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UK financial watchdog slams sale and rent back deals

Following a review of all regulated SRB firms, the FSA has referred one firm to its enforcement division while others have either stopped taking on new business or cancelled their permissions. Effectively, this means the entire SRB market is temporarily shut.

Of the 22 firms reviewed, only nine had been active since the FSA began regulating SRB. Of this nine, five firms have now stopped doing SRB business, three have kept their regulatory permissions but decided not to use them for the foreseeable future, five have agreed to undertake past business reviews which may result in consumer redress, and one will only purchase second hand SRB contracts from other firms.

If customers with existing SRB agreements have concerns about their agreement they should in the first instance contact their SRB provider, or seek professional advice, the FSA said.

The FSA had previously identified and published areas of concern regarding financial promotions targeting vulnerable consumers. It had also received intelligence from a lender alleging that one firm was arranging SRB transactions as buy to let mortgages where the properties were purchased by the firm at below market value then inflating purchase prices to defraud the lender.
Additionally, a study by consumer group Which? in February 2011 found advice to SRB  customers to be woefully inadequate.

The most common failings identified by the FSA were that; SRB firms did not correctly assess appropriateness and affordability, and customers were not given enough time to consider the agreement; disclosure of the key facts of an SRB agreement did not follow the correct order, was insufficient and not given at the right time; agreements contained incorrect information and did not meet the FSA's requirements for tenancy agreements; sales processes were inadequate and did not allow firms to gather enough information to assess appropriateness; financial promotions breached FSA rules; and training and competence, compliance monitoring, and record keeping were all inadequate.

‘Sale and rent back is often the last resort for struggling home owners so we expected to see firms treating their customers much better than this report suggests,’ said Nausicaa Delfas, the FSA's head of mortgage and general insurance supervision.

‘The resulting temporary closure of this market could have been avoided if sale and rent back firms had taken the time to fully understand their regulatory responsibilities and customers' needs. It seems most were more focussed on their own commercial success rather than the welfare of the customers, with one firm even resorting to fraud,’ explained Delfas.

Which? chief executive, Peter Vicary-Smith, welcomed the news and said that the FSA should seek to make sure there is redress for those consumers who have been given poor advice by SRB companies.