Ladbrokes Coral has agreed to a £2.3 million penalty package for failings which saw two high-spending customers gamble away around £1.3 million of stolen money.
The company was sanctioned by the Gambling Commission after an investigation into sub-brand Gala Interactive found "significant flaws" in the way it deals with punters displaying problem gambling behaviour.
One customer lost £837,545 over 14 months and the other lost £432,765 over 11 months while playing Gala's online games.
The first gambler was jailed for four years for stealing from an employer and the second was sentenced to four-and-a-half years for acquiring, using or possessing criminal property.
The Commission said Ladbrokes Coral failed to have in place written policies and procedures that could have curbed the problem gambling behaviour.
The penalty package comprises a £1 million payment to fund research relating to the causes of problem gambling and £1.3 million for the customers.
In addition, Ladbrokes Coral has volunteered to pay a further £200,000 to fund problem gambling research.
Sarah Harrison, chief executive of the Gambling Commission, said: "We will continue to take robust action where we see operator failures that harm consumers and the wider public.
"It is the responsibility of all operators - particularly key decision-makers in those companies - to ensure they are protecting their customers and step in when there is behaviour that might indicate problem gambling.
"This did not happen in this case and the £2.3 million penalty package should serve as a warning to other operators."
Jim Mullen, boss of Ladbrokes Coral - created from the £2.3 billion merger of Ladbrokes and Gala Coral - said it was clear that the firm had not "met our own standards or those demanded by the Commission".