I have worked on an SR as well for this with Oracle, and looks like in the current version of SOA Suite 12C and Jdeveloper 126.96.36.199.0, there is no way to refer to the fault policy that is stored on the MDS, through the front-end GUI.
The work around is
1. Create a local fault-policy and replacethe content of this local fault-policy.xml to the actual fault-policy.xml from the MDS (Go to Source and replace the source code), that you might have already designed and exported to MDS.
2. Then on the Composite, create the fault-bindings using the yellow Icon called ("Edit Composite Fault Policies") which will add the following 2 properties to the Composite.xml file.
b) property name="oracle.composite.faultBindingFile"
3) Now, we have to make the changes in the Composite.xml,(source code), of the current project, the value for the property "oracle.composite.faultPolicyFile", to something like this, so that it refers to the file in the custom path on MDS.
<property name="oracle.composite.faultPolicyFile" type="xs:string" many="false">oramds:/apps/<Customdirectory on MDS>/fault-policies.xml</property>
4) You can keep the value of the property "oracle.composite.faultBindingFile" as it is.
5) Just to keep it clean, you can remove the local fault-policy.xml from the current project, because it is anyways referring to the one on the MDS.
NOTE: If you are migrating a project from 11g to 12C, then there is one extra step that needs to be done so that, you fault policy is correctly picked up. Do the following step ONLYif you have migrated the SOA from 11g to 12C, otherwise this step is not needed.
6)Change the file path for property name="oracle.composite.faultBindingFile" from "fault-bindings.xml" to "SOA/fault-bindings.xml". This is needed because, the migrated project is not creating the right folder structure same as, if you create a fresh one from scratch in 12C.
Hope this helps.