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Independent Review of the regulation of BetIndex highlights challenges for novel businesses

Posted on 6 October 2021

On 7 June 2021, the Department for Digital, Culture, Media & Sport commenced a review into the regulation of BetIndex Limited (t/a Football Index) (BetIndex) conducted by Malcolm Sheehan Q.C. The report arising from that review was published on 22 September 2021 (the Report).

The relative positions of each of the Gambling Commission of Great Britain (Commission), Financial Conduct Authority (FCA) and BetIndex, as outlined in the Report, demonstrates the challenges faced by those operating novel businesses in the UK market. It also highlights the complexities in assessing the regulatory framework(s) applicable to novel operating models where the line between gambling (as defined under the Gambling Act 2005) (the GA 2005) and other types of products, including those more akin to investments, is blurred.

BetIndex and the Football Index platform

BetIndex was a company incorporated in Jersey which operated the Football Index online platform pursuant to a licence granted by the Commission. BetIndex's product was novel. Customers, referred to as "traders", would buy "shares" in a footballer, thereby placing a "bet" on the footballer's future performance. Traders would receive "dividends" paid out by BetIndex on the occurrence of certain events – such as performance in an eligible match (e.g. goals scored), top three performances in a given month, and media mentions. As well as being paid dividends, traders could sell shares in players to other traders, profiting from any increase in value. BetIndex derived its revenue from selling new shares and from commission earned on sales between traders.

Following heightened scrutiny, the Commission suspended BetIndex's licence in March 2021.  Shortly after, BetIndex was placed into administration. The suspension of the licence and the Football Index platform meant that customers lost the ability to sell their shares, whether to or via BetIndex. At the time of suspension, customers were holding shares valued at circa £18m based on the amount that other customers would have been willing to pay for a share in the Football Index market at the relevant time.  The value of open "bets" was circa £124m based on the price paid for each share by the customer. 

BetIndex's regulatory history

The Report sets out in detail the regulatory history of BetIndex, focussing on the actions of the Commission and the FCA.

The Report indicates that BetIndex had a long history of interactions with the Commission, dating back to the granting of its licence in September 2015. During that time, the Football Association and ARJEL had raised queries with the Commission about BetIndex's business model; the Advertising Standards Agency had resolved one complaint against BetIndex informally and upheld two further complaints; a compliance assessment conducted by the Commission gave rise to concerns relating to anti-money laundering, responsible gambling and the nature of the product; and a meeting had taken place between the Commission and a competitor of BetIndex during which concerns were raised about BetIndex operating a pyramid scheme.

As a result of growing concern about BetIndex's operating model, the Commission commenced a formal licence review in May 2020 (as BetIndex's licence remains suspended, the review is still ongoing).

In May 2019, there had been interaction between the Commission and the FCA as to whether BetIndex should also be regulated by the FCA.  By March 2021, nearly two years later, those discussions remained unresolved.

The FCA's initial view, in September 2019, was that BetIndex should be dual regulated by the FCA and the Commission. Nevertheless, in September 2020, a different department of the FCA issued BetIndex with individual guidance, which stated that the FCA's view was that the whole BetIndex product should be regulated by the FCA.

For its part the Commission considered that the product should be dual regulated.

BetIndex's own legal advisors considered that the product should be regulated solely by the Commission. 

It was not until after the Commission had suspended BetIndex's licence that the FCA sought external advice, from which it ultimately formed a view that "no part of BetIndex's product falls within the FCA's remit on legal grounds. The FCA also considers that no part of the BetIndex product should fall to be regulated by the FCA on policy grounds".

The particular provision which appeared to cause difficulty was article 85 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the RAO). This provision deals with "contracts for differences" and provides that the buying or selling of rights under a "contract the purpose or pretended purpose of which is to secure a profit or avoid a loss by reference to fluctuations in the value or price of property of any description; or an index or other factor designated for that purpose in the contract" is a regulated activity requiring authorisation by the FCA.

The analysis of the "share" trading and dividend model of BetIndex appears to have led to differing conclusions by lawyers for the Commission, FCA and BetIndex.  However, in his Report, Malcolm Sheehan QC does not express a concluded view. As the FCA acknowledged in the individual guidance issued to BetIndex in September 2020, "…matters relating to the perimeter are decided by the courts and not the FCA", which is a rather unsatisfactory position for the industry, and those operating, or considering operating, similar businesses, to be left in.

Criticism of the Commission and the FCA

The Report is critical of the Commission and makes a number of adverse findings:

A major aspect of the Football Index model, i.e., the "go-to-market" function which allowed traders to sell their shares to other traders, was not disclosed to the Commission as part of BetIndex's licence application. The Report notes that the Commission expects applicants to be open and transparent as part of their application. Nevertheless, the functionality was apparent on the Football Index website. This was twice reviewed by the Commission as part of the application but was not noted, and so no significant consideration was apparently given to one of Football Index's two main features.

Aspects of the product which resembled a stock market, and the use of investment and financial services language resulting in potential for consumers to be confused as to whether the product was a bet or an investment, were not considered by the Commission at the licensing stage.

Since 2017, the Commission has operated a risk-based assessment to determine the degree and type of regulatory scrutiny an operator is placed under. However, the novelty of a product or any particular problems it may present were not significant factors in the Commission's assessment.

BetIndex's model changed over time (including the addition of an instant sell feature). Those changes were not specifically notified to the Commission and the Commission did not pick up on them in documents submitted, and correspondence from BetIndex, to the Commission until a further licence application took place in 2019.

From the time when the Commission first became aware of the full nature of the Football Index product in early 2019, a significant amount of time was taken whilst the Commission sought a greater understanding of what was a novel and complex product. The Report considers that the nearly two years that passed between 2019 and the suspension of BetIndex’s licence in March 2021 was too long.

The Commission was faced with the dilemma that any drastic regulatory action it might take, such as a suspension of BetIndex’s licence, risked creating panic amongst consumers and a possible collapse of the Football Index platform. Nevertheless, when this did occur, the Commission’s decision to suspend BetIndex’s licence was reactive rather than proactive, a result of the financial situation of which BetIndex made the Commission aware in March 2021.

The Report is also critical of the FCA - in particular that the FCA's consideration of BetIndex's regulatory position continued for two years, during which time the FCA came to a number of different and inconsistent positions about whether any or all elements of the BetIndex product fell or were likely to fall within its regulatory remit. In particular:

During its involvement, the FCA held three inconsistent positions on whether the product fell within the remit of the FCA.

The Report finds that a regulatory impasse between the Commission and the FCA was allowed to develop and continue over too long a period.

The Report notes with approval that a memorandum of understanding has now been agreed between the FCA and Commission, but considers that it could be improved by including a mechanism for resolving regulatory responsibility disputes including agreed timetables.

The FCA – A reluctant gambling regulator

It is apparent from the Report that part of the explanation for the FCA's delay in dealing with BetIndex arose from a reluctance on the part of the FCA to be a regulator of a product which the FCA regards as gambling.  However, in this regard, the FCA does not have any discretion. Whether or not a product or service falls within the FCA perimeter is determined by legislation in the RAO and the GA 2005.

Because the FCA is the regulator of the UK market for financial derivatives, it is also the (reluctant) regulator of spread betting in the UK. In particular, section 10 of the GA 2005 currently provides that a “bet” does not include a bet the making or accepting of which is a regulated activity within the meaning of section 22 of the Financial Services and Markets Act 2000.

A spread-bet is simply a derivative which is linked to a sporting outcome (such as the number of runs scored in a cricket match) in the same way that a financial derivative might be linked to a financial outcome (such as the level of the FTSE100 on a particular day). However, as the Report makes clear, the FCA's position is that "sports spread betting is a gambling activity undertaken for leisure purposes which does not fit naturally with the FCA's remit for consumer protection investment activity within the financial services sector."

The Report discloses that the FCA has reopened discussions with the Commission at senior level, in the hope that the review of the GA 2005 currently underway will afford an opportunity for legislative change, such that sports spread betting would fall within the Commission's regulatory remit (which begs the obvious question of how "sports" would be defined for these purposes).


Whilst the Report's findings are important for the Commission, FCA and government, it also highlights a number of matters that operators of novel products - in particular those that blur the line between gambling under the GA 2005 and investment products under the RAO and/or appear to have similarities to Football Index or involve the purchase and utilisation of digital assets including NFTs - should consider. These include:

At the outset, and well before any application for regulatory approval, the regulatory implications of an operating model need to be considered in detail, with particular focus given to any novel or innovative features.  The benefits of analysing the product early are twofold:

(1) The operator is forearmed in any subsequent discussions with regulators and will be better placed to assist the regulator(s) in understanding the product from a regulatory perspective and seek to address any concerns

(2) Some operators will want to avoid the expense and complication of regulation, most will want to avoid dual regulation and some may intend to fall within the remit of the Commission or the FCA (including spread betting firms) – identifying, amending or eliminating any problematic elements of a product may assist in ensuring that the product falls wholly outside, or within, the Commission and/or the FCA's regulatory perimeter (as applicable).

Platforms which permit players to trade with each other require particular focus. Not only could operators be undertaking investment business which falls to be regulated by the FCA - they could also be acting as a payment service provider.

In any licence application to the Commission, all aspects of the operating model which may impact on the Commission's consideration should be described, including any novel or innovative features, and proactively address concerns the Commission may potentially have. Any application should also provide an overview of the licensing conclusions reached in relation to the operating model. This way, the Commission is afforded the opportunity to consider the conclusions reached and inform the applicant if it disagrees.

Consideration should be given to whether individual guidance should be sought from the FCA to confirm that novel product features fall outside the FCA's regulatory perimeter.  Whilst ultimately it is a matter for a court to determine, compliance with FCA guidance will act as a defence to any regulatory or criminal proceedings.

Operators need to bear in mind that even seemingly minor changes to an operating model (including the introduction of new features) can have implications for Commission licensing and FCA authorisation. Operators cannot rely on legal advice obtained at the outset, if changes are subsequently made. Similarly, existing licences and authorisations may not be adequate to cover adaptations.

Operators need to take care to ensure websites and terms and conditions are fair and comply with applicable consumer protection legislation, taking into account the fact that the fairness of the terms is likely to be influenced by the consumer's understanding of the nature of the product. 

Any enquiries made by the Commission or FCA need to be taken seriously and care taken in responding. Operators providing incorrect, misleading or incomplete information (even unintentionally or inadvertently) are likely to be subject to criticism, or worse, regulatory enforcement action.

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