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Guidance

Customer funds: segregation, disclosure to customers and reporting requirements

Customer funds: segregation, disclosure to customers and reporting requirements

  1. Contents
  2. The customer funds insolvency ratings system

The customer funds insolvency ratings system

The ratings system must be applied by gambling operators who hold customer funds. If you hold customer funds, 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 terms and conditions and at the point at which a customer deposits money.

The ratings system which must be applied is set out as follows.

Customer funds insolvency ratings categories – must be used by operators to identify their category

Not protected - No segregation

Customer funds which are not protected are only permitted for non-remote and ancillary remote operators only.

They provide no protection in the event of insolvency.

Not protected - Segregation of customer funds

This is the minimum requirement for all remote operators who hold customer funds.

Customer funds which are segregated but not protected 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.

They provide no protection in the event of insolvency.

Medium protection

Medium protections includes Quistclose accounts and insurance arrangements, or an 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.

However, there is no absolute guarantee that funds will be protected in the event of insolvency.

High protection

High protection includes independent trusted accounts.

Customer funds are held in a formal trust account which is legally and in practice separate from the affairs of the company; and is verified by and subject to controls by an independent trustee or external auditor.

What constitutes an independent trust account?

We have not provided a definition of an independent trust for the high category rating. However the factors which we consider relevant to an assessment of whether arrangements for the protection of customer funds fall into the high category include:

  • the existence and implementation of a formal trust deed with clear identification of the trustees, the beneficiaries of the trust and the duties of the trustees
  • legal and practical separation of the trust from the affairs of the company
  • a degree of independent oversight – from an independent trustee or regular external audits.

Applying the customer funds insolvency rating system – disclosing to customers

The ratings category must be used and explained to customers if the operator holds customer funds, and a link must be provided to this webpage. Operators may draft statements to explain the rating system to customers in a manner which meets the particular circumstances of the business; we have not (at this stage) specified the exact wording which must be used.

In the following section, we set out some example statements that might be used in terms and conditions for each of the ratings categories. We 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.

Operators must take care not to imply that the Commission has approved the customer funds insolvency rating level – it must be made clear that the ratings system is applied by the operator.

We undertake compliance activity on how operators are complying with the customer funds requirements. As part of this activity, we may ask operators to provide evidence of how they segregate or protect customer funds. Set out as follows is a summary of how the information is to be included in disclosure statements and some commonly occurring errors that have arisen during our compliance checks.

Summary of information to be included in disclosure statements

Disclosure statements should include the following:

  • explain what happens to funds in the event of insolvency
  • state a ratings category which matches the arrangements in place
  • provide details about the type of account used to achieve the ratings category
  • include a working link to the Protection of Customer Funds information page on the Commission’s website
  • include a mechanism for the customer to acknowledge receipt of the information at the first point of deposit and on any subsequent deposits following a change to the arrangements.

Common errors

Common errors found in disclosure statements include:

  • a link to the Commission’s webpage which explains the ratings system has not been included in the statement, or the link is broken
  • insufficient information is provided about the method (account) used to segregate or protect funds
  • statements do not specifically mention what happens to funds in insolvency
  • terminology is misleading, for example using the term ‘protect’ when only segregation is in place
  • acknowledgement of the statement is assumed from the click of a ‘general’ continue button rather than a separate acknowledgement tick box or button on the deposit page.
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Advice on implementing licence condition 4.2.1 (disclosure to customers)
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Example statements that might be used in terms and conditions for each of the ratings categories
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