It is perhaps stating the obvious to say that customers using a gambling operator’s services, be that online or in bricks-and mortar businesses, do so at their own risk. Customers know when they place a bet on a horse, or on the result of a football match, or put a stack of chips on red or black when playing roulette, that there is a risk that they will lose. Customers go in to these events with their eyes open.

What customers do not gamble on, however, is when they deposit funds with a gambling operator, that in the event that the organisation runs into financial difficulties that they will lose their money, through no fault, or choice, of their own.

As a consequence of this the GC has, since the inception of the Gambling Act 2005 (the ‘Act’), developed a series of rules in relation to the protection of customer funds to ensure that the customer is aware of what steps the operator is taking to protect those funds in the event of insolvency.

These rules have changed over time, and in particular in more recent years with the implementation of the Gambling (Licensing and Advertising) Act 2014, which came into force on 1 November 2014, with a consequent significant increase in the total value of customer funds held by GC-licensed premises.

This transparency over what happens to customer funds will hopefully assist the customer to make a more informed choice before deciding to deposit funds with one operator or another.

The position insofar as customer funds is concerned is due to change further from April 2016 when the GC will start to collect information from remote gambling operators who hold customer funds through a regular reporting mechanism.

The current requirements

The current position is governed by Licence Conditions and Codes of Practice (‘LCCP’) 4.1.1 and 4.2.1 in relation to remote, and remote and non-remote operators, respectively.

The conditions only apply where an operator holds customer funds to the credit of the customers.

Customer funds will include, inter alia, the following:

  • Cleared funds deposited with the licensee by the customer to provide stakes in, or to meet participation fees in respect of, future gaming;
  • Winnings or prizes which the customer has chosen to leave on deposit with the licensee or for which the licensee has yet to account to the customer; and
  • Any crystallised but as yet unpaid loyalty or other bonuses.

Equally, there may be a number of circumstances in which a customer may be entitled to funds from an operator but where the operator is not required to comply with the relevant LCCP.

This would include for example:

  • A non-remote casino where customers can retain chips for their next visit but the chips are not held in a specific account for the customer;
  • A betting slip that may be capable of being redeemed at a future date by the customer;
  • A gaming machine business that uses tickets that may be held by the customer and ‘cashed in’ at a future date.

All operators who hold customer funds must set out in their terms and conditions of business the following:

  1. Whether customer funds are protected.
  2. The level of such protection.
  3. The method by which this is achieved.

This information must be set out in a ‘rating system,’ which the GC will from time to time specify.

The rating system

At the present time there are four rating bands, with the rules having a different application for non-remote and remote operators respectively. The rating bands are set out below:

Not protected

This is permitted for non-remote and ancillary remote operators only. In these circumstances, customer funds are not segregated from the other assets held by the company.

Protected

Insofar as remote operators are concerned the position is as follows:

  • Basic: Segregation of customer funds (the minimum requirement for all remote operators). Customer funds are kept in accounts separate from the business accounts but they would form part of the assets of the business in the event of insolvency. This may include bank accounts and investment accounts
  • Medium: Quistclose or equivalent. Customer funds are kept in accounts separate from business accounts, and arrangements have been made to ensure assets in the customer accounts are evenly distributed to customers in the event of
  • insolvency. These arrangements would include Quistclose accounts and insurance arrangements
  • High: Independent Trust Account. Customer funds are held in a formal trust account, which is legally and in practice separate from the affairs of the company and is verified by and subject to controls by an independent trustee or external auditor.

The operators’ responsibility

The ratings system is a ‘selfassessment.’ Care must be taken by the operator when providing information to customers not to give the impression that the rating applied to the business is one that has been approved or adopted by the GC. It is also the operator’s responsibility to advise the customer of the following:

  • To explain to the customer what happens in the event of insolvency
  • To state a ratings category that matches the arrangements that the operator has in place
  • To provide details of the type of account used by the operator to achieve the ratings category
  • To include a link to the GC Protection of Customer Funds page
  • To include a mechanism for the customer to acknowledge receipt of the information: a. At the first point of deposit; b. On any subsequent deposit following a change in the arrangements.

Furthermore, operators who offer to customers a single wallet across both their remote and non-remote businesses must take care to ensure that customers are provided with the correct information insofar as it affects the holding of customer funds insofar as it affects both the remote and non-remote activity.

Customer funds reporting to the GC

From April 2016 the GC will start to collect information from all remote gambling operators who hold customer funds in a regular reporting mechanism.

Operators are already required - through the reporting of key events - to notify the GC of any change in a licensee’s arrangement for the protection of customer funds as well as notifying the GC where customer funds are held in a separate account of any deficit on reconciliation of such a bank account.

The new requirements, which will be introduced in phases from April 2016, will require customer funds reporting to include the following:

  • Information about the institutions that are used to hold customer funds
  • Whether the funds are protected in a group arrangement
  • Assets held and any liabilities
  • Explanation of any deficits that have arisen and how the situation is or will be rectified;
  • Certification from someone within the business that the information being provided to the GC is correct.

As the process is being rolled out the GC will require those operators who hold the most significant amount of customer funds to report first. Operators will be notified by the GC, giving them sufficient time (two months) in which to get themselves into a position where they can fulfil the reporting requirements.

Operators will be required to report every four weeks and following the first 12 months of reporting the GC will review and assess the process in light of the usefulness of the information that is being provided to it.

Comment

Whilst the new requirements will add a further small additional administrative burden on GC licensed operators, the small numbers of those who responded to the consultation that contained the proposals for customer funds reporting agreed not only that reporting was required, but also that monthly reporting would be appropriate. More regular reporting, it was agreed, would have been too onerous.

This small additional administrative burden must be balanced against the benefit to the customer, enabling them to make a more informed choice as to who to deposit funds with when choosing a gambling operator.

The changes will also hopefully assist with the ability of the GC in being able to make an early identification of those operators who may be putting customer funds at risk.

At a time when the industry is being encouraged to be more transparent, and responsive to these requests, whether it is in sharing information with the national or local regulator or with each other, these changes are to be welcomed. Whilst they may do little to give the punter comfort when backing a horse, it will be a comfort to him or her to know how secure their winnings are!

First published in World Online Gambling Law Report - March 2016