.svg)
Body
The latest Gambling Commission consultation would safeguard the regulator against future Football Index style embarrassments, but also seeks to codify the new normal, legal experts have said.
In future, the UK gambling regulator said it will not give licences to any products that wear the clothes of financial services.
Football Index, which folded in March leaving customers out of pocket, marketed itself as a platform in which fans could “invest” in professional footballers and see their funds grow or shrink based on match performance.
The collapse of Football Index triggered a government inquiry and furious customer reactions on social media, with the regulator repeatedly pressed on why it granted the pseudo-gambling product a licence in the first place.
If the plans laid out in its ongoing “Consultation on changes and updates to our Licensing, Compliance, and Enforcement Policy” are enacted, products such as Football Index will not be approved in future.
“As a matter of policy, applications for licences for products that we consider contain an element that should be regulated by the Financial Conduct Authority (FCA) are likely to be refused,” reads the consultation document.
This change would not affect operators currently licensed by both the Gambling Commission and the Financial Conduct Authority, said the regulator.
“Our primary consideration is that it should be clear to customers what is licensed by us, what is not licensed by us, and what protections they are afforded (or not afforded) through regulation,” the commission said.
Although administrators have been working to return some funds to jilted Football Index customers, many remain significantly out of pocket.
Other proposals in the consultation are less high profile, but likely to be much more relevant to the day-to-day business of the majority of the UK gambling sector.
These include formalising rules around remote compliance assessments, of the kind that have become the norm during the pandemic.
There are also plans to ramp up the use of “Special Measures” in enforcement action, in cases where the commission finds problems that need to be fixed, but does not believe they are serious enough to warrant a full licence review.
Melanie Ellis, a partner at Northridge Law, said in a bulletin: “It is important to note that compliance with an agreed action plan does not prevent the GC from going on to review the licence, but is ‘treated as a mitigating factor’.
“However, we understand from the GC that in the majority of cases a licence review does not follow a Special Measures process.”
More impactful could be stringent requirements to declare all of a company’s beneficial owners and the provenance of its funding, either when a licence is applied for or when a change of corporate control is taking place.
“The consultation underlines the sometimes underestimated importance of providing, within the application, full disclosure of all persons ‘relevant to the application’, including not only ultimate beneficial owners, controllers and shadow directors, but also those who will have ‘an interest in the licensed activities’,” said David Clifton of Clifton Davies consultancy.
“This category includes, for example, major funders of a gambling business and individuals who are providing personal guarantees in relation to monies loaned to the business,” Clifton told VIXIO GamblingCompliance.
The commission is also proposing to add a paragraph to the Licence Conditions and Code of Practice (LCCP), which makes clear that it “will not a grant an operating licence until it is full satisfied that the operation will not be financed by the proceeds of crime and that profits from the operation will not be used to finance criminal activity”.
Ellis said that this wording “reflects the GC’s existing approach to assessing source of funds”, but recommended that those replying to the consultation press the commission to clarify what the regulator means by “fully satisfying” its assessment.
Clifton noted that the regulator is also looking to add clarity to its decision-making about how much to fine operators for breaches.
“In terms of enforcement action, the commission is seeking to dissipate some of the confusion and controversy over the manner in which it determines what is an appropriate financial penalty when regulatory failings have been uncovered,” he said.
The consultation document also indicates that the commission will begin to ask for “financial information regarding the financial resources available to a licensee, including but not limited to its own resources and those of any parent or group company or ultimate beneficial owner” to try and assess where to set a penalty fee.
If no information is forthcoming, the commission will assume the company has the money to pay whatever fine it thinks is appropriate, the regulator said.
Stakeholders have until February 9 to submit responses.
