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Customer funds: segregation, disclosure to customers and reporting requirements

Customer funds: segregation, disclosure to customers and reporting requirements

  1. Contents
  2. Advice on implementing licence condition 4.1.1 (segregation of customer funds)

Advice on implementing licence condition 4.1.1 (segregation of customer funds)

Licence condition 4.1.1 requires most remote operators holding customer funds to segregate customer funds.

This licence condition on segregation applies to most remote gambling operators, including remote telephone betting operating licensees. However, it does not apply to business to business (B2B) operators or ancillary remote bingo or casino licences.

Licence condition 4.1.1

Segregation of funds

All remote operating licences, except gaming machine technical, gambling software, ancillary remote bingo and ancillary remote casino licences

1. Licensees who hold customer funds must ensure that these are held in a separate client bank account or accounts.

2. In this condition ‘customer funds’ means the aggregate value of funds held to the credit of customers including, without limitation:

  1. cleared funds deposited with the licensee by customers to provide stakes in, or to meet participation fees in respect of, future gambling,
  2. 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
  3. 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.

Types of segregation

Customer funds may currently be segregated into:

  • bank accounts, either in Britain or overseas
  • investment accounts, where a cautious approach to choice and spread of investment accounts is taken
  • other accounts: payment processor merchant reserve accounts which would be payable to the operator/its creditors in the event of insolvency.

All accounts used by the operator to hold customer funds must enable the operator to comply with key event reporting requirements connected to protection of customer funds and should provide access to funds sufficient to cover day to day liabilities. Further information on reporting requirements in relation to customer funds is provided in the Reporting events to the Commission section of this guidance.

Overseas accounts

Operators may locate customer funds in bank accounts which are based overseas. The operator must ensure that the funds would be payable to the operator/its creditors in the event of insolvency.

Operators regulated in more than one jurisdiction

Customer funds relating to activity under a Commission licence may be held in accounts which also hold funds relating to activity under an overseas licence. However, the operator must be able to demonstrate to the Commission (as part of future customer funds reporting arrangements) that there are sufficient funds to meet the British liabilities to customers, as well as other customer funds liabilities. This may mean that the operator would have to provide additional information to the Commission about non-British activity in order to be able to demonstrate that there are sufficient funds to cover all customer funds liabilities.

Investment accounts

Customer funds may be held in investment accounts which are separate from business investments. Interest or other earnings can be removed from segregated customer accounts so long as the total customer funds will meet the total customer liabilities. The Commission considers a cautious choice and spread of investment accounts is considered prudent, and it is expected that operators will ensure that they have sufficient liquid assets to meet day to day customer payouts.

Payment processor accounts

Operators must not exclude funds in transit to the consumer from the calculation of their customer funds liabilities. Until the customer has received the funds to be paid to them, they remain ‘caught’ by the customer funds definition, and must be kept in a segregated account.

Operators must not use payment processor accounts which would not be payable to the operator/its creditors in the event of insolvency, for example a merchant account from which payment processing fees or chargeback fees could still be deducted.

However, some operators do hold significant reserves with one or more payment processors. These reserve accounts have already had fees and chargeback reserves deducted, and they remain with the payment processor even after the chargeback period has expired or a reconciliation of the merchant accounts has been conducted. In this circumstance, the operator may consider funds held with the payment processor as counting towards the requirement to segregate customer funds.

We would caution any operator considering using a payment processor merchant reserve account as a means of meeting the segregation of accounts requirement to carefully consider the following points:

  • the reserve must be payable to the operator/its creditors in the event of insolvency
  • the operator must be able to demonstrate to the Commission that sufficient funds are available to meet the liabilities connected with the British licence. For an operator based overseas, this will normally mean that only sterling reserve accounts may be used as a means of meeting the segregated accounts requirement
  • the Commission will keep under review the use of payment processor merchant accounts and may prohibit or restrict this practice in the future if we consider that such arrangements are not sufficiently transparent to enable the operator or the Commission to determine that the operator holds sufficient customer funds to meet liabilities.

Examples of situations where the Commission might consider the use of payment processing merchant accounts inappropriate as a means of meeting the segregation requirements are:

  • the sole use of payment processing merchant accounts with no monies being held in a bank account for day-to-day access
  • lack of knowledge or oversight by the operator on the payment processing merchant accounts
  • reporting requirements could not be met because there was not a separation of sterling merchant accounts to meet the British liability.

Operator-specific requirements

Operators may be asked at application stage to set out the nature of segregation of customer accounts (location, account type and amounts held in each account).

As a result, the Commission may put in place arrangements for a specific operator relating to the location or type of segregation that must be applied. These restrictions could be applied via an individual licence condition on the operator’s licence or as part of undertakings agreed with the operator as part of the licensing process.

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Example statements that might be used in terms and conditions for each of the ratings categories
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Other points - Fees and charges
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