However, the review stopped short of determining that swifter action from the Commission could have prevented a collapse once the product was licensed, arguing that there were too many factors involved to tell.
It also found that the Commission had raised questions of whether the product was doomed to fail since at least February 2020 and that the operator saw player portfolio values – the status of which are still in doubt – as “theoretical”.
The findings were part of the independent report into the regulation of Football Index by the Department of Digital Culture, Media and Sport. The report was led by Malcolm Sheehan QC.
The report has found that the GB Gambling Commission (GC) initially unaware of changes to the type of product Football Index was offering, and then slow to take action before the platform’s collapse and subsequent administration of operator BetIndex.
The failings identified included the the operator apparently operating on the wrong type of licence. Although the “go-to market” feature – allowing players to sell shares to each other in a manner more similar to an exchange – was not initially disclosed by BetIndex during its application process for a fixed-odds betting licence, it appeared on the Football Index website which was reviewed twice by the GC before launch.
The report noted that the regulator “had not picked up on” allusions to the feature, while the operator had not explicitly told the Commission of its existence.
As a result, the report alleges that for the first three years of operation, the GC had not been properly regulating Football Index in relation to the licence the platform had been issued with upon launch, as it should have received an exchange licence rather than a fixed-odds betting licence.
The Commission did suggest that Football index was “conducting activities which were not authorised by its current licence” 2019 and raised questions of whether it needed an exchange licence, but only after questions from French regulator ARJEL about the product.
The Commission said the regulator “could have taken a stricter approach to BetIndex’s failure to seek a licence that matched the terms upon which it was to operate the Football Index product”.
The Commission was also unaware of the addition of an instant sell function to the product in 2016, and had not sufficiently assessed the Football Index’s terms and conditions prior to 2019, by which point the platform had been running for three years.
Concerns about the operator’s finances were made clear in February 2020, when the GC wrote to BetIndex in seeking assurances that it could afford to pay out its customers in the event of a “bank run” type of event.
The operator argued that while it did not have funds to pay the then £115m in total portfolio value, that this figure was just “theoretical” – as large-scale attempts to sell would put downward pressure on portfolio values.
However an internal GC email sent from an employee revealed that the Commission did not believe that player portfolios were at significant short term risk. It added that “a licence review/suspension would have the opposite effect of what we are wanting to achieve”.
In March of this year, the GC expressed a similar sentiment. It defended its decision not to suspend the license earlier, citing that doing so could have triggered a swifter collapse.
The report also said that, as it did not examine the viability of operators, “the Commission does not therefore ask itself, when assessing an application for a licence, whether a business such as BetIndex was bound to fail”.
However, the review said it could not determine whether earlier action from the Commission could have prevented the platform from collapsing, as the counterfactuals would be too great, especially given the effects of the Covid-19 pandemic. It did say though that it was “likely that earlier regulatory action by the Commission may have had an effect on BetIndex’s customer numbers”.
In relation to the Financial Conduct Authority (FCA), the report found that the body should also have been quicker to act and determine if the product fell under its remit.
The GC first contacted the FCA about Football Index in May 2019 without receiving a response until September of the same year, at which point it was suggested that Football Index should be dual-regulated.
A lack of communication between the FCA and GC also proved to be detrimental, with neither body fully sure who should be taking responsibility for BetIndex’s regulation.
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.”
In response to the report, the GC and FCA have developed a strengthened memorandum of understanding, including clear frameworks for mitigating regulator impasses. The FCA has also nominated an Executive Director to oversee its relationship with the Commission.
The GC has also updated its risk assessment frameworks, in addition to stricter scrutiny of the terminology used to describe products.
In response to the report’s findings, Interim Gambling Commission 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.
“Our actions were always focused on trying to protect consumers while we sought to bring the operator into compliance with regulations. This does not mean however that those customers would not have lost money in the event of the BetIndex company collapsing.”
Administrators began the Football Index claims process in April before the issue was raised to the High Court.
While £3.5m worth of player account funds have been repaid following a High Court decision, the status of the much larger amount of money players had spent on active bets is still in doubt, as the operator did not have any specific protection for these funds and considered them at risk.
The operator has also said that plans are in place for a redress scheme through a Company Voluntary Arrangement as a means to pay back customers who lost money through active bets. BetIndex said it hopes to relaunch the platform with creditors receiving a 50% stake in the new business.