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Customer funds: segregation, disclosure to customers and reporting requirements
Published: 25 July 2022
Last updated: 25 July 2022
This version was printed or saved on: 2 December 2022
Online version: https://www.gamblingcommission.gov.uk/guidance/customer-funds-segregation-disclosure-to-customers-and-reporting
The ratings system and advice in this guide are relevant for remote and non-remote gambling operators who hold customer funds held to the credit of customers (as defined in LCCP). This most often applies to remote gambling operators whose customers hold funds ‘on account’ with an operator for future gambling. All the requirements in relation to customer funds are provided in the Summary of all customer funds requirements section of this guidance.
Operators must keep customer funds in accounts which are separate from business accounts. However, this does not mean customers will get their money back in the event of insolvency.
This is why information about an operator’s arrangements for protection of customer funds (including the relevant rating) must be made available by operators who hold customer funds in their terms and conditions. This information must also be made available at the point of depositing money with a gambling operator, in a manner which requires the customer to actively acknowledge receipt of the information and which does not permit the customer to utilise the funds for gambling until they have done so. Any further changes to the arrangements for the protection of customer funds must be disclosed to the customer prior to implementation in terms and conditions, and at any subsequent deposit of monies by the customer (and acknowledged by the customer). This helps customers understand what will happen to their funds in the event of the operator’s insolvency and may guide their decision on who to gamble with if protection of funds is important to them.
This guide is amended periodically to take account of our experience of assessing compliance with customer funds requirements. We have included some commonly occurring errors that have arisen during our compliance activity, and advice for operators to ensure they are compliant, in the Advice on implementing licence condition 4.2.1 (disclosure to customers) section of this guidance.
Operators must comply with licence conditions 4.1.1 (remote operators only) and 4.2.1 (remote and non-remote operators) if they hold customer funds to the credit of customers. This includes, without limitation:
For example, a betting operator who allows customers to deposit money into an account and keep those funds until they are ready to gamble or withdraw the money would be holding customer funds.
Similarly, any bonuses which the customer has earned, and which are not subject to any further terms before the customer can redeem the bonus would also be considered customer funds.
There are a number of situations where customers may have an entitlement to funds, but where the operator need not meet the requirements of licence conditions 4.1.1 and 4.2.1 because the funds are not ‘held to the credit of customers’.
Examples of these situations where monies are not considered customer funds are:
Further examples of situations where funds would not be considered customer funds includes lottery proceeds. Where a customer pays for a lottery subscription in advance, the funds are considered customer funds until they are committed to a particular lottery and are therefore no longer held for future gambling - at this point they become lottery proceeds and are subject to the separate requirements for lottery proceeds. The point at which monies cease to be customer funds and fall to be proceeds will vary from scheme to scheme depending on how and when the monies are applied to the purchase of a ticket for a particular lottery. This may, but by no means need be, at the point the monies are received by the lottery operator.
Another situation where funds would not be considered customer funds are unallocated lottery subscriptions. Should a lottery operator receive funds that they are unable to allocate to a customer’s account (for example, funds received by standing order which does not identify the customer) the operator should clearly set out in their terms and conditions how these funds are dealt with (for example if the funds will be treated as a donation after a certain period of time) and ensure that this is applied to any such funds.
Licence condition 4.2.1 applies to both remote and non-remote operators who hold customer funds. It contains at paragraph 1 the requirement that information must be set out in operator terms and conditions about whether customer funds are protected in the event of insolvency, the level of such protection and the method by which this is achieved.
At paragraph 2 of the same condition, we specify that:
Paragraph 2 also specifies that such information (the information in both terms and conditions and prior to deposit) must be set according to any rating system specified by the Commission and in such form the Commission may from time to time specify. We set out the format that this ratings system must take in this section.
1. Licensees who hold customer funds must set out clearly in the terms and conditions under which they provide facilities for gambling information about whether customer funds are protected in the event of insolvency, the level of such protection and the method by which this is achieved.
2. Such information must be according to such rating system and in such form the Commission may from time to time specify. It must be provided in writing to each customer, in a manner which requires the customer to acknowledge receipt of the information and does not permit the customer to utilise the funds for gambling until they have done so, both on the first occasion on which the customer deposits funds and on the occasion of any subsequent deposit which is the first since a change in the licensee’s terms in relation to protection of such funds.
3. In this condition ‘customer funds’ means the aggregate value of funds held to the credit of customers including, without limitation:
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 which are not protected are only permitted for non-remote and ancillary remote operators only.
They provide no protection in the event of insolvency.
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 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 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.
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 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.
Disclosure statements should include the following:
Common errors found in disclosure statements include:
For each insolvency rating category, we have provided an example statement that might be used in terms and conditions for consumers. The footnotes provide further details on what information should be provided in the statements.
Operators may supply or make available additional information to customers if they wish to highlight other aspects of financial management which they consider relevant. These aspects may include information on, for example, audited accounts, successful track record, public listing, and group company support. However, these aspects do not affect the overall rating to be disclosed to customers; they are instead additional facts which may be explained to customers.
Operators are only permitted to produce shorter references to customer funds protection at the point of deposit, for example because of limited space on restricted display devices. However, the ratings category, and a link to either the Gambling Commission’s webpage on customer funds ratings or a link to the relevant section of the operator’s terms and conditions on customer funds (from which the link to the Commission’s website will also be available), must still be provided, even on restricted display devices.
Operators who offer to customers a single wallet across both remote and non-remote products must take care to ensure that any statements they provide to customers meet the overall requirements for disclosure to customers and that the statements are accurate for funds held in relation to both the remote and non-remote activity.
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.
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:
Customer funds may currently be segregated into:
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.
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.
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.
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.
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:
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:
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.
Operators may deduct fees or other charges from customer accounts, so long as the fees or charges are in line with the operator’s terms and conditions and are fair and open to the consumer. Fees and charges deducted in this way are not considered to be customer funds once they have been deducted. For example, some operators apply fees to accounts that are dormant according to the operator’s terms and conditions (such as after a period of 12 months of inactivity). Fees and charges on dormant accounts can bring a customer’s balance to zero.
An operator must apply any fees and charges and show the deductions in the customer’s account - in other words, an operator may not give the impression to the consumer that the funds are still available to them unless the funds remain in the operator’s segregated customer accounts.
“Licensees must…notify the Commission in such form or manner as the Commission may from time to time specify, as soon as reasonably practicable of any material change in the licensee’s arrangements for the protection of customer funds in accordance with licence condition 4 (protection of customer funds) (where applicable).”
|Segregation of customer funds (LC 4.1.1)||Remote gambling operators except B2B and ancillary remote bingo or ancillary remote casino licences.|
|Reporting events to the Commission (LC 15.2.2)
Any change in an operator’s arrangements for the protection of customer funds (LC 15.2.2)
|All operators who hold customer funds.|
|Disclosure to customers in terms and conditions (LC 4.2.1)||All operators who hold customer funds.|
|Applying the customer funds rating system to information in terms and conditions (LC 4.2.1)||All operators who hold customer funds.|
|Disclosure to customers at the point of deposit (LC 4.2.1)
according to the customer funds rating system and requiring acknowledgement by the customer before proceeding
|All operators who hold customer funds.|
|Disclosure to customers when changing the level of protection (LC 4.2.1)
terms and conditions changes notified to customers and requiring acknowledgement by the customer at next deposit before proceeding
|All operators who hold customer funds.|