Key issues and our expectations concerning account withdrawals
Following on from an earlier blog post on the topic of withdrawal of funds, our Chief Executive, Andrew Rhodes, discusses a number of key issues and our expectations.
Posted 18 July 2024 by Andrew Rhodes
In July last year we published a blog post about the issue of customers sometimes experiencing delays when withdrawing funds from their account. We made a commitment in our Business Plan and Budget 2023 to 2024 to undertake work to ensure that gambling is conducted in a fair and open way, including where restrictions are imposed by operators on withdrawals.
Our Contact Centre continues to receive around 2,000 complaints a year about delays to withdrawals. Notably, there were significantly fewer complaints in 2023 about operators who had previously generated the most complaints about delayed withdrawals. Our compliance and enforcement work led to those operators amending their terms and conditions so that appropriate identity verification is conducted before someone can deposit funds and start to gamble, rather than delaying identity verification until a customer seeks to withdraw funds.
Complaints on this remain low in proportion to the total amount of completed withdrawals across the industry. But even where a small percentage of withdrawal requests result in a delay, this represents a significant number of individual instances. Despite the progress made with some operators, withdrawal delays remain the number one subject of complaints we receive, and also feature prominently in cases raised with Alternative Dispute Resolution (ADR) providers.
It is also clear that the complaints we receive concern small, medium and larger remote operators alike - so, they are not confined to any subset of the online gambling industry in Britain.
We stated in our previous blog that it is not acceptable for operators to introduce friction when a customer tries to withdraw from their account rather than when they deposit into the account, or to place the operator’s commercial interests over those of their customers.
As part of our compliance activity, we have reviewed some operators’ terms and conditions and investigated how specific customer accounts have been managed, where customers experienced delayed withdrawals. These are some of the issues we have come across, and we draw attention here to what we expect operators to do.
Explaining the reason for requesting additional information from the customer or the reason for not paying out
Operators often do not provide their customers with any reason as to why they are requesting additional information from them. They sometimes advise customers that information is being requested “for regulatory purposes”, but the specific purposes are not made clear. Operators may also not fully explain to the customer the basis for their decision not to process a withdrawal, for example the reason why they have instead voided the customer’s winnings.
Example
As a requirement before lifting restrictions on an account, an operator asked a customer to provide proof of address (to be sent either in Portable Document Format (PDF) or as a selfie photo with the customer holding the document up against their face) and a bank statement showing all the transactions made by the customer with that operator. In making these requests, the operator relied on one of its terms enabling them to undertake identity verification checks as may be required by the operator, but provided no explanation to the customer as to why those documents were necessary or why such information had to be verified as a condition of restrictions to their account being lifted.
Lessons for operators
Firstly, operators must remember that Condition 17.1.1 of the Licence Conditions and Codes of Practice (LCCP) requires that:
licensees must obtain and verify information in order to establish the identity of a customer before that customer is permitted to gamble. Information must include, but is not restricted to, the customer’s name, address and date of birth
a request made by a customer to withdraw funds from their account must not result in a requirement for additional information to be supplied as a condition of withdrawal if the licensee could have reasonably requested that information earlier. This requirement does not prevent a licensee from seeking information on the customer which they must obtain at that time due to any other legal obligation
before permitting a customer to deposit funds, licensees should inform customers what types of identity documents or other information the licensee may need the customer to provide, the circumstances in which such information might be required, and the form and manner in which such information should be provided.
There may be circumstances where an operator needs to verify further information from the customer where it could not reasonably have requested that information earlier.
But, as explained in my speech at the BGC AGM in February 2024, we want transparency for consumers on restrictions on play or withdrawals, which means operators should make proper efforts to explain to customers what the checks and restrictions are.
We understand that where there is, for example, knowledge or suspicion of money laundering offences being committed, there is a statutory need to make sure that customers are not tipped-off or that an investigation is not prejudiced.
But otherwise, customers should be informed of the reasons why their withdrawal has been delayed. For example, if the operator wants to investigate an account because its own terms and conditions may have been breached, the customer should be told this. Equally, where an operator has decided not to process a withdrawal, it should provide the customer with a full explanation including the basis on which it has made that decision.
Operators should not mislead customers. Where we find evidence that an operator has deliberately misled a customer in its communications with them, we will consider the need for regulatory action.
Timing of requests for additional information
We have seen cases where information has been requested from a customer, such as evidence of their Source of Wealth (SOW) or Source of Funds (SOF), and the request is made as part of the operator’s Anti-Money Laundering (AML) risk procedures. However, in some instances, such information has only been asked for after a withdrawal request has been made, and where the absence of that evidence did not prevent the customer from being allowed to make several deposits and gamble their funds.
Example
An operator asked a customer to provide information dating back almost four years concerning the source of their income and account deposits over that period, and made this request after the customer had asked to withdraw their winnings. The operator allowed a certain amount to be withdrawn but sought to withhold the majority of the account balance until its source of funds requests had been fulfilled.
The operator eventually paid out all winnings when it obtained a Defence Against Money Laundering (DAML) from the National Crime Agency (NCA)1, but it does not appear that suspicions were triggered by any of the customer’s depositing behaviour over the four years before the withdrawal request was made, nor had there been any change in the customer’s behaviour at the point they asked to withdraw funds. The operator seemingly only sought to query the source of the customer’s deposits over that entire period when the request to withdraw funds was made.
Lessons for operators
Operators should monitor customer accounts on an ongoing and risk-sensitive basis. They should seek and obtain source of wealth and/or source of funds information where necessary and proportionate to the risks posed during the customer relationship.
Operators should not, however, continue to accept deposits indefinitely and then seek to rely on their AML procedures to frustrate a withdrawal request, where the operator should have sought that information earlier if needed.
If an operator does not have any regulatory concerns about a customer - for example, there are no suspicions of money laundering or any other risks to the crime licensing objective, and there are no suspicions that the customer has otherwise breached the operator’s terms and conditions - then there is no valid reason to delay the payout of the withdrawal.
Casino operators should note that under The Money Laundering Regulations 2017 (opens in new tab), source of wealth checks are mandatory in relation to Politically Exposed Persons (PEPs), and in the case of business relationships with customers situated in high-risk third countries, or transactions where either of the parties to the transaction are resident in a high-risk third country. Operators must adopt a risk-based approach to comply with their AML and Counter-Terrorist Funding (CTF) responsibilities.
Further information on the risk-based approach can be found in our guidance for casino operators and guidance for non-casino operators.
Third-party payment methods
Operators will typically have terms and conditions that seek to prevent customers using third-party payment methods or funding accounts from third-party sources. These terms exist to prevent the risk of financial fraud.
However, we are aware of instances where an operator has suspected an account has been funded by third party sources or payment methods, but only sought to verify the payment method after a withdrawal request, and the absence of that information did not prevent the customer from being allowed to deposit or gamble in the first place. This presents a risk that deposits may be accepted from methods or sources that breach an operator’s terms, and which may constitute payment fraud, but investigation by the operator only occurs when a withdrawal is requested.
Example
An operator took a £30 deposit from a new customer. The customer won bets from this stake leading to winnings of over £1,000, and the customer sought to withdraw their winnings. The operator identified a risk that the payment method used to make the deposit may have been associated with a third-party source, potentially in breach of its terms. The operator froze the account until it had investigated the matter, and the customer was eventually paid afterwards. However, although the payment method had been flagged internally as a risk, this did not prevent the deposit transaction from being completed, although it was used as a reason to delay the customer’s withdrawal.
Lessons for operators
If operators have published terms that prevent third party funding, and where there is suspicion that an account may be funded by a third party, they should ensure that any investigation is conducted promptly and is not delayed until a withdrawal request is made. We consider it unfair to customers if operators accept deposits from sources that might breach the operator’s terms, and settle any losing bets from such deposits, but then only make enquiries about the payment method used when – and if – a withdrawal request is made.
Operators should note our money laundering and terrorist financing risks assessment for the British gambling industry (2023). For example, the use of third parties or agents to obscure the source or ownership of money gambled by customers, and obscure the identities of those customers, has been noted as high risk in that assessment.
Confiscation of customer deposits
We have also been made aware that operators sometimes seek to confiscate the whole of a customer’s deposit balance, either because they suspect that the account is associated with criminal activity or because they think their own terms and conditions have been breached. We’re also aware that operators have sought to justify their actions on the basis that confiscation would act as a deterrent to any similar future behaviour.
Example
An operator had a published term which sought to give it permission to retain the entirety of an account balance where the operator deemed there was evidence of an illegal activity or a ‘prohibited activity’. In this instance, the activity prohibited by the operator concerned irregularities between the identity of the individual making the deposit, the name registered on the individual’s account, and the individual seeking withdrawal of funds.
Lessons for operators
If an operator suspects or has knowledge of money laundering or terrorist financing, they must submit a Suspicious Activity Report (SAR) and seek a DAML or Defence Against Terrorist Financing (DATF) from the NCA before moving or returning customer funds.
To avoid committing offences under the Proceeds of Crime Act 2002 (POCA) (opens in new tab), operators should report instances of known or suspected money laundering by customers to the NCA and, where a defence (appropriate consent) is requested, wait for such defence to deal with a transaction or an arrangement involving the customer, or wait until a set period has elapsed before proceeding.
This is made clear in our advice to non-casino operators on their duties and responsibilities under POCA and our guidance to casino operators on the prevention of money laundering and combatting the financing of terrorism.
However, confiscating or returning account funds where there is knowledge or suspicion of money laundering or terrorist financing – without first submitting a SAR and DAML or DATF - means that the operator would potentially be committing one of the principal money laundering or terrorist financing offences under POCA or the Terrorism Act 2000 (TACT) (opens in new tab).
Further information on the offences under POCA 2002 can be found in our advice on duties and responsibilities under the POCA and in our guidance for remote and non-remote casinos. Information on requesting a defence can also be found in the POCA advice and guidance for casinos.
Licence condition 7 of the LCCP requires operators to ensure that the terms on which gambling is offered, and any consumer notices relating to gambling activity, are not unfair within the meaning of the Consumer Rights Act 2015. The Competitions and Markets Authority (CMA) has published guidance on the unfair terms provisions (opens in new tab) in the Consumer Rights Act 2015.
One of the principles established by the CMA as part of its action in the remote gambling sector (opens in new tab), and outlined in our guidance on fair and transparent terms and practices, is that consumers should be allowed to withdraw their deposit balance at any time without restriction, except to comply with General Regulatory Obligations.
As the CMA made clear, these obligations include anti-money laundering and fraud prevention. However, the CMA also noted that, while fulfilling compliance with such obligations may necessitate a delay in payouts, it does not mean that operators have the right to confiscate customer deposits.
The Commission’s guidance on fair and transparent terms and practices does not constitute legal advice and operators should seek independent legal advice if they are uncertain about how they should handle customer account funds.
Other things to remember
Operators should not have terms that give them undue discretion as to when and how those terms are applied, as such terms could be unfair. For example, they should not have terms that say the operator “may” or “reserves the right” to void or withhold a customer’s winnings in certain situations. Consumers are entitled to know what action the operator would take.
Operators must comply with consumer protection laws and treat customers in a fair, open and transparent way. This extends to operators’ terms and conditions and practices.
Customer interaction
There may on occasions be reasons for an operator to seek more information from a customer for safer gambling purposes, as part of customer interaction. As outlined in our customer interaction guidance, an operator may freeze an account from further deposits or gambling or end a customer relationship if they consider this necessary. Operators should be transparent with their customers that the reason for requesting more information is for safer gambling purposes.
However, we do not consider that it would be fair, transparent or necessary to delay or prevent withdrawals purely for customer interaction purposes.
Next steps
Our Corporate Strategy for 2024 to 2027 highlights the most important work we intend to deliver over the next three years and outlines that we will be investing further resource into identifying risks and opportunities relating to the fair and open licensing objective, and to the regulatory outcomes that link to this objective.
By improving our understanding of what is important to consumers in this area, we will be better able to direct our resources and future regulatory activity. We will continue to support the gambling industry in Britain to better understand where consumer interests lie.
In the meantime, it is imperative that operators review their terms and practices on withdrawals on an ongoing basis, to ensure they are acting compliantly and are treating their customers fairly. We continue to monitor compliance in this area.
Notes
The information in this blog has been brought together to provide examples of how the relevant regulatory requirements and codes of practice could be considered and applied. This is not intended to replace formal regulatory guidance.
1 A Defence Against Money Laundering (DAML) can be requested from the NCA where a reporter has a suspicion that property they intend to deal with is in some way criminal, and that by dealing with it they risk committing one of the principal money laundering offences under the Proceeds of Crime Act 2002 (POCA).