UK-licensed operators required to segregate customer funds

The UK Gambling Commission has set out a number of new customer funds protection measures, including the need for online operators to hold customer monies in a separate account, after publishing updates to it licensing conditions and codes of practice (LCCP) document.

After a seven-month consultation process aimed at improving the protection of customer funds, the regulator is to insist that UK-facing operators place customer and company funds in different accounts as a minimum requirement.

The Commission had previously discussed a number of possible measures, including the requirement for operators to place customer funds in an independent trust account or for the Commission to hold a cash reserve for operators.

However, after taking views from the industry, including those from William Hill, Betfair and Rank, the Commission decided to take the segregated funds route, although operators can still provide additional protection should they wish.

“Although we recognise that this will bring additional costs for some operators, we consider it appropriate that there is a clear distinction between funds held in customer accounts and company funds,” the Commission said.

Dependent on the measures adopted by operators, the Commission will award a rating of basic, medium or high ““ with the rating to be displayed prominently on operators’ websites as a way to offer customers “some consumer choice”.

In addition, prior to depositing money for the first time, operators must also provide customers with the opportunity to confirm they are aware and understand the potential risk to their funds.

According to the consultation response, a number of operators were against the introduction of such measures, indicating that the costs and practicalities outweighed the “very low risk of inadequate financial management”.

However, Stephen Ketteley, leading gaming lawyer and partner at DLA Piper, felt the Commission had to address the possibility of customer and company monies becoming entwined.

“For some, it has always seemed an anathema that players’ funds could be co-mingled with company funds and used for cash flow,” Ketteley said.

“Indeed, players consider funds as belonging to them and many would be surprised they could ever be at risk. So, we can’t be surprised that the Commission is introducing some level of protection, particularly following incidents in the past where player funds were misused,” he added.

The new LCCP measures will come into effect on 1 August in time for the re-regulated UK market which is due to go live three months’ after the Gambling Bill receives Royal Assent ““ something expected to take place later this month.