Another useful aspect of the likes of Moneybookers and Neteller is their incorporation in the UK, putting then under the control of the FSA and answerable to all aspects of UK law, including the 1998 Data Protection Act. They have access to a considerable amount of sensitive customer data – credit cards, bank accounts and all manner of identity verification documentation – so the tight legal framework they are bound by is important for customer peace of mind.

But how secure is the data?

Just over a year ago I started having doubts, when a Moneybookers customer reported that his account had been closed on the basis of information received from a casino client, but without ever being notified by Moneybookers as to exactly what the information was – I reported on this my Moneybookers: potential breach of UK law article.

If you look at the “rights of data subjects” section of the Data Protection Act, this bit jumps out:

7 Right of access to personal data

(1) Subject to the following provisions of this section and to sections 8 and 9, an individual is entitled -

(a) to be informed by any data controller whether personal data of which that individual is the data subject are being processed by or on behalf of that data controller,

(b) if that is the case, to be given by the data controller a description of -

(i) the personal data of which that individual is the data subject,

(ii) the purposes for which they are being or are to be processed, and

(iii) the recipients or classes of recipients to whom they are or may be disclosed,

(c) to have communicated to him in an intelligible form -

(i) the information constituting any personal data of which that individual is the data subject, and

(ii) any information available to the data controller as to the source of those data

It seemed to me that these clauses had been breached, as the data had not been disclosed to the “data subject” – customer – in question.

More recently, another possible breach came to my attention: the customer of one Cherry Red Casino had winnings confiscated on the basis of information apparently received from Moneybookers. I requested and reviewed his email correspondence with the casino in question, and posted extracts in my Cherry Red Casino and Moneybookers article. Most worrying was this revelation:

We have worked closely with third parties to ascertain which players are genuine and which are fraudulent and yours has come back as being connected to other players in Europe and as having transferred funds between Moneybookers accounts.

We are certain that the information we had received from Moneybookers and third parties constitute to the answers we have given players.

So, confidential information of some kind or another was evidently disclosed, by the payment solution to the gambling operation, with no notification to the player.

Another player reported publically, on another similar case, in the Gambling Industry Association Rushmore Casino discussion. Here, an affiliate representative gave a little more detail about the nature of the information:

Moneybookers…only confirmed with us which Moneybookers email addresses were linked and had transferred funds between themselves, it was a yes or no answer and included no further private or confidential banking information or otherwise. Moneybookers…confirmed that these accounts were in fact connected and…transferred funds between their accounts also.

There are a few problems here.

In the first place, confidential information is supposed to be genuinely confidential, and informing a third party of aspects of a customer’s account and the people to whom they make transfers is not an aspect of “confidentiality” that I am aware of. The customer in question was at no point notified by Moneybookers of the disclosure, in whatever format, of his account details to third parties.

I am not a lawyer, but this does not look right to me, insofar as it appears to contravene the section of the DPA that I quoted above.

In the second place, and marginally off the question of confidentiality but highly relevant to customers of these payment solution providers and the industry as a whole, is that this information may be leading to bogus conclusions – the fact that Customer A transfers funds to customers B and C does not necessarily make Customer A guilty of an illegal act. Whether or not the customer is guilty, the correlation between the guilt and the account activity in question is by no means absolute.

Here is a possible scenario:

Casino: “We believe these two players are connected (and therefore guilty of activities we do not allow); can you confirm this?”

Moneybookers: “Yes; the two accounts in question have transferred and received funds”.

On this basis, to summarise my above points:

1) This disclosure to a third party of a customer’s account activity may be leading to entirely erroneous conclusions.

2) More importantly: at no point was the customer – or rather, customers – informed of these behind-the-scenes information exchanges. This appears to me, in line with simple reasonable behaviour, unacceptable, as one ends up being convicted with no right of defence. But more importantly, the nature of the disclosure in question does not appear to me to adhere to the laws I quoted above.

I have, myself, carried out a few “person to person” transfers with Neteller, the payment solution I use. I would hope that Neteller never disclose this aspect of my account, or any other, to third parties.

Whether or not Moneybookers discloses aspects of my account to third parties is irrelevant to me. I no longer use their services.

I will be forwarding this article to Moneybookers for their comments.

-

Fabian John (who runs a web forum for the German day-trading community):

Spread Betting/ Spread Trading Companies are regulated by the Financial Services Authority (FSA). (You are using the term “prediction market”, I call it “financial service provider”. This is easier for me to explain how the market works.)

So first, a financial service provider has to be regulated by the domestic regulator. A new EU law (MiFID => http://en.wikipedia.org/wiki/MiFID) allows every [regulated] company doing cross over business to any country within the EU. All they need is the so called “EU passport” and a “Notice to the Regulator” of the target country (for Germany: BaFin www.bafin.de). Once they get the “OK” they can start to sell products to the clients in the target market. They can start marketing campaigns, publishing Ads on- and offline, etc.

For as bookmaker-classified companies, this is not allowed. They can’t do marketing and advertising, except they have a valid license. BetFair doesn’t have an own German license (there are just 4 private) but they cooperate with a company which have one. This is the only way way they can offer bets to German clients. TradeFair binaries, ChoiceOdds etc. are unregulated markets, classified as online gambling. Usually, German traders are NOT allowed to gamble and trade there. ChoiceOdds (www.choiceodds.com) for instance does not accept any German residents.

-

London Capital Group Holdings PLC
29 October 2007

29 October 2007

London Capital Group Holdings plc

Betfair White Label Agreement

London Capital Group Holdings plc (the “Company”), the financial services and
online spread betting company, is pleased to announce that it has reached an
agreement with Betfair, the revolutionary egaming operator, to provide it with
the Company’s white label spread betting product.

Betfair is the world’s leading online betting exchange, a concept it has
pioneered. Driven by cutting-edge technology, Betfair enables its customers to
choose their own odds and bet against each other, even after an event has
started. Betfair processes five million transactions a day and more than 300
bets a second.

For further information, please contact: www.londoncapitalgroup.com
—————————–

London Capital Group Holdings plc Tel. 020 7456 7001
Frank Chapman, Chief Executive Officer

Smithfield Consultants Tel. 020 7360 4900
George Hudson / Tom Hardman

Cenkos Securities plc Tel. 020 7397 8924
Ian Soanes

Notes to Editors:

London Capital Group Holdings plc

London Capital Group Holdings plc (“LCG”) is a rapidly growing financial
services company offering online trading services. Its core activity is the
provision of spread betting products on the financial markets to retail clients
under the trading name Capital Spreads. Its other divisions provide online
foreign exchange trading services to institutional and intermediate clients
under the Capital Forex brand and institutional derivatives broking under the
name Capital Derivatives.

London Capital Group Limited, a wholly-owned trading subsidiary of LCG, is
regulated and authorised by the Financial Services Authority. It has a European
passport and is a member of the London Stock Exchange, Liffe, Eurex and
Euronext, giving it direct access to all European markets. London Capital Group
Limited also has access to international markets through its global clearing
relationships.

LCG floated on the London Stock Exchange’s AIM market in December 2005, is
included in the General Financial sector (8770) and Speciality Finance sub
sector (8775) and has a RIC code of LCG.L.

UPDATE: Bookmakers Review explains what it all means.

[...] Stockbroker Cenkos said there is every reason to believe that Betfair intends to use a third party provider to establish its financial betting product to later convert to its own platform, like it did with poker moving from CryptoLogic to an in-house product. London Capital Group has another white label agreemnet with Irish bookmakers Paddy Power tu run Paddy Power Trader. Other operators in the financial spread betting sector include Capital Spreads, City Index and World Spreads.

1 September 2007

With effect from 00.01 on Saturday 1 September 2007, all gambling in Great Britain (except spread betting and the National Lottery) becomes subject to the provisions of the Gambling Act 2005.

Gambling Commission

The Gambling Commission regulates gambling in the public interest. It does so by keeping crime out of gambling, by ensuring that gambling is conducted fairly and openly, and by protecting children and vulnerable people from being harmed or exploited by gambling. The Commission also provides independent advice to government on gambling in Britain.

Betting

The Gambling Act 2005 defines betting as: ‘making or accepting a bet on the outcome of a race, competition or other event or process; the likelihood of anything occurring or not occurring; or whether anything is or is not true’.

General betting licensees are able to offer facilities for betting as premises-based bookmakers (off-course) and on tracks (on-course), as well as by remote means (for example by telephone or over the internet). They must have rules that cover issues such as voiding late bets, maximum payouts, treatment of errors, and the treatment of withdrawals and non-runners. On-course licensees’ joints must also display specified information.

Pool betting incorporates racecourse pool operators and football and other sports pool operators and ‘fantasy football’ type competitions. It can be conducted in person, for example the Tote which accepts pool bets on tracks and in high street betting shops, or remotely, for example an internet betting site run by one of the football pools operators.

Betting intermediaries provide a service designed to facilitate the making or acceptance of bets between others. Remote betting intermediaries, often called betting exchanges [e.g., BetFair, Betdaq], generally operate through the internet. An example of a non-remote betting intermediary is a tic-tac, who normally works within a betting ring on a horse or greyhound racing track.

Spread betting is not covered by the Gambling Act 2005, or regulated by the Gambling Commission. Regulation of spread betting [e.g., SpreadFair] is undertaken by the Financial Services Authority.

Guardian:

Professional sports players have been warned that they face two-year jail sentences if they break new laws that come into force under the Gambling Act today.

The Professional Players Federation (PPF), an umbrella group for players’ unions, has issued a code on gambling to its members and has called on the government to do more to educate athletes about the risks they face under the new regulations. [...]

Sun:

The Gambling Act 2005 is a wide-ranging piece of legislation which covers most forms of gambling.

- The Gambling Commission was created as the new regulator for the industry, replacing the old Gaming Board.
- It is responsible for casinos, bingo, gaming machines, arcades, lotteries, remote gambling and betting.
- The Act allows remote gaming operators – such as gambling websites – to be based in and regulated by Great Britain for the first time, making them subject to the rules set out in the legislation.
- Existing casinos will have a number of restrictions lifted, such as the requirement for people to be members of casinos in order to go inside.
- The Act also sets out provision for three new types of casino – the one regional “supercasino”, plus eight large and eight small casinos. The supercasino element is currently under review.
- Licensed betting operators in shops and online have new conditions imposed on them, such as having to display gambling helpline information and training staff to identify problem gamblers.
- Betting shops will be able to open from 7am to 10pm all year round instead of just in summer, subject to local authority consent.
- The Act reforms the advertising rules for gambling operators, allowing casinos and some others to advertise on TV for the first time.
- Gambling adverts will be subject to a code of practice policed by the Advertising Standards Authority.
- Operators have also signed up to a voluntary set of rules which set a 9pm watershed for TV commercials for gambling services, except around televised sporting events.
- The law sets out new limits on stakes and prizes for poker games held in pubs.
- As with casinos, bingo halls will no longer have to make people members in order to let them inside.
- Changes to the rules for bingo prizes means bingo halls will no longer have to return all stakes as prize money. Instead, they can keep some money behind to offer as rollover prizes.

EU’s MiFID = European Union’s Markets in Financial Instruments Directive

The Markets in Financial Instruments Directive (MiFID) will introduce a single market and regulatory regime for investment services across the 27 member states of the European Union and the 3 other member states of the European Economic Area (ie Iceland, Norway and Liechtenstein). The key objectives behind the Directive are threefold: i) to complete the EU single market for investment services and ii) to respond to changes/innovations in the securities markets and iii) to protect investors. [...]

In order to determine which firms are affected by MiFID and which aren’t, MiFID distinguishes between “investment services and activities” (“core” services) and “ancillary services” (“non-core” services). [...]

If a firm performs investment services and activities, it is subject to MiFID in respect both of these and also of ancillary services (and it can use the MiFID passport to provide them to member states other than its home state). However if a firm only performs ancillary services, it is not subject to MiFID (but nor can it benefit from the MiFID passport).

MiFID covers almost all tradable financial products with the exception of foreign exchange trades. This includes commodity and freight derivatives which are not covered by ISD. [...]

The Financial Services Authority (FSA) is responsible for the regulation of the securities industry in the United Kingdom. It will be incorporating MiFID into the FSA Handbook. [...]

Norton Rose:

Summary of financial instruments covered by MiFID

- Transferable securities
- Money-market instruments
- Units in collective investment undertakings
- Derivatives relating to securities, currencies, interest rates or yields, or other derivatives which may be settled physically or in cash
- Commodity derivatives that are traded on a regulated market and/or an MTF even if they are physically settled
- OTC commodity derivatives with a cash settled option other than on default or other termination event
- Other OTC commodity derivatives which are physically settled, which are not for commercial purposes, and which have the characteristics of other derivatives having regard to certain factors such as the existence of clearing and margining
- Credit derivatives
- Financial contracts for differences [CFDs]
- Derivatives relating to climatic variables, freight rates, emission allowances or inflation rates or other statistics, and certain other derivatives

Commodity derivatives will be classified as a financial instrument for the first time (firms which belong to non-commodity groups, such as banking groups with commodities arms, will be the main firms that feel the effect of this change).

An important area where MiFID expands on the scope of the ISD is that of derivatives, including commodity and credit derivatives, and others such as derivatives on freight rates, emission allowances, or economic statistics. [...]

Note: In the U.K., spread-betting bookmakers (IG Index, etc.) and spread-betting exchanges (SpreadFair) are regulated by the Financial Services Authority (FSA), and, thus, will be affected by the Markets in Financial Instruments Directive (MiFID) —if I’m computing well.