Football Index Collapse: Lessons Learned

Ronnie Cowan Excerpts

Wednesday 24th April 2024 Westminster Hall

[Jim Shannon (Strangford) (DUP)]

I congratulate the hon. Member for Blaydon (Liz Twist) on bringing the debate forward. She will recall leading a debate on a similar subject here a couple of years ago, and I was very fortunate and pleased to support her, just as I regularly support other Members in Westminster Hall, which is always a pleasure, by the way, because the issues are really important. The hon. Lady is right about this issue: it is important—it is important because some of my constituents have found themselves in this terrible malaise, having lost money, so it is good to return to it.

If the Minister does not mind me saying, I am very pleased to see him in his place, as he always tries to answer constructively the questions and queries we pose to him. I was remarking to him earlier that he performed really well in the debate on the Football Governance Bill last night in the main Chamber, where his final comment referenced, “They think it’s all over! It is now!” I am old enough to remember that saying in 1966. I know that the shadow Minister, the hon. Member for Barnsley East (Stephanie Peacock), is far too young to remember that, but a whole lot of others here are not—I better be careful not to say too much now, or I will be reprimanded.

I took part in the last debate on the impact that Football Index has had on all our constituents, including mine—I will not mention their names, but I will refer to them. It is really good to be back here to discuss what lessons we have learned and what has changed. That was the question posed by the hon. Member for Blaydon: what has changed? Hopefully, the Minister can reassure us in his response.

The collapse of Football Index was detrimental to so many people, and some were undoubtedly financially ruined—I know someone who sadly was, although I am not able to put their name on record, but I have seen the detrimental effects. The situation has also highlighted the importance of being gambling aware. It is important that we get it right this time and the next time round. I was hoping that the hon. Member for Swansea East (Carolyn Harris) would be here, because she has been such a stalwart at the forefront of gambling issues. I admire her greatly, and she has taken up the subject in this House with real enthusiasm in order to make changes.

What is our football knowledge really worth? In football’s first stock market, people had fantastic prospects of making money based on how well they knew football. I know a whole lot about Leicester City, having been a loyal supporter since 1969, when I was a wee boy at school. That was not yesterday, by the way—it ages me greatly when people do the figures. The point I am making is that, although I do not know all about football, I love it. Most people here in this debate probably love football, but they may not know all the ins and outs of the subject matter before them.

The financial losses from this collapse have been absolutely devastating. I have read some absolute horror stories from people in my constituency and further afield. Some have lost hundreds of thousands of pounds that were invested in open bets on football players and their performance. It is also my understanding that the company folded with £124.5 million in remaining open bets—wow! Isn’t that truly extortionate? It shows the magnitude of what we have before us today and why this debate is so important.

Some 67% of people in Northern Ireland have been said to gamble, and they cover a range of ages, sports and other means. My hon. Friend the Member for East Londonderry (Mr Campbell) referred to all the other sports and the implications for them as well. Individuals must be aware of their gambling habits and the potential dangers that come along with gambling. Reports have suggested necessary recommendations for any similar scheme in future.

One point that we must get right is ensuring that any gambling company offering long-term bets will be able to cover payments to customers. That is to be covered by the Government’s forthcoming gambling White Paper. I look forward to hearing what the Minister has to say about the White Paper and how it will address some of the issues we have before us today. If it does not—with respect, Minister—we will need to see how it can be strengthened and enforced.

Others will make contributions. I am not sure whether the hon. Member for Inverclyde (Ronnie Cowan) is going to speak, but he has great knowledge of this subject. I hope he will intervene at some stage to give us some of his wisdom on the matter. I mean that honestly because he has a particular grasp of the situation.

[Ronnie Cowan (Inverclyde) (SNP)]

The issue is that when it comes to gambling products, we understand that there are rules and regulations in place. They are not to my liking, but they are there. This scheme and the successor schemes are designed to work in the grey areas—the dark shadows—of gambling. The Financial Conduct Authority did not even know whether it was responsible for them.

Hopefully, down the line somebody will be able to hold these companies to account. Their will is not to create an exciting thing for football fans to get more involved with and enjoy a game of football; their will is to take money out of people’s pockets. We know plenty of gambling products that are already doing that. I am not sure there is much in the White Paper at all that touches on FI. There has to be something that ensures the regulations are clear and understandable. It must also stop KiX: if KiX is up and running, plenty of other organisations behind it will be waiting to do exactly the same thing, and all they will do is extract money from punters’ pockets.

[Jim Shannon]

I thank the hon. Gentleman for that intervention. He has posed a few questions that are pertinent to the debate. I look forward to the contributions from the SNP spokesperson, the hon. Member for North Ayrshire and Arran (Patricia Gibson), and the shadow Minister, the hon. Member for Barnsley East (Stephanie Peacock), and the questions they will pose in turn to the Minister.

We need to see a sea change that does away with the grey areas that the hon. Member for Inverclyde referred to and the uncertainty, where people can get sucked into the process. Ensuring that customers can get their money back is of major importance. Early day motion 697 was tabled on 25 November 2021. I am pretty sure the hon. Member for Blaydon was instrumental in tabling the EDM and ensuring that others signed it. I signed the EDM to show support and to urge the Government to do more to ensure that those owed money receive a full reimbursement.

As I have stated before, gambling is a personal choice. I am not here to tell anybody what they should or should not do; I will always try to give people choice if I can. At the same time, sometimes Government have to encourage people to be more aware of what the choices are. As the hon. Member for Inverclyde said, there are clearly occasions when that does not happen, and that is why it is important to have a system in place. While gambling is a personal choice, we hope that those choosing to do so are educated about the potential risks. The losses can be huge. I read one story—I thought about it long and hard—about a young man, probably in his early 20s, who lost £165,000: my goodness! He lost what he did not have. He found himself in all sorts of problems, and he stated that it completely turned his life upside down. How could it not, given that he lost that amount of money at an early stage in life?

Many have openly referred to the shame they feel and how such things have affected how they look at gambling. There is absolutely no doubt that the Financial Conduct Authority should have regulated Football Index, and there are still questions to be answered. I know this may not be the Minister’s responsibility, but I would really like to know what discussions have taken place with the Financial Conduct Authority and what it is doing to regulate the situation. There are still questions to be answered.

Although it is argued that FI was seen as an investment, not gambling, its business model still relied on money from constituents and it was undoubtedly fundamentally flawed, as some of my constituents are able to confirm. Many people state that they feel let down by the regulators and that more should have been done to ensure the system was working correctly.

I will conclude because I am conscious that others want to speak. I look forward to hearing from the two shadow spokespeople, the hon. Members for Barnsley East and for North Ayrshire and Arran, and the Minister. Consumer protection must be at the heart of the lessons learned. The FCA’s consistent view has been that all the products fell within its regulatory perimeter up until the collapse in March ’21. Evidentially, that is no longer the case, and therefore we need a legislative change and reassurance.

Legislatively, it is always better to put these things in black and white. I hope action is taken to support those who suffered losses as a result of the collapse. I urge the Minister and our Government to ensure that victims do not wait years for reimbursement. That would be unfair, and we have a chance today to urge the Minister to grasp that. I commend the hon. Member for Blaydon for bringing forward this issue; there is no one in the Chamber who does not think she has done exceptionally well.

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[Patricia Gibson (North Ayrshire and Arran) (SNP)]

I am pleased to participate in this debate. Like others who have spoken before me, I congratulate the hon. Member for Blaydon (Liz Twist) on bringing it forward. It is important that we learn lessons and remember the mistakes made during the collapse of the online gambling product, Football Index. I also pay tribute to my hon. Friend the Member for Inverclyde (Ronnie Cowan), who has done a huge amount of work on this issue and in the wider gambling context generally.

I remember well when Football Index collapsed in 2021. I remember a number of constituents contacting me in despair, some having lost significant sums of money in what they believed was an investment because it had been marketed as such. It was deliberately marketed to look like a football stock market where customers could invest in players, collect dividends based on performance and sell their shares in a player at a profit if they did well. However, when operations were suspended, customers lost more than £90 million in open bets, or in other words, investments in players.

What became clear is that Football Index was akin to a pyramid scheme, operating unsustainably until its collapse by paying customers dividends using new customers’ investments. That collapse represents the biggest collapse of a gambling product in the UK. However, relatively speaking, it has not attracted the attention that it ought to have done. We know that the Gambling Commission had been warned some 14 months prior to the collapse that the platform was an

“exceptionally dangerous pyramid scheme under the guise of a ‘football stock market’”.

Its business model was fundamentally flawed and spiralled out of control.

As we have heard, the issue is that many of those using the platform were not fully cognisant of the fact that they were gambling, participating in a pyramid scheme dressed up as something quite different. If somebody does not know that they are gambling, they surely cannot be fully aware of the risk to which their money is exposed. The reality is that Football Index’s deliberate imitation of an investment product led to

“unparalleled levels of irresponsible gambling”

from thousands of users who were misled into believing that they were not gambling but investing, and obviously had no idea of the risks to which they were exposed. There is unanimous agreement in the Chamber today, and I am sure that the Minister will be listening to that carefully.

All the information was contained in a report to the Gambling Commission, which did nothing and rejected the warnings, as it did not consider that there was enough evidence to show that the undertaking was fraudulent. It then transpired that the Gambling Commission was not properly notified of the nature of the product in its licence application, nor was the regulator informed of changes to the product after its launch as required. There has clearly been an absence of scrutiny and, one might say, of curiosity in some quarters, given the concerns raised about the platform. Football Index was never regulated by the Financial Conduct Authority, but areas for improvement for that body have been identified, including the speed of response to requests from the Gambling Commission and consistency of messaging on regulatory responsibilities.

For the constituents who contacted me about the issue—I am sure that it is the same for other Members’ constituents—the financial losses have been significant. For some, they have been life-changing, and have put strains on family relationships and future plans. Still there has been no redress for those who were told they were participating in an investment instead of a gambling opportunity. Indeed, the only hint on Football Index’s website that it was a betting site was an easy-to-miss strapline, which was added several years into its existence, and only at the insistence of the Advertising Standards Authority.

This situation happened because of spectacular failures in regulation, which allowed a gambling product to masquerade as a financial service or investment platform, without the regulation that that would suggest. Those who were fooled by Football Index—and they were fooled—should not pay the price of this failure of regulation. That only adds insult to serious injury. I know that the Minister will say that gambling losses cannot be made good by taxpayers’ money, but I draw his and other Members’ attention to the words of David Hammel, who is one of the spokespeople for the Football Index action group. He said:

“The regulators don’t actually cost the taxpayer any money, they are funded by licence fees and they also contribute to the Treasury by way of fines and settlements. There is a net surplus since…Football Index was first licensed in 2015, it’s approaching £1.3bn or £1.4bn that’s gone into the public purse.”

Football Index action group wants a mere 10% of that sum to be reassigned for use as redress. That would not directly involve taxpayers’ money.

[Ronnie Cowan]

I have one of those numbers going around in my head. It is said that £90 million was lost. Well, it was not lost. It is there somewhere. Someone has that money in a bank account somewhere; it did not just disappear into the ether. We are trying to find redress for people who have lost tens of thousands of pounds. If we identify that money, surely there is a way. Even if it is in a bank account in Jersey, there has to be a way of paying redress to the people who lost it in the first place.

[Patricia Gibson]

I thank my hon. Friend for that point, but I also urge the Minister to look carefully at the suggestion of David Hammel from the Football Index action group. I agree with Mr Hammel, and I want the Minister to consider his proposal for how redress can be managed for the victims of this scandal.

It almost goes without saying, but I will say it anyway, that such a fundamental regulatory failure must not happen again, yet Members have raised concerns about the co-founder of Football Index being involved in a new trading platform, KiX, that has striking—chilling, even—similarities to the one under discussion. I hope that the Minister will use his role to ensure that regulators keep a close watch on that new product. We must ensure that the same mistakes are not repeated, and that it is clear to all users whether a site is a gambling site or an investment site. There should never be any dubiety that the customer has to work through; it should be clear and front-facing.

I am sure the Minister will agree that this must not happen again. I ask him to think carefully about the suggestion from Mr Hammel about how we can recompense users of Football Index without directly using taxpayers’ money.

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[The Parliamentary Under-Secretary of State for Culture, Media and Sport (Stuart Andrew)]

It is a pleasure to serve under your chairmanship, Mrs Murray. I thank the hon. Member for Blaydon (Liz Twist) for tabling this debate. I know she also secured a debate in 2022 on the impacts of the Football Index collapse. I would like to acknowledge the contribution she has made to ensuring that these events receive the attention that they deserve. She is an admirable representative of those in her constituency and others who have been affected. The Government appreciate, and I certainly do, the impact these events have had on them and many others. I personally offer my sympathies to all of those affected financially by the collapse of Football Index.

I thank all hon. Members for their contributions today. I also want to say thank you to David Hammel for his campaigning work on behalf of people who have lost money as a result of these events. I have met Mr Hammel and know that he has engaged administrators, regulators and politicians on behalf of those affected.

Today’s debate has been valuable and I commend all those who have contributed for their thoughtful comments. It has been important for me personally to hear the perspective shared this afternoon on this important topic. I want to be clear that I and the Government recognise the serious consequences that the collapse of Football Index has had on consumers. As I said, I sympathise with all those affected. It is important that we ensure that a similar scenario cannot happen again.

I will not repeat the background to these events, as that has been well covered by colleagues. I want to focus on the action being taken following the independent review of the regulation of Football Index, led by Malcolm Sheehan KC. I thank him for that work. His report examined the regulatory circumstances around the granting of a licence to BetIndex, its subsequent suspension and the company’s ultimate financial failure. Importantly, it identified areas, as others have said, where the Gambling Commission could have been more effective in responding to the challenges posed by this novel product. It also highlighted where the FCA could have co-operated more effectively with the commission.

The report recommended that the Gambling Commission should enhance its scrutiny of novel products; such products are less likely to fit neatly into existing regulatory frameworks, and there is greater risk that they are poorly understood by customers, as colleagues have mentioned. It recommended closer examination of the language typically associated with investments and financial markets, which can obscure the fact that a product is a gambling rather than a financial product. It outlined the need for more prompt decision making, quicker internal escalation and greater scrutiny of any differences between described and actual features of products. Finally, the report recommended that the commission consider whether operators should be required to demonstrate additional levels of liquidity in the case of longer-term tradeable bets like those offered by Football Index.

Although Football Index was never regulated by the Financial Conduct Authority, Mr Sheehan’s report recommended that the FCA should also seek to achieve quicker and more consistent decision making on regulatory responsibility issues. The report concluded that the FCA could have been faster to come to decisions in the Football Index case and to communicate those to the Gambling Commission.

The Gambling Commission and the FCA agreed a formal memorandum of understanding in June 2021. The Sheehan report described that as an appropriate and proactive step. However, it also made recommendations about how the memorandum could be strengthened. It recommended that the new memorandum should include an agreed mechanism for resolving disputes over regulatory responsibility; mechanisms for ensuring that disputes are identified, discussed and escalated where necessary; and provisions for the written recording of meeting outcomes.

It is vital, as the title of the debate points out, that we learn lessons from the Football Index case to ensure that a similar situation does not take place again. I am pleased that all the recommendations of the report for the commission and the FCA have been implemented in full.

The Gambling Commission has taken various actions to achieve that. It consulted on and updated its statement of principles for licensing and regulation in June 2022. It has updated how it assesses risk so that novel products are properly considered. It now undertakes systematic reviews of novel products offered by existing licensees. It has also increased the resources available to ensure that licensees disclose notifiable changes to products. The commission has also changed its approach to licensing products where long-term bets might appear more like financial products. It has made it clear in its statement of principles that it will not normally grant a licence to products that use language usually associated with investments or financial products.

Various colleagues raised issues around advertising, and the hon. Member for Worsley and Eccles South (Barbara Keeley) asked about the gambling White Paper. We are not introducing one single Bill because we want to ensure that we get as many of the changes done as quickly as possible. We are making good progress. I have consistently committed to trying to get everything done by the summer. Some of these things will be ready for statutory instruments soon, but some are what the Gambling Commission will implement. By splitting it up, rather than having one big Bill that might take a long time to get through this place, we are proceeding at pace to bring about the reforms.

The FCA has also implemented all the recommendations from the report. Importantly, it has taken steps to improve the speed and consistency of its decision making, including nominating an executive director to oversee the relationship with the Gambling Commission.

An updated memorandum of understanding addressing all the review’s recommendations was agreed between the commission and the FCA in November 2022. The agreement has established a process and timeline for co-operation between the two authorities and a process for escalation, and created a relationship owner and primary contact in each authority to oversee the operation of the memorandum. It also requires a quarterly minuted meeting between the two authorities to ensure that the memorandum operates as it should. The most recent meeting took place yesterday.

There are also now ad hoc meetings between the chief executive officers of the two authorities, which provide an avenue for escalation of regulatory matters if required. I am grateful to the Gambling Commission and the FCA for their work to ensure that this important report is acted on.

I mentioned David Hammel, and I admire the work of campaign groups such as the Football Index action group and the way that it has conducted itself. I met him last year and we have had follow-up correspondence. I am taking seriously the extra evidence that Mr Hammel has submitted in relation to the Sheehan review, and I am considering, as the hon. Member for Blaydon mentioned, whether it would be appropriate and feasible for Mr Hammel’s evidence to be scrutinised by someone external to the Department.

A lot of Members mentioned the new product, KiX, which has described itself as a football cryptocurrency trading project and bears similarities to Football Index. It involves trading footballers in the form of so-called “Digital Athlete Tokens”, which are purchased with cryptocurrency. The tokens pay out a yield based on the performance of footballers. It appears that the product is in a test phase and is not currently live, nor does it appear possible to deposit currency.

The Gambling Commission is taking proactive steps in relation to KiX. It has written to the hon. Members for Blaydon, for Swansea East (Carolyn Harris) and for Brentford and Isleworth (Ruth Cadbury) to outline its approach, and it has written to my Department. The commission is currently reviewing a number of elements of the KiX product. That includes a review by its compliance and legal teams to consider whether, if launched, it would meet the definition of gambling under the Gambling Act 2005. It has also written to the individuals responsible for KiX for further information on the product and their intentions, and to highlight the consequences of launching a product that meets the definition of gambling in Great Britain without an appropriate licence.

[Ronnie Cowan]

Is the Minister saying that the Gambling Commission alone will decide whether KiX is given a licence to bring its products to the marketplace? I have a meeting with the Gambling Commission at 4.30 this afternoon and I would like to ask it that question, too.

[Stuart Andrew]

The hon. Gentleman interrupted me just before I was going to say that the commission and the FCA are already engaging to establish the details of the product and to agree the appropriate steps.

There have been reports that two individuals previously involved in running Football Index are involved in KiX. Adam Cole was the co-founder of Football Index. He surrendered his personal management licence in September 2021 while under review, and the commission reached findings of fact regarding his involvement in Football Index. Those would be considered if he were to make a new application for a personal licence.

The commission also wrote to Abdullah Suleyman, the former head of trading at Football Index, to confirm the nature of his involvement in KiX. Following the letter, he surrendered his personal management licence on Monday 22 April.