GC issues new white label warning following FSB settlement

6 May 2020

The British Gambling Commission has once again reminded white label providers that they are considered responsible for their clients' actions, after a review into FSB Technology's licence concluded with the provider agreeing a £634,300 settlement with the regulator.

The review, launched in August, identified a number of failings by businesses operating white label sites under FSB's GB gambling licence, including issues with marketing, anti-money laundering processes and social responsibility failings. 

The Commission found the supplier did not have sufficient oversight of its white label partners' activities.

“We found that whilst FSB did have contractual arrangements in place with its ‘white label’ partners, it did not take sufficient action to ensure they were following the Licence Conditions and Codes of Practice (LCCP),” the Commission explained.

“In addition, FSB had not carried out sufficient due diligence prior to entering into and for the duration of these contractual arrangements with third-party partners to ascertain the suitability of them.”

The supplier has therefore agreed a settlement with the Commission that will see it contribute £600,000 to fund the National Strategy to Reduce Gambling Harms, and a further £34,300 to cover the regulatory's investigation costs. 

In addition to the settlement, FSB must “conduct risk-based due diligence with a view to mitigate risk to the Licensing Objectives” for all white label partners and carry out these checks at least once per year.

The review was launched after one of FSB's partners, was forced offline in the wake of allegations made by a newspaper. This accused the business of multiple offences, including advertising via sites that offered pirated content. 

The Commission investigation identified multiple breaches of LCCPs, including a breach of condition 12.1.1 (2) and (3), requiring “compliance with the prevention of money laundering and terrorist financing”.

The licensee accepted that it failed to establish and maintain “appropriate risk-sensitive policies, procedures and controls relating to the management of its third-party partners and customers”. In addition, FSB acknowledged that documentation and audit trails in anti money laundering (AML) were lacking, and that its compliance and AML teams were insufficiently trained.

In addition, it acknowledged that “suitable account reviews”were not in place to monitor white label operators re-opening customer accounts.

The Commission found that one customer gambled and lost around £282,000 within 18 months without providing adequate information on the source of the funds used to play. In addition, one white label website failed to maintain sufficient oversight of VIPs, with its VIP manager having not taken any AML training.

The Commission also determined that FSB was in breach of social responsibility code provision 3.4.1, which requires “effective policies and procedures for customer interaction,” noting that it failed to investigate the circumstances of a customer that lost £282,000, only enquiring whether they were “comfortable” with their level of spending.

In addition, FSB was found to have breached licence condition 16.1.1, relating to the responsible placement of digital adverts, including those placed by affiliates. The Commission found an “inappropriate” banner ad, containing cartoon nudity, for a site operating on FSB’s licence. The ad was placed on a website that “seemingly was providing unauthorised access to copyrighted content”.

The Commission also found that FSB broke Social Responsibility Code Provision 3.5.3, which requires operators “take steps to remove the name and details of a self-excluded individual from any marketing databases.” An FSB white label sent a marketing email to 2,324 customers who had previously self-excluded.

However, FSB notified the Commission of this error and told the Commission that if the customers had responded to the marketing email, they would not have been able to gamble as normal self-exclusion tools remained in place.

The Commission added that FSB had failed to conduct acceptable levels of due diligence of its white label partners. It noted one example of a white label agreement with a company to offer gambling services under the brand name of an “international gambling operator not licensed to offer gambling facilities to the British market”. This likely refers to 1xBet, which at the time claimed it was still pursuing a licence from the regulator.

The Commission said FSB entered into the agreement despite the ownership of the company with which it had arranged into an agreement, as well as this company’s relationship with the brand name, being “unclear”.

“FSB found that the complexities of the international corporate structure between companies and websites made the cost of doing due diligence enquiries financially punitive,” the Commission said. “It subsequently accepted that this position was a reason not to enter into the relationship at all, not a reason to explore arrangements such as the described business licence agreement.”

The Commission noted that this white label agreement has since been terminated.

In addition, the regulator found that FSB had failed to conduct due diligence on another partner, whose ownership “had links to an individual regarded as a politically exposed person”. The Commission said that while FSB knew that this person was running for political office, it did not establish that they had been elected.

The regulator did note that FSB has put in place an “improved system of due diligence and oversight”, recruited new senior compliance staff and undertaken a review of its white label partners, including terminating relationships where appropriate.

However, it also noted the “serious nature” of the breaches and the need to encourage other licensees to take full responsibility for third-party partners such as white labels.

"Following the investigation, FSB implemented a series of significant improvements to AML, customer interactions, safer gambling and due diligence processes," the supplier told iGB. "As a result of these changes, FSB is able to meet the high standards set by the Gambling Commission across all areas of the business."

The regulator said the decision should act as a warning to other white label providers, having previously issued a similar statement in September 2019.

“All operators should pay close attention to this case as it shows that we hold all licensees fully responsible for third party relationships - and we will act against any of our licensees that do not manage third parties appropriately,” Richard Watson, executive director of the Gambling Commission, said. “These were blatant breaches of rules we have put in place to ensure gambling is fair, safe and crime-free."

The Commission told white label providers to consider whether their due diligence checks were effective, whether AML departments were properly resourced and whether white labels are providing documentation to support their level of spend and loss, rather than “simply giving assurances”.

In September 2019, the Commission suspended white label provider EveryMatrix’s operating licence with immediate effect and instigated a review into the online gaming software supplier. Later that month, EveryMatrix announced that it would give up its B2C operating licences for remote betting and casino in the UK and instead focus on its B2B operations.

In March of this year, Finnplay Group subsidiary Viral Interactive opted to cease offering its white label solutions from regulated markets, including Sweden and the UK.  Viral chief executive Martin Prantner said the decision had been taken as a result of tightening regulations in these territories.