On Wednesday, the Government published the long-awaited independent report into the regulation of Football Index (or BetIndex, as the company was known). The 193 page report, produced under the steer of Malcolm Sheenan QC, focuses on the regulatory circumstances around the granting of a licence to BetIndex, its subsequent suspension and the company’s ultimate financial failure. It considers the actions taken by the Commission and other regulatory bodies regarding this complex betting product.

While the report is a long way from the magic bullet that would give customers some sort of redress, it does offer some insight into what went wrong from a regulatory standpoint.

193 pages is a lot to read and digest so here is my summary on what we learn from the report and, crucially, what seems to be missing.

Key findings

• The Gambling Commission (GC) were not fully appraised of the Football Index model until early 2019, more than 3 years after the initial launch. During these early stages, the GC took an extremely light-touch approach to their regulatory role in respect of Football Index due to the size of the company and perceived risk level.
• The GC were chronically under-resourced and were slow to adapt to a changing gambling environment, meaning that they could only prioritise what they saw as the most pressing issues.
• The GC were made aware of serious concerns about the Football Index model as early as 2019 but chose not to take any drastic action, fearing that this would cause a panic and the platform would collapse, causing greater harm to customers. Instead, they began a compliance investigation which stretched over 2 years.
• The GC intervened with BetIndex on several occasions where they were potentially in breach of their gambling licence, including issues relating to anti-money laundering regulation, age verification and self-exclusion. There was even a query over whether BetIndex held the right licence to operate a ‘sell to market’ function.
• The GC had multiple discussions with the Financial Conduct Authority (FCA) from 2019 onwards with a view to either passing regulation over to the FCA or moving to a dual-regulation model, but these discussions were never completed and it was unclear whether the FCA was fully supportive.
• The FCA were under pressure from the impact of COVID-19 and didn’t see (or weren’t aware of) the risk posed by the Football Index product.
• In 2020, the GC had concerns that the terms and conditions of Football Index may not be seen as ‘fair’ within the meaning of the Consumer Rights Act 2015 but again no decisive action was taken.
• The impact of COVID-19 caused the GC to have even greater concerns about a possible collapse of Football Index but still no action was forthcoming. The gambling licence was only suspended on 11th March 2021 after BetIndex had announced administration and had begun to prevent customers from accessing their funds.

In summary, multiple concerns were raised about Football Index, on several different occasions and from various different representatives. These concerns were not escalated quickly enough and the resulting regulatory paralysis gave us no protection as we headed into the disaster that unfolded in March 2021.

What did we learn about the actions of BetIndex?

The report relates only to the actions of the regulators and doesn’t extend to assessing the
actions undertaken by BetIndex, its directors or personnel. With no statutory powers, the process of compiling the report depended on voluntary co-operation and the voluntary disclosure of documentation.

Despite those limitations, there are a few things I think we can glean from the report about the actions of BetIndex:

• There was a lack of transparency from the outset. It’s unclear whether BetIndex deliberately mislead the GC about the nature of the Football Index model but it appears they omitted to tell them about the Sell Queue and Instant Sell mechanisms. They also omitted to tell the GC about the changes to the product in 2020, including the suspension of Instant Sell and the doubling of dividends.
• BetIndex repeatedly breached their licence conditions and may not have even held the correct licence for the type of gambling product they were delivering. In January 2019, it was identified that there were 4,218 users of the platform who hadn’t been through age verification processes (eventually only five users were found to be underage). In May 2019, it was found that BetIndex could not provide any evidence of source of funds or source of wealth for any customers – potentially in breach of anti-money laundering regulations. At the same time, it was found there were also no alerts to identify potential problem gambling and in January 2019 marketing materials had been sent to individuals who had self-excluded themselves from gambling through GamStop.
• BetIndex pushed back against possible FCA regulation in late 2020, despite putting out contradictory communication to customers at the same time saying that they were ‘engaged with financial regulators with the objective of holding a licence that is more appropriate for our ‘market’ than our current ‘betting’ licence’. BetIndex were telling customers one thing while telling the GC and FCA something completely different.
• Portfolio values (open bets) were considered ‘theoretical’ by BetIndex, with an understanding that they would quickly dwindle to zero should a ‘bank run’ scenario occur. In February 2020, BetIndex could only cover 15% of the value of open bets, should that scenario occur and the only funds protected were those held separately as a cash balance (unstaked).
• Football Index grew quickly and then suddenly contracted, with COVID-19 playing a factor in this. BetIndex’s gross gambling yield (GGY) in 2017 was roughly £3 million but grew to more than £15 million in 2018 and topped £39 million in 2019. The decision to double dividends in the summer of 2020 was hugely damaging to their bottom line and they were attracting customers at less than one tenth the rate they were in January 2020. Their GGY shrank to around £26 million in 2020 and -£5 million in 2021.
• Market manipulation was baked into the Football Index model. The pricing algorithm (the ‘delta’) was repeatedly changed (some 233 changes between 22 March 2019 and 31 December 2019 alone) and, in the latter stages of the product, there was one ‘market maker’, working seven days per week with no independent oversight.

The report gives the impression of BetIndex ‘making it up as they went along’, out of their depth and gambling with customers’ money. It’s clear that they lied to customers on more than one occasion, such as in their market announcement of 1st October 2020 when they said ‘we have now been operating for 5 years and we’ve never been in a stronger financial position than today.’

Sadly, the report also makes it crystal clear that our ‘portfolio values’ were nothing more than numbers on a page – the money didn’t exist and there was no way for customers to withdraw those funds in the event of a ‘bank run’ on the product.

What don’t we know?

There are a few things that remain unclear, most obviously the issue of financial redress. This is outside of the scope of this review but the findings will give some hope to customers that this paves the way for Leigh Day to take things further.

The other obvious omissions are around the actions of BetIndex, particularly in the days before suspension of the product, but this also falls outside of the scope of this review.

Some other interesting omissions are:

• The report repeatedly references the ‘3 year bet’ and the importance of shares expiring at the end of this period. Users of the platform will be aware that Football Index shares never actually expired and there are many examples of communication from Football Index to underline this point. The fact this isn’t mentioned gives me the impression that the GC were unaware of this and, had they known, perhaps this would have changed the tone of their communications with the FCA and BetIndex themselves.
• The questions around whether BetIndex breached fairness and transparency requirements under the Consumer Rights Act 2015, or whether they engaged in any unfair commercial practices within the meaning of the Consumer Protection from Unfair Trading Regulations 2008 feel unanswered to me. This may be something that Leigh Day decide to pursue further.
• We had previously been told that the GC had utilised a forensic financial accountant as part of the investigations into BetIndex in 2020. This isn’t mentioned in the report and this reference has since been removed from the GC website…

In summary

This report leaves us in no doubt that the GC failed in their regulatory duty. The GC rolled the dice and assumed that taking action would cause more problems for customers than leaving things alone. This was undoubtedly the wrong decision. Even without the impact of COVID-19, there was enough evidence that there were issues with the model and serious concerns about the ability of BetIndex to work in compliance with their licence conditions.

There was clearly an argument that Football Index should have been an FCA authorised product. If it had been, customers would have been able to apply for compensation. It’s a great shame that this wasn’t pursued more vigorously by the GC and shocking that BetIndex resisted this, despite saying the exact opposite to customers.

Where we go from here is unclear. The GC is carrying out a separate regulatory investigation into BetIndex which it will report on in due course. As this is an internal investigation, I wouldn’t hold out much hope of this revealing anything more damning than what we’ve already seen.

Administration proceedings are still ongoing which is likely to result in some reimbursement to customers, even if it is just a few pennies in the pound.

Perhaps the greatest hope of redress is via Leigh Day, whose initial investigations are likely to put additional pressure on the Government to step in. If this fails, there is potential for a class-action lawsuit to go after the former directors of BetIndex.

We can all play our part by continuing to make a noise about this and by supporting the actions of FI Group Action.

Even if this report doesn’t exactly pave the way to financial compensation, it should at least put to bed the idea that Football Index users were simply ‘problem gamblers’ who behaved irresponsibly.

In reality, the ‘problem gamblers’ in this scenario were the GC and the BetIndex directors.

Read the report in full here: https://www.gov.uk/government/news/government-publishes-independent-report-into-regulation-of-football-index