Following Full Tilt’s Failures, UK to Consider Ring-Fencing of Player Funds

The UK Government is actively considering measures to require operators to ring fence player deposits, it confirmed last week, as part of its overhaul of UK gambling regulation expected to come into effect in 2014.

The announcement came as part of a government response to an earlier report from the Department of Culture, Media and Sport (DCMS).

“The Gambling Commission will be consulting on the appropriate measures that can be required of operators to protect customer funds against fraud or insolvency,” it responded.

It added that this may require “amendments” to the existing licensing conditions, and changes to the codes of practice.

The DCMS originally urged the Gambling Commission to consult the industry “as to what form of 'ring fencing’ or protection of player accounts, by all UK-regulated online gambling operators, would be a proportionate response” to what it called “the Full Tilt case.”

The UK Gambling Commission (UKGC) does not currently require licensees to segregate player funds.

In its report, the committee had questioned the UKGC Minister, who responded that it would be “too burdensome” for the industry, and render it “too uncompetitive,” if it were to require operators to “... hold a separate players’ winning account, or appropriate insurance, or to provide a guarantee that repayment to players could be made at all times.”

However, the UK Government is now re-examining the issue as part of its regulatory changes to switch to a “point of consumption” tax which will require all gambling providers operating in the UK to acquire a license from the UKGC and pay gaming duty on bets from UK customers.

Industry Adoption

The demise of Full Tilt Poker has prompted other regulators to considering imposing more stringent restrictions on licensees in order to afford players more protection.

The Alderney Gambling Control Commission (AGCC), Full Tilt’s previous international regulator, introduced new protections which came into effect this month. Although it falls short of establishing legal separation of operator and player funds, it does introduce new measures to ensure that operators always have sufficient funds to repay both their corporate and customer obligations.

Full Tilt also held a license in France, and French regulator ARJEL has also apparently learned its lesson.

In the wake of the FTP fiasco, ARJEL President Jean-François Villotte called for a forthcoming review of gaming regulation, stating: “... it is necessary to have the legal means to protect player funds and this is the purpose of trusts and trust companies. In the review team we will ask that the law expressly states this.”

No changes are known to have been made.

Words are of little value when they are not enforced. The Lotteries and Gaming Authority of Malta, the largest offshore gaming regulator worldwide, purportedly requires all licensees to hold funds “... separately from the licensee’s own funds … [in an] account held with a credit institution approved by the Authority,” a rule demonstrably unenforced following repeated failures of its licensees and players left out of pocket.

Hopefully the UK will take a page out of Nevada’s playbook. In September last year, the Nevada Gaming Commission set the bar for all regulators when it decided that player funds must be held in a “reserve” account.

The regulations stipulate that “the operator has no interest in or title to the reserve or income accruing on the reserve.”

Such trust funds afford player smaximum protection of their deposits, not only insuring against mismanagement when funds are commingled, but also when companies go bust and liquidate their assets.

The UK gaming bill amendments will be voted on in the first half of 2013, and are expected to come into effect in 2014. A companion point of consumption bill is expected to be introduced within this period, along with changes to UKGC regulations.