming what is on the regulator’s radar; less useful for granular pattern-detection.

FCA multi-firm reviews and thematic work. Granular and authoritative. Published episodically. Useful for areas where the FCA has done the work, less useful for emerging issues.

Trade body and industry working group output. Useful for technical and operational topics. Slower-moving and often reflects negotiated industry position rather than emerging customer harm.

Media and consumer-advocate reporting. Real-time and customer-facing. Variable quality and biased toward the dramatic. Useful as a tripwire, not as a structured signal.

FOS decisions. Volume is high (around 30,000 published a year), and each is a structured judgement applying FCA rules to specific facts. Granular and decision-by-decision. Until recently, hard to use systematically because of structure — but increasingly tractable with rules-first analytics.

Each of these has a role. None substitutes for the others. FOS decisions are distinct because they are the only source that combines volume, granularity, and direct application of FCA rules to real customer journeys.

Where FOS decisions fit after the 2026 reforms

For firms historically cautious about treating FOS decisions as authoritative — the long-standing criticism was that the FOS was developing parallel regulatory standards through case-by-case reasoning — the March 2026 reforms change the calculation.

The HMT consultation response of 16 March 2026 confirms the legislative direction: the “fair and reasonable” test will be adapted so that where a firm has met its obligations under relevant FCA rules, the FOS will be required to find the firm acted fairly and reasonably. In parallel, the FCA and FOS published CP26/9 the same day, finalising some changes within the existing framework and consulting on further proposals. The FCA also published new finalised guidance on identifying and rectifying harm.

Two implications follow.

First, FOS decisions are increasingly a direct expression of how FCA rules — including the Consumer Duty — apply to specific customer journeys. The FOS’s discretion is narrowing toward applying FCA rules consistently, rather than developing parallel “good industry practice” reasoning. The FCA and FOS have also proposed removing “good industry practice” from the considerations under DISP 3, leaving only the law and regulations applicable at the time of the act or omission.

Second, the alignment is not absolute. HMT has reserved a power to specify that particular FCA rules — or aspects of them — should be excluded from the adapted fair and reasonable test, or treated differently. The response explicitly cites the Consumer Duty and other high-level Principles as examples where this might apply. The detail will follow in further consultation. The practical implication is that FOS decisions applying the Duty remain authoritative interpretations of how outcome-focused rules translate into specific judgements, even as other rule interpretations may be carved out.

The net effect for senior R&C teams is straightforward. FOS decisions remain the highest-resolution view of how outcome-focused rules like the Duty translate into specific judgements about what was — or was not — reasonable. After the 2026 reforms, they will increasingly do so against a more legally-anchored framework.

Hypothesis (label it): firms that treat FOS decisions as a primary external signal under the Duty will find themselves better-positioned for two upcoming developments — the FCA’s planned 2026 consultation on clarifying where the Duty applies and reviewing exemptions; and the operational impact of the FOS’s new complaint-registration stage and 10-year time limit. Both will reshape the underlying volume and composition of FOS cases. Firms with established external-signal monitoring will adapt faster than firms starting from a standing position. This is a working view, not a tested claim.

Operationalising it — what good looks like

The FCA’s February 2026 good and poor practice guidance on Consumer Duty board reports gives a clear steer on what “good” looks like at the governance level: clear ownership of each outcome; defined monitoring; regular review of MI; tracked actions; visible decisions that lead to improvements. The structure should be familiar to any well-run R&C function. The harder question is what feeds it.

For external-signal monitoring specifically, four practical components separate strong programmes from weaker ones:

1. A defined function, with a named owner. Not a side-of-desk task. The function should be visible in the Customer Outcomes Committee terms of reference or equivalent.

2. Structured ingestion of FOS decisions. Reading individual decisions is slow and produces inconsistent insight. Tagging decisions against a taxonomy — products, root causes, rule citations, customer characteristics — produces comparable, reproducible signal over time. The tagging must be deterministic enough that the numbers are auditable; otherwise the output cannot support a board narrative.

3. A cadence that matches the FCA’s own rhythm. The FCA publishes good practice, Dear CEO letters, multi-firm findings and market study outputs on a roughly monthly basis. A firm’s external-signal review should run at least monthly, with the cadence visible in board reporting.

4. A documented escalation path. When the external signal diverges from the internal picture, what happens next? Who decides whether to investigate? Who decides whether to remediate? Decision-making should be traceable from signal to action.

At Atago Green, FOS Watch was built to support the second of these four components — the structured ingestion of FOS decisions. The architecture is deliberately rules-first: decisions are tagged against a deterministic taxonomy that produces reproducible, auditable aggregations, and generative AI is layered on top for natural-language search, briefing drafting and pattern surfacing. FOS Watch was developed with three UK Tier 1 lenders and insurers, who shaped the taxonomy, the comparison framing, and the outputs.

But the broader point is independent of any specific tool. Firms that take “reasonable steps” seriously will increasingly need a defined external-signal function, regardless of whether they build it, buy it, or commission it. The 2026 FOS reforms have made the case more — not less — pressing.

In short

“Reasonable steps” is not a checkbox. It is a posture. The Duty requires firms to look outward as well as inward, to act on what they find, and to be able to show their working when challenged. After the March 2026 reforms, the alignment between Consumer Duty compliance and FOS outcomes is sharper than it was. FOS decisions are not the only external signal that matters, but they are one of the cleanest available — and they will become more so as the new fair and reasonable framework beds in.

The risk is not that the bar is moving. The bar has been set. The risk is in failing to evidence the steps taken to meet it.

Sources

1. Financial Conduct Authority, Consumer Duty pages, accessed 27 May 2026.
2. Financial Conduct Authority, Our Consumer Duty focus areas, updated 7 May 2026.
3. Financial Conduct Authority, Consumer Duty board reports: good practice and areas for improvement, February 2026.
4. Financial Conduct Authority, Consumer understanding: good practice and areas for improvement, 13 March 2026.
5. HM Treasury, Review of the Financial Ombudsman Service — Consultation response, 16 March 2026.
6. Financial Conduct Authority / Financial Ombudsman Service, CP26/9: Modernising the redress system, 16 March 2026.
7. Financial Conduct Authority, PS22/9: A new Consumer Duty (incorporating FG22/5), July 2022.

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This article is intended as analysis and commentary, not as a substitute for legal or compliance advice on specific circumstances. Atago Green is a UK-based software provider and is not a regulated firm.