On the 29 November 2023, the Gambling Commission (“GC”) released its second set of consultations on the Gambling White Paper which covers five key areas:
This note focuses on improved transparency on customer funds in the event of insolvency.
Navigating the present landscape: enhancing transparency in online gambling
One of the GC’s statutory licensing objectives is to ensure that “gambling is conducted in a fair and open way”. As such, the GC want to improve transparency for customers by proposing a new requirement to be added to the existing LCCP provision that gambling licensees should “remind customers that their funds are not protected”. Currently, gambling licensees which hold customer funds must apply a ratings system, using one of the following classifications:
- Not protected – No segregation: Applies to non-remote and ancillary remote gambling licensees. Customer funds lack protection in insolvency scenarios.
- Not protected – Segregation of customer funds: Minimum requirement for remote gambling licensees. Although funds are segregated from business accounts, they become part of the licensee's assets in insolvency, offering no protection.
- Medium protection: Customer funds are segregated, and measures are in place for asset distribution in insolvency. Arrangements in the medium category include Quistclose accounts and insurance arrangements, providing a level of protection but there is no absolute guarantee of full repayment.
- High protection: Customer funds are held in a legally and practically separate trust account, overseen by an independent trustee or external auditor, offering a high level of protection in insolvency situations.
The GC want to ensure it is clear to consumers throughout their relationship with a gambling licensee with a “not protected” rating for customer funds that their funds are unlikely to be recoverable in the event that the licensee with whom the funds sit becomes insolvent.
“Customer funds” are defined in :Licence Condition 4.2.1
3. “In this condition ‘customer funds’ means the aggregate value of funds held to the credit of customers including, without limitation:
- cleared funds deposited with the licensee by customers to provide stakes in, or to meet participation fees in respect of, future gambling;
- 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, in each case irrespective of whether the licensee is a party to the gambling contract.”
Open bets, where customers have placed a bet on a future event, are excluded from this definition as they are not considered customer funds until after the event on which the bet is placed has occurred.
Online gambling licensees are obliged to keep customer funds in a separate account, ostensibly providing a layer of protection. However, in reality, the separation of funds does not guarantee reimbursement in the event of a licensee’s insolvency. The proposal acknowledges that customers using gambling platforms do so at their own risk, with varying degrees of protection depending on the licensee.
The GC explored the status of customer funds protection via a gambling licensee data request in 2022 which revealed that, out of a sample of 118, just over half of the 113 responding gambling licensees reported having a level of protection for customer funds in the event of insolvency. While the overall risk to customer funds seems relatively low (3 percent unprotected), there are instances of significant amounts held by licensees without protection; for example, the GC noted two gambling licensees, without protection, one holding on average £197 of each of its 18,000 customers' funds, the other £247 for each of its 6,000 customers, emphasising the necessity for consumer awareness.
Details of the proposal
The primary focus of the proposal is to improve transparency and empower customers with the knowledge that their funds might not be protected.
Two options are being consulted:
OPTION A – REMINDER TO CUSTOMERS WHEN VALUE OF FUNDS REACHES A THRESHOLD AMOUNT
The consultation proposes that this process would work as follows:
- When the customer’s funds reach a threshold amount (value to be determined), the gambling licensee, within 24 hours of completion of a customer’s gambling session, must send information in writing to the customer to remind them that their funds are not protected.
- The reminder must set out the amount that the gambling licensee holds for that customer, and state that the funds would not be protected in the event of insolvency.
- It would be up to the gambling licensee to determine the appropriate channel for this information (e.g. through using a pop-up message on its website, sending an email etc).
- The gambling licensee must then require the customer to acknowledge the reminder to enable the customer to continue to use the funds for gambling.
The GC are consulting on what a suitable threshold might be, proposing the following options: i) £100; (ii) £250; (iii) £500; (iv) £1,000. The GC also invite stakeholders to suggest their own thresholds if different.
The GC state that their preference would be to have a threshold towards the lower end, but this is subject to consideration of responses to a specific consultation question on this issue. However, licensees would no doubt prefer a higher threshold to avoid unnecessary interruption in the customer journey.
OPTION B – REMINDER TO ALL CUSTOMERS IRRESPECTIVE OF THRESHOLD AMOUNT
Alternatively, the GC propose that gambling licensees that have a “not protected” rating for customer funds send a reminder to all customers, irrespective of amount held, every six months that money held on their behalf is not protected. The GC highlights that this may be simpler for gambling licensees to implement and would cover all amounts no matter how small. This option, while less targeted, ensures that all customers are regularly reminded about the lack of protection for their funds.
Next Steps
This consultation closes on 21 February 2024. The GC welcomes feedback on the proposed options, threshold considerations, and the potential impact on both remote and non-remote gambling licensees.
The Gambling Commission’s First Set of Consultations
The GC released its first set of consultations in July 2023, which ran to October that year. The GC has confirmed that the responses to the first set of consultations are currently being analysed. Further information on these consultations can be found through the following links:
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