Financial services firms are being urged to overhaul their IT systems after new industry guidance on managing customer vulnerability was adopted by the Financial Ombudsman Service.
The Chartered Insurance Institute and Personal Finance Society have published guidance that sets a more rigorous benchmark for identifying, recording and monitoring customer vulnerability, with a particular emphasis on the systems and data infrastructure needed to evidence good outcomes under consumer duty.
The guidance, which has undergone extensive peer review, is intended to provide insurers and personal finance firms with a practical framework to close existing gaps in vulnerability management.
By outlining what constitutes effective processes, it reflects the FCA’s shift from prescriptive rules to “principles with proof”, where firms must demonstrate compliance with consumer duty rather than merely assert it.
SYSTEMS UNDER SCRUTINY
Central to the new guidance is the expectation that firms must have the capability to identify vulnerable customers, monitor their circumstances over time and report on outcomes with sufficient granularity.
This includes maintaining systems that can support consistent data capture and integrate effectively across the customer journey.
Andrew Gething, managing director of vulnerability specialists MorganAsh, warned that firms unable to meet these higher standards may find themselves exposed when handling complaints or evidencing outcomes. He stressed that the guidance now represents the default benchmark for the Financial Ombudsman Service, raising the risk for firms whose systems fall short.
Gething said: “This new guidance marks a significant step forward in the ability of firms to not only embrace and embed the principles-based guidance of consumer duty, but manage customer vulnerability effectively.
“It quickly becomes clear that the right technology and processes are absolutely critical in achieving this and the guidance clearly sets out what good looks like for firms to be able to identify, monitor, support and report on customer vulnerability and consumer outcomes.
“This higher benchmark now becomes the de facto standard for the FOS and means that firms must interrogate their current IT systems and processes to ensure they cut the mustard and take action if they don’t.
“If a firm’s approach cannot demonstrate how they identify and support vulnerable customers – with suitable evidence – they won’t just be out of touch with best practice, they will be out of line with what regulators and the Ombudsman will expect. That’s a hard place to defend from in the case of an active complaint.
“Thinking more about the carrot than the stick, rising the meet to this new benchmark will give firms access to robust data and significant intelligence.
“Not only is this essential in delivering good customers outcomes, but it will enable firms to adapt, personalise and improve their products and services, and know their customers better – unlocking a significant competitive advantage and the real commercial benefit of embracing consumer duty.”
TECHNOLOGY’S GROWING ROLE
MorganAsh, which specialises in consumer duty and vulnerability assessment, said demand is growing for tools that allow firms to take a consistent and measurable approach to managing customer needs. Its MARS platform, already used across financial services and utilities, assigns an objective resilience rating similar to a credit score and aligns with the system requirements outlined in the new guidance.
The platform can be used as a standalone tool or integrated via API, offering firms a route to meet the guidance while strengthening their evidence base for regulatory oversight and complaints handling.
The CII guidance is now available for firms to download.
