The UK government has published its findings and conclusions of its investigation into the collapse of the football player exchange platform Football Index, making recommendations to the Gambling Commission.
In response to the findings, the Gambling Commission has made changes to its regulatory practices.
The DCMS investigation
The UK government launched its investigation into the collapse of Football Index in April, shortly after its parent company BetIndex entered administration.
BetIndex went into administration on 12 March, following a mass player exodus the same week.
The exodus was sparked by a new policy that involved an 80% reduction in dividends paid for each player transaction made on the platform. This led to a major drop in asset value which in turn lowered the returns for customers, resulting in customers losing large sums of real money.
In June, it was announced that Malcolm Sheehan QC, a barrister for Henderson Chambers would lead the review into the collapse of BetIndex.
The Government’s findings
The government’s investigation found that the Gambling Commission raised questions of whether the Football Index product was doomed to fail since at least February 2020.
The findings revealed the operator did not inform the Gambling Commission of changes made to the Football Index product after it was launched. On top of this, the operator failed to properly notify the regulatory body of “the nature of the product” in its initial licence application.
According to the investigation, one of the failings included the operator apparently conducting business on the wrong licence type. This is in regard to the site’s “go to market” feature, which allowed players to sell shares to each other similar to an exchange.
The investigation found that this feature was not initially disclosed by BetIndex during its application for a fixed-odds betting licence, which appeared on the Football Index site. The Commission reviewed the site twice before it was launched.
The investigation noted that the UK regulator could have acted quicker and “better responded to the challenges that the novel product raised” by scrutinizing the language used by Football Index.
According to the findings, the Commission “had not picked up on” allusions to the feature, while the operator did not explicitly tell the Commission it existed.
Therefore, the government’s report alleges that for the first three years of its operating, the Commission had not properly regulated Football Index in relation to the licence the platform received upon launch. The report suggests that the operator should have been awarded an exchange betting licence instead of a fixed-odds betting licence.
Newly appointed Gambling Minister Chris Philp said: “I’m extremely conscious of how devastating the collapse of Football Index has been on its many customers, which is why we moved quickly to launch this independent review.
“We have been clear that we must learn lessons to make sure a situation like this does not happen again. I’m encouraged to see the Gambling Commission and the FCA are taking concrete steps on an action plan on how they will better work together.
“We will ensure that the findings from this review feed directly into our ongoing Gambling Act Review which is looking at ways we can improve regulation of the gambling industry.”
Gambling Commission and FCA’s response
In response to the findings, the Gambling Commission has updated how it assesses risk so that novel products are properly considered, as well as committing to consulting on tighter rules for the terminology used to describe gambling products.
This includes making clear distinctions for consumers where products are gambling, rather than “investments.”
The Commission and Financial Conduct Authority have also developed a strengthened Memorandum of Understanding to improve cooperation in wake of the review.
While Football Index was never regulated by the FCA, areas for improvement for the FCA were identified by the report, including in speed of response to requests from the Commission and consistency of messaging on regulatory responsibilities.
The FCA has also nominated an Executive Director to oversee the relationship with the Commission and continue to pursue its programme of change as set out in its July Business Plan.
Speaking on the changes being made, the Commission’s CEO Andrew Rhodes said: “No amount of explanation of what happened to Football Index will take away the justifiable hurt and anger its customers are experiencing having lost, in some cases, life-changing amounts of money when the gambling company collapsed.
“We accept and agree that we should have drawn a line under our efforts sooner, but this does not mean those customers would not have lost money in the event of the BetIndex company collapsing. Throughout this case we sought the best outcome for consumers within the scope of our regulatory powers.
“The review provides a number of helpful recommendations for how both regulators can work better together and for how our regulatory approach deals with novel products.”