Innovation in Malta: the use of player trusts to protect funds

Gaming operators have an obligation at law to segregate and protect their players’/customers’ funds. This obligation is not only locally imposed but it has also achieved international standing around the globe. When looking at the Maltese landscape with particular focus on the protection of player funds, such obligations mostly stem from the Maltese Gaming Act (the “Act”) and subsequent directives issued by the Malta Gaming Authority, predominantly the Player Protection Directive (the “Directive”).

Part IX of the above mentioned Directive clearly states that “the Act and the regulations made thereunder establish funds as being the separate and distinct patrimony of the players, and are not funds belonging to the licensee.” The Act goes on further to state that “Player funds may be held within credit, financial and, or payment institutions licensed in Malta, or licensed outside Malta but within the EU/EEA or other approved jurisdictions”.

Further to the above, it has become a current reality that Gaming operators are experiencing difficulty in opening a bank account, not only locally. Such difficulty is a result of various factors such as the de-risking practices that banks and payment institutions are undergoing, to minimise their exposure to money laundering and/or financing of terrorism as well as minimisation of regulatory risks of hefty penalties imposed by the applicable authorities.

In this respect, as an alternative to the above, Gaming operators are resorting to the use of Trusts and the appointment of a licensed Trustee to protect and safeguard players’ funds.

What is a Trust?

In accordance with the Maltese Trusts and Trustees Act, a trust exists where a person (called a trustee) holds as owner, or has vested in him property under an obligation to deal with that property for the benefit of persons (called the beneficiaries), in this context the players, whether or not yet ascertained or in existence, which is not for the benefit only of the trustee, or for a charitable purpose, or for both such benefit and purpose aforesaid. Most importantly, trust property shall constitute a separate fund owned by the trustee, distinct and separate from the personal property of the trustee and from other property held by the trustee under any other trust.

Trusts for Players’ Funds

Whereas trusts may have built a reputation for disguising the ultimate beneficial owners or used for tax avoidance purposes, in the gaming industry, trusts provide a paramount protection for players’ funds for the following main reasons, amongst many:
1. Under Maltese Law, Trustees (subject to a few exemptions) must be in possession of a licence issued by the Malta Financial Services Authority (MFSA) to provide trustee services. In this respect Trustees are subject to regulatory and conduct supervision by the MFSA, against penalties and/or even revocation of said licence, in the event of failure to meet regulatory obligations;
2. Trustees, not only have obligations delineated under the Trusts and Trustees act but also have wide-encompassing fiduciary obligations under the Maltese Civil Code which dictate, inter alia, to exercise the diligence of a bonus pater familias in the performance of his fiduciary obligations and keep any property as may be acquired or held as a fiduciary segregated from his personal property and that of other persons towards whom he may have similar obligations and to affect a change in the registration of any relevant property, as may be required for such purpose.
3. The said provisions provide power to the beneficiaries to seek court redress in the event that the Trustee is in breach of the provisions of the law and/or if the Trustee is not performing in the best interest of the beneficiaries. Therefore, the law grants an added layer of protection in ensuring a system of checks and balances on the powers of the Trustee.

Case Study: United Kingdom Gambling Commission (UKGC)

The UKGC has placed considerable emphasis on the protection of players’ funds and recognises that if players’ funds are held with an independent Trustee, this affords high protection towards the players especially in the event of insolvency proceedings against the Gaming operator.

To maintain this high level of protection the funds, the Trustee would ensure that the funds are held in a separate account, which is legally recognised as separate from the business. Moreover, the funds are controlled by an independent trustee and are also checked by an external auditor. Such a trust arrangement is considered to meet the UKGC’s requirements for the high protection of customer funds.