The SRB market involved home owners selling their homes at a discount to firms that then promised to let them stay as tenants.
However, following a thematic review, the regulator found most deals “were either unaffordable or unsuitable and never should have been sold”.
In February, the FSA said it had taken action against several SRB businesses, including sending one to its enforcement division, and that the market was, in effect, suspended.
The FSA has now published finalised guidance for firms, outlining in detail the practices it came across during its review.
According to the FSA probe, one firm may have been charging clients up to £40,000 on single transactions, even though it recorded on paperwork that it had charged a fee of 5%, which would have amounted to more than £4,000.
The regulator said the average commission paid by the providers was 5% of the purchase price.
“Most of the SRB customers were vulnerable due to their age, financial position or need to move fast and therefore may not fully understand the impact of fees being charged,” the FSA guidance reads.
The FSA review uncovered several failings by firms, including:
– Appropriateness and affordability were not assessed correctly;
– Disclosure did not follow the correct order, was insufficient and was not given at the right time;
– Record keeping was inadequate to confirm that FSA requirements had been met;
– SRB agreements contained incorrect information and did not meet FSA requirements for tenancy agreements;
– Financial promotions were not compliant with FSA rules;
– Sales processes did not follow the structure set out in FSA rules, or allow firms to gather enough information from the customer to assess appropriateness. Customers were not given enough time to consider the SRB; and
– Training and competence and compliance monitoring were inadequate.
