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AGCC U-Turn on Segregation: Licensees Will Be Required to Ring-Fence Funds

Alderney Amends Regulations to Include Segregated Player Funds
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The Alderney Gambling Control Commission (AGCC) has introduced changes to its regulations, addressing concerns over the safety of consumer deposits held by online gambling sites.

All Category 1 licensees—which includes over 100 online poker, bingo and casino sites—will be required to keep customer funds in a separate bank account, the sole purpose of which is to maintain registered customers’ money. The new amendments will go into effect beginning in 2013.

There is, however, one exception: The AGCC reserves the right to waive this requirement if it receives a personal guarantee to return all players funds in the event that the licensee is unable to do so. The responsible party must also attest that at all times enough money is maintained in on deposit with the licensee to cover the entirety of customer funds and must be able to demonstrate such financial security “at any time, at the request of the Commission.”

Licensees will also be required to submit monthly reports to the AGCC detailing the total amount of funds held on behalf of customers and the balance of all bank accounts where the funds are being held.

The announcement marks a change in position for the Alderney regulator, which had previously defended its regulatory methods and questioned the value of requiring the segregation of customer deposits.

The AGCC was heavily criticized as a result of the alleged fraud that took place at Full Tilt Poker, its highest profile licensee. Player deposits were allowed to be commingled with operating funds and, according to both the AGCC and the US Department of Justice, Full Tilt had used players’ deposits to fund the operation of the company and pay hundreds of millions of dollars in dividends to its owners. Over $300m is owed to players worldwide.

In the aftermath of Black Friday, and after the suspension and final revocation of Full Tilt’s licenses, the AGCC defended its regulatory practice, and an independent review concluded that the AGCC’s handling of the Full Tilt situation was “an example of regulation working as it should.”

André Wilsenach, the Executive Director of the AGCC, downplayed the idea that segregating players’ funds is a viable way to protect players in the event of a financial disaster, stating: “In the case of an insolvency you just don’t know whether the insolvency legislation that applies in that particular country is going to recognize the [players’] interest.”

He continued: “Some authorities think segregation [of players’ funds] is the 'silver bullet.’ We do not believe that that would necessarily solve the problem. ”

The new policies and restrictions will be seen as a positive step towards protecting player deposits, but Wilsenach is correct in that ring-fencing funds, as the new AGCC regulations stipulate, is not the ideal solution: In the event of the liquidation of the licensee, players funds will be treated as assets of the company and can be distributed to other creditors. This is precisely the issue with the recent demise of both Purple Lounge and 5050Poker.

Though the AGCC regulations fall short in this regard, the new amendment does require each licensee to fully disclose this risk “via a clear and robust mechanism that has been approved by the Commission.”

The extent of the protection the new amendment offers is limited to providing the regulator with early warning that customer funds may have been used for operational costs. Even this early warning is dependent on how diligently the regulator verifies the reports it receives, and on the regulated sites actually telling the truth. What we have seen in the past is that truthful regulatory reporting is one of the first casualties of a company’s financial difficulties.

Few regulators have specific segregation stipulations, with the supervisory bodies in the Isle of Man and Malta being notable exceptions. While the former is considered the gold standard in regulation, the latter is viewed as little more than a rubber stamp organization due to its consistent inability to protect players’ funds.

Online poker rooms that still operate with an AGCC license include PKR, Sky Poker, Blue Square Poker, Fast Poker skins such as iGame and Genting Poker.

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