15 Protection of Customer Funds
| 15.1 | Introduction |
| 15.2 | Terms and Conditions |
| 15.3 | The Customer Funds Rating System |
| 15.4 | Example Statements for Operators |
| 15.5 | Fees and Charges |
| 15.6 | Dormant Accounts |
| 15.7 | Reporting of Customer Accounts |
15.1 Introduction
15.1.1
The Licence Conditions and Codes of Practice have included guidelines on the ‘Protection of Customer Funds’ specifically in the areas of ‘segregation of funds’ (for remote operators) and ‘disclosure to customers’ (for all operators) since 2014.
15.1.2
The Gambling Commission introduced licensing conditions designed to make customers aware of the level of protection applied to their funds that are held by operators. The changes to the customer Terms and Conditions apply to both remote and non-remote bingo. The ‘segregation of funds’ is only mandatory for the remote bingo sector and is voluntary for the non-remote bingo sector. The Commission states that these conditions were introduced as on occasion gambling operators have run into financial difficulties and subsequently have trouble repaying customers their money.
15.1.3
The Commission seeks to stop remote gambling operators from ‘co-mingling ‘customer and company funds and state: (licence condition 4.1.1) ‘Licensees who hold customer funds must ensure that these are held in a separate client bank account or accounts’.
This does not restrict non-remote operators who will still be permitted to merge funds.
15.1.4
Remote operators licensed by the Commission must keep customer funds in a separate account/s, but there is no guarantee that this will ensure that a customer will get all of their money back if the company becomes insolvent, as it is dependent on the level of protection given to those accounts.
15.1.5
All operators who hold customer funds must set out clearly in their terms and conditions whether customer funds are protected in the event of insolvency, the level of such protection and the method by which this is achieved. This will help a customer decide whether they want to gamble with the operator and how much money they might want to leave on account.
15.1.6 Customer funds disclosure to customers – clarification for non-remote operators
The Gambling Commission issued advice for non-remote operators which states:
‘We set out advice about implementing licence conditions relating to the protection of customer funds (licence conditions 4.1.1 and 4.2.1) in our advice note for operators in November 2014.’
Further to some queries we have received about the information which must be made available to customers by non-remote operators about customer funds, we have updated the advice note to make it clear that:
a) Operators are required to disclose information to customers about the level of protection only if the operator holds customer funds to the credit of a customer for future gambling (such as in an individual account for the customer). If you do not hold customer funds, no disclosure to customers is required at all.
b) Non-remote operators are not required to segregate customer funds, although some operators may choose to do so. Remote operators are required to segregate customer funds as a minimum.
c) Non-remote operators who do not segregate customer funds can simply include a statement such as ‘Customer funds are not protected in the event of insolvency’. It is not necessary to refer to the customer funds ratings system in this scenario. See updated paragraphs 3.5 and 3.7 of the advice note (a link is available in the Resource Centre).
d) Operators who hold ancillary remote bingo or ancillary remote casino licences are not required to provide separate information about customer funds for these products. If you are a non-remote operator who holds customer funds, and you also offer ancillary remote products (e.g. linked EBTs within your club), a general statement that customer funds are not protected is sufficient.
e) However, operators who offer a single wallet to customers across both their remote and nonremote products must take care to ensure that any statements they provide to customers meet the requirements for disclosure to customers. If you offer a single wallet to customers, it is likely that you would segregate all customer funds and explain to customers that you meet the ‘basic’ level of protection according to the Gambling Commission’s ratings system. See updated paragraph 3.10 of the advice note.
15.1.7
Under the Licensing Conditions and Codes of Practice Part 1 (General Conditions) the Gambling Commission provides the licence condition 4.2.1 which states:
Licence condition 4.2.1 – Disclosure to customers All operating licences
(except gaming machine technical, gambling software, ancillary remote bingo, ancillary remote casino licences).
- Licensees who hold customer funds must set out clearly in the terms and conditions under which they provide facilities for gambling information about whether customer funds are protected in the event of insolvency, the level of such protection and the method by which this is achieved.
- Such information must be according to such rating system and in such form the Commission may from time to time specify. It must be provided in writing to each customer, in a manner which requires the customer to acknowledge receipt of the information and does not permit the customer to utilise the funds for gambling until they have done so, both on the first occasion on which the customer deposits funds and on the occasion of any subsequent deposit which is the first since a change in the licensee’s terms in relation to protection of such funds.
- In this condition ‘customer funds’ means the aggregate value of funds held to the credit of customers including, without limitation:
a) cleared funds deposited with the licensee by customers to provide stakes in, or to meet participation fees in respect of, future gambling,
b) 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
c) 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.
15.1.8
Licence condition 4.2.1 applies to both remote and non-remote operators who hold customer funds. It contains at paragraph 1 the requirement that information must be set out in operator terms and conditions about whether customer funds are protected in the event of insolvency, the level of such protection and the method by which this is achieved.
15.1.9
At paragraph 2 of the same condition, it specifies that:
a) information must be available on the first occasion on which customers deposit funds (and on each occasion when the arrangements for the protection of customer funds change)
b) the customer must be required to acknowledge this information about customer funds before being permitted to utilise the funds for gambling.
15.1.10
Paragraph 2 also specifies that such information (the information in both terms and conditions and prior to deposit) must be set according to any rating system specified by the Commission and in such form the Commission may from time to time specify. If no ratings system is used the requirement to make information available in terms and conditions and at deposit stage still applies
15.1.11
Customer funds are defined in paragraph 3 of the licensing condition 4.2.1. but essentially this means an operator who allows customers to deposit money into an account and then keeps those funds until the customers are ready to gamble or withdraw the money. Winnings may also be added to this account.
15.1.12
Similarly, any bonuses which the customer has earned, and which are not subject to any further terms before the customer can redeem the bonus would also be considered customer funds.
15.1.13
There will be exceptions and situations where some credits are not considered customer funds such as a gaming machine area which uses tickets which may be held by the customer and ‘cashed in’ at a future date.
15.2 Terms and Conditions
15.2.1
The customer funds ratings system must be applied by gambling operators who hold customer funds in segregated accounts. In this case you must assess your arrangements for those funds, identify the category which applies to you and include the relevant category in information you supply to customers in your terms and conditions. Where you do not segregate funds, as stated earlier, you may declare in your terms and conditions that ‘Customer funds are not protected in the event of insolvency’. The details of the extent to which customer funds are protected must be made available in the operator’s terms and conditions.
15.2.2
This information must also be made available at the point of depositing money with a gambling operator, in a manner which requires the customer to acknowledge receipt of the information and which does not permit the customer to utilise the funds for gambling until they have done so. Operators must ensure that this information is made available at the point of deposit.
15.2.3
The information would normally be displayed within company terms and conditions at the entrance, or foyer areas and on equipment where customer funds are held in an account (such as EBTs).
15.3 The Customer Funds Rating System
15.3.1
The ratings system and the categories which must be applied are set out in the box in 16.3.4.
15.3.2
The ratings category must be used and explained to customers if the operator holds customer funds, and a link must be provided (where the information is online) to the Gambling Commission’s webpage which explains the rating system.
15.3.3
Operators may draft statements to explain the rating system to customers in a manner which meets the particular circumstances of the business The Gambling Commission has not (at this stage) specified the exact wording which must be used.
15.3.4
The four categories for the rating system are as follows:
| Not protected | No segregation | Customer funds are not segregated from other assets held by the company (this is permitted for non-remote and ancillary remote operators only). |
| Basic | Segregation of customer funds | Customer funds are kept in accounts separate from business accounts but they would form part of the assets of the business in the event of insolvency. These accounts may include bank accounts, investment accounts and other 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 distributed to customers in the event of insolvency. The arrangements falling in the medium category include Quistclose accounts and insurance arrangements. |
| High | Independent trust account | Customer funds are held in a trust account which is verified and subject to controls by an independent trustee. |
15.4 Example Statements for Operators
The Gambling Commission has set out the following example statements that might be used in terms and conditions for each of the ratings categories. They expect that experience over time will help operators and the Commission identify the statements which best explain the system to consumers; and that best practice or standard wording may emerge over time as a result.
15.4.1 Rating: Not Protected
(non-remote and ancillary remote operators only) Customer funds are not protected in insolvency.
15.4.2 Rating: Basic Segregation
We are required by our licence to inform customers about what happens to funds which we hold for them and the extent to which funds are protected in the event of insolvency
We hold customer funds separate from company funds in [a mixture of bank accounts/ investment accounts/ in reserve funds which we hold with our payment processors]. These funds are not protected in the event of insolvency. This meets the Gambling Commission’s requirements for the segregation of customer funds at the level: basic segregation
15.4.3 Rating: Medium Protection
We are required by our licence to inform customers about what happens to funds which we hold on account for you, and the extent to which funds are protected in the event of insolvency.
We hold customer funds separate from company funds in [a client account]. This means that steps have been taken to protect customer funds but that there is no absolute guarantee that all funds will be repaid. This meets the Gambling Commission’s requirements for the segregation of customer funds at the level: medium protection.
15.4.4 Rating: High Protection
We are required by our licence to inform customers about what happens to funds which we hold on account for you, and the extent to which funds are protected in the event of insolvency. We hold customer funds separate from company funds in [an independent trust account, details to be included]. This means that steps have been taken to ensure that customer funds are repaid to customers in the event of insolvency. This meets the Gambling Commission’s requirements for the segregation of customer funds at the level: high protection.
15.4.5
Operators may supply or make available additional information to customers if they wish to highlight other aspects of financial management which they consider relevant. These aspects may include information on, for example, audited accounts, successful track record, public listing, and Group Company support. However, these aspects do not affect the overall rating to be disclosed to customers; they are instead additional facts which may be explained to customers.
15.4.6
Operators may choose to produce shorter references to customer fund protection at the point of deposit, for example because of limited space. However, the ratings category must be included and a link to either the Gambling Commission’s webpage on customer funds ratings provided or a link to the relevant section of the operator’s terms and conditions on customer funds (from which the link to the Commission’s website will also be available).
15.4.7
Operators may be asked to demonstrate their assessment to the Commission at any point. Failure to demonstrate that the level displayed to the customer is accurate within the rating system would constitute a licence breach, and may bring enforcement action.
15.5 Fees and Charges
15.5.1
Operators may deduct fees or other charges from customer accounts, so long as the fees or charges are in line with the operator’s terms and conditions and are fair and open to the consumer. Fees and charges deducted in this way are not considered to be customer funds once they have been deducted. For example, some operators apply fees to accounts that are dormant according to the operator’s terms and conditions (such as after a period of 12 months of inactivity). Fees and charges on dormant accounts can bring a customer’s balance to zero.
15.5.2
An operator must apply any fees and charges and show the deductions in the customer’s account – in other words, an operator may not give the impression to the consumer that the funds are still available to them unless the funds remain in the operator’s segregated customer accounts.
15.6 Dormant Accounts
15.6.1
Operators who are becoming newly licensed by the Commission under the Gambling (Licensing and Advertising) Act 2014 may hold dormant accounts. In this situation, funds from accounts which were dormant at 1 November 2014 (according to the operator’s definition of dormant accounts in their terms and conditions) are not considered customer funds and do not need to be included in the requirement to segregate customer funds.
15.6.2
Accounts which were opened prior to 1 November 2014 and which become dormant (according to the operator’s terms and conditions) are considered to be customer funds, until the relevant charges have been applied and deducted from customer accounts.
15.7 Reporting of Customer Accounts
15.7.1
The Commission will collect information from remote gambling operators who hold customer funds in a regular reporting mechanism. In the meantime, non – remote operators are expected to keep appropriate records of customer funds reconciliations and may be asked to provide information to the Commission on request.
15.7.2
The Commission has introduced a new licence condition (15.2.1 – Reporting key events / financial events 15 and 16) which relate to the provision of information. This applies to all operating licences, except ancillary remote licences.