Football Index Collapse

Debate between Nigel Huddleston and George Howarth

Tuesday 7th June 2022 Westminster Hall

[The Parliamentary Under-Secretary of State for Digital, Culture, Media and Sport (Nigel Huddleston)]

It is a pleasure to serve under your chairmanship again, Ms Ghani.

I should like to begin by thanking the hon. Member for Blaydon (Liz Twist) for securing this debate, and all those who have contributed to it. She and many others have raised the collapse of Football Index with my Department on a number of occasions. I apologise on behalf of the Under-Secretary of State for Digital, Culture, Media and Sport, my hon. Friend the Member for Croydon South (Chris Philp), who has ministerial responsibilities for gambling, but he cannot be here, as he is serving on a Bill Committee. As tempting as it is to make all sorts of promises on behalf of another Minister, I had better not do so. I will try to answer as many questions as I can, and where I cannot do so I will ask my hon. Friend the Member for Croydon South to write to hon. Members.

I will not detain Members by going through the full history of Football Index or explaining what the product is. I think that most Members in the Chamber unfortunately are quite familiar with the circumstances, but it is important to give a brief outline of what happened. BetIndex was licensed by the Gambling Commission in September 2015, and it operated a product called Football Index. The commission’s scrutiny of the company increased in May 2019, when an internal compliance assessment flagged a number of concerns. In July 2019, the commission contacted the Financial Conduct Authority to ask for its view on BetIndex’s activities due to some of the features of the product, which have been outlined by hon. Members. The commission subsequently launched a formal licence review in May 2020. It cited a number of concerns about the product, including terms and conditions.

The investigation was in train when, in March 2021, the commission learned that the company planned to suspend its operations and freeze customer funds, which would breach its licence conditions. The commission suspended BetIndex’s licence and the company subsequently entered administration. The reasons behind the collapse of BetIndex are important. The suspension of football matches during lockdown in March to June 2020 played a significant role in the financial difficulties that the company faced. Its business model was based on live football and media coverage of it. For a period of time, that did not exist. In March 2021, BetIndex announced a drastic reduction in the returns that it paid out to customers. It hoped that that would allow the company to recover and customers to continue using the product, but unfortunately that failed.

The Government took the concerns of those affected by the collapse of Football Index very seriously. That is why we acted quickly to appoint Malcolm Sheehan QC in June last year, to lead an independent review into the regulation of the company. We are grateful to Mr Sheehan and his team for their extensive investigation, thorough report and clear recommendations, which we have welcomed. The review highlighted a number of wider factors relevant to the way in which this situation came about, including the actions of BetIndex and the impact of covid, as I have mentioned, but it also identified areas for improvement for both the Gambling Commission and the FCA. Areas for improvement have been highlighted by several hon. Members today.

As my hon. Friend the Member for Croydon South said in his written ministerial statement in September last year, the report identified areas where the commission could have been more effective in responding to the challenges raised by the novel product—Football Index—including earlier scrutiny and the speed of decision making. Although BetIndex was not regulated by the FCA, the report also looked at the FCA’s role in working with the commission, and identified some areas for improvement, including the speed of response to the commission’s requests.

I am pleased that both bodies have acted on the recommendations to ensure that a similar situation does not happen again. That is a key ask from many Members today. Actions have included such things as the Gambling Commission updating the way in which it assesses risk so that novel products are properly considered; and the commission publishing a consultation on changes to its licensing policy, clarifying that it will not normally grant a licence to products that contain language associated with financial products or which require dual regulation.

[Sir George Howarth]

Does the Minister accept that if people are going to be compensated for the losses that they have sustained, that will require active intervention from the Government? Will he consider the suggestion made by the hon. Member for Ceredigion (Ben Lake) about using fines as a possible way of compensating people?

[Nigel Huddleston]

I was going to come on to that point. Unfortunately, that ask is not possible, for a couple of reasons. The FCA is required by law to pass revenue from fines to the Treasury, net of enforcement costs, and the Treasury is required to place that into the Consolidated Fund, to be used for Government Departments on important public services. That is the law. The Gambling Commission fines are used for socially responsible purposes, usually for specific projects to reduce gambling harms. I completely understand the intend behind the request, but I am afraid that it is not possible.

Going back to the changes made as a result of the recommendation, the Gambling Commission and the FCA are also signing a strengthened memorandum of understanding to improve co-operation, and the FCA has nominated an executive director to oversee its relationship with the commission. Therefore, some changes have already happened and others are happening now.

Even though the independent report has been published, other processes are ongoing. First, administration proceedings continue, which may result in some money being refunded to customers. Secondly, the Gambling Commission referred BetIndex to the Insolvency Service and asked it to consider whether the actions of BetIndex’s directors prior to administration breached insolvency or fraud laws.