On 6 November 2020 the Gambling Commission published its annual Raising Standards for consumers – Compliance and Enforcement report 2019 to 2020 (the “Enforcement Report”).  The Enforcement Report has been expanded this year and is laid out in the following eight sections:

1. Chief Executive’s message;
2. Triggers and customer affordability;
3. Customer interaction and social responsibility failings;
4. Anti-money laundering and counter terrorist financing;
5. Personal management licence (“PML”) reviews;
6. Illegal gambling;
7. White label partnerships; and
8. Betting exchanges.

Chief Executive’s message

In the very first sentence of his message, Gambling Commission Chief Executive, Neil McArthur, reminded readers that:

“Holding an operating licence or a personal licence is a privilege, not a right, and we expect our licensees to protect consumers from harm and treat them fairly.”

He goes on to summarise the Gambling Commission’s compliance and enforcement work in the last financial year (April 2019 to March 2020), in which:

• 49 section 116 licence reviews were commenced against PML holders;
• 5 operating licences were suspended;
• 11 operating licences were revoked;
• 12 financial penalty packages or regulatory settlements, totalling over £30 million, were imposed; and
• 350 compliance assessments (land-based and online) were conducted.

Neil McArthur also emphasised:

“Those in boardrooms and senior positions need to live up to their responsibilities and we will continue to hold people to account for failings they knew, or ought to have known, about…Regulatory settlements are a way of resolving enforcement cases which we have used to good effect. Frankly, however, there are too many occasions where settlement proposals are made at a late stage of our investigation process or approached as if a licence review is a commercial dispute to be negotiated. That is not acceptable…Settlements are only suitable where a licensee is open and transparent, makes timely disclosures of the material facts, demonstrates insight into apparent failings and is able to suggest actions that would prevent the need for formal action by the Commission. Only licensees who meet those criteria need make settlement offers; licensees who choose to contest the facts before conceding at a later stage need not make offers of settlement…Everyone has a part to play to make gambling safer and learning the lessons from the failings identified in this report is one way of doing that.”

Summary of other key points from the Enforcement Report:

Triggers and customer affordability

“Customer protection has continued to be a priority for the Commission and consideration of affordability should be a significant driving factor in customer risk assessments.”

Affordability is a top priority and the Gambling Commission remains dissatisfied by industry progress.  Open source information remains an important element of an affordability framework, because “it is a parameter to consider when setting benchmark triggers that will drive early engagement with customers”.  Open source information shows:

• median gross weekly earnings* for full-time employees in the UK of £585;
• 50% of full-time employees in the UK receive less than £30,500 gross earnings* per year;
• 50% of full-time managers, directors and senior officials (the highest weekly earners) in the UK receive less than £45,000 gross earnings* per year.

*These are gross earnings before expenses such as income tax, national insurance, mortgage/rent payments, travel, food etc. are deducted.  The Gambling Commission expects expenses to be considered “so the starting point adequately reflects the true level of available disposable income for that individual.”

Further, the Gambling Commission is concerned that:

• affordability frameworks “are not being implemented at pace despite [its] guidance and advice”;
• “complex and convoluted matrices and mappings” are being developed based on gross earnings before disposable income is factored in;
• “trigger groups are set without any sort of customer interaction to influence their true affordability determination”; and
• operators are not interacting early on to set “adequate, informed affordability triggers to protect customers from gambling related harm”, which it goes on to say “could render the operator non-compliant”.

Most notably, the Gambling Commission adds that:

“Customers wishing to spend more than the national average should be asked to provide information to support a higher affordability trigger such as three months’ payslips, P60s, tax returns or bank statements which will both inform the affordability level the customer may believe appropriate with objective evidence whilst enabling the licensee to have better insight into the source of *those funds and whether they are legitimate or not.”

Operators should review lessons in the Enforcement Report and re-assess affordability triggers whilst preparing for any new requirements that may emerge from the Gambling Commission’s consultation on remote customer interaction. We will publish a blog on this consultation next week.

Customer interaction and social responsibility failings

“We have set out clear expectations for operators in relation to safer gambling. We expect operators to actively work and accelerate cooperation with each other to prevent, mitigate and minimise harm, collaborating to accelerate progress and evidence impact. We want a focus on ‘what works’ and we expect operators to empower and protect consumers.”

The scope of social responsibility is broad and includes identification and engagement with those who may be at risk of or experiencing harms.

The responsible teams for social responsibility should be adequately resourced.

Operators are encouraged to consider whether they can evidence the following:

• effective safer gambling policies and procedures in place which are tested and periodically reviewed and updated to reflect impact assessments and new research;
• policies and procedures that are truly implemented in the business and are being acted upon;
• appropriate safer gambling triggers in place that lead to meaningful customer interactions, which are regularly reviewed by management to critically assess their impact on customers and overall effectiveness;
• effective challenge and oversight by senior management with clear accountability throughout the organisation; and
• teams responsible for conducting social responsibly interactions are adequately resourced so that at-risk customers are not missed or identified too late.

Licensees are strongly encouraged to review the Gambling Commission’s notable enforcement cases, helpful case studies and good practice guidelines.

Anti-money laundering and counter terrorist financing

“Work to ensure gambling stays free from crime and the proceeds of criminal finance continues to be a major area of concern for the Commission. Significant and substantial assessment continued for both land-based and online gambling businesses, including money service businesses activities offered by the casino sector.”

The Gambling Commission continues to see operators falling down on the following:

• insufficient depth of knowledge demonstrated by PML holders, leading to competency and integrity concerns;
• deficient Risk Assessments leading to ineffective policies, procedures and controls;
• operators and PML holders failing to learn lessons from the Gambling Commission’s compliance and enforcement activity; and
• failure to provide regular, quality training to staff.

Licensees are strongly encouraged to review the Gambling Commission’s notable enforcement cases, helpful case studies and good practice guidelines.

PML Reviews

“The Commission has been signalling for the past few years that we will increasingly focus on the role played by Personal Management Licence holders (PML) when undertaking Compliance and Enforcement investigations.”

Common failings have emerged from:

• Failures to assess if decisions being made at Executive level are being implemented within businesses.
• Overly complicated lines of decision making and accountability.
• Lack of technical knowledge and oversight of areas that PML holders have specific responsibility for, especially in respect of AML.
• Prioritising commercial outcomes over regulatory responsibility.

This section ends with a stark reminder, which we always provide to our clients and training subjects, “businesses do not make decisions – people do.” The Gambling Commission adds that “[l]icensees can expect us to continue to take action against accountable individuals to ensure standards are raised to the levels required, whether in relation to the business or individual capability.”

Illegal gambling

“Part of our statutory remit and a key licensing objective is to keep crime out of gambling. We are particularly focused on identifying and disrupting those illegal websites which are targeted at the young and vulnerable gamblers and which often provide little, or no, customer protection. When consumers access illegal gambling sites, they expose themselves to many risks and are not afforded the protections in place in the regulated sector.”

The Gambling Commission’s focus has been on investigating unlicensed gambling facilities and unlicensed advertising, with 59 instances of remote unlicensed operators and 245 illegal lotteries referred by Facebook for closure.  Its investigations have shown:

• consumers identified as users of the websites have in the main been vulnerable with some having previously self-excluded via GamStop;
• consumers often contact the Gambling Commission because they have been unable to withdraw funds;
• when consumers have complaints with unlicensed operators these are often not dealt with, and consumers have no right to appeal;
• the protection of consumers’ personal information cannot be relied upon; and
• such websites may be linked to organised crime.

The Gambling Commission urges licensees to remain vigilant as to the risk of illegal sites using their software without authorisation and to report any such instances immediately

White label partnerships

“The white label operating model continues to be popular within the GB market with there being over 700 white label partners within the industry at present. One of the reasons this model is becoming increasingly popular is that this type of arrangement can bring global exposure to an operator’s products, via the arrangements their white label partners have in place with sports teams for example. However, there is a concern that unlicensed operators who would potentially not pass the Commissions’ initial licensing suitability checks, are looking to use the white label model to provide gambling services in Great Britain.”

White labels have been a key area of focus for the Gambling Commission in the last year.  It showed that licensees were failing to appropriately mitigate the risks to the licensing objectives, including:

• a failure to properly scrutinise the ownership of white label partners;
• ineffective AML controls with individual white label partners or across the customers’ activity; and
• poor oversight of activities performed by white label partners, particularly in relation to customer interactions.

Responsibility for compliance always sits with the licensee.  In accordance with social responsibility code provision 1.1.20 (responsibilities for third parties) safeguards should always be implemented before committing to contractual obligations to ensure compliance with the LCCP.  Failure to do so is likely to bring into question the suitability of the licensee.

Operators are encouraged to:

• Conduct risk-based due diligence with a view to mitigating risk to the licensing objectives before entering a relationship with a white label partner;
• continually manage and evaluate its white label partner relationships;
• ensure service agreements between the licensee and white label partner explicitly articulate where overall responsibly for regulatory functions lie;
• ensure white label partnership contracts contain a clause permitting the licensed operator to terminate the business relationship promptly where the partner is suspected of placing the licensing objectives at risk or fails to comply with the requirements contained in the LCCP;
• provide training to their partners and conduct ongoing oversight of the activities which should be clearly documented and retained for the life of the business relationship;
• ensure that any system the licence holder has in place to manage or detect multiple accounts for individual customers, works across all white label partners so they will have a holistic view of customer activity; and
• ensure that source of funds, affordability or markers of harm triggers are based upon this holistic view and not solely on an individual domain basis.

Licensees are strongly encouraged to review the Gambling Commission’s notable enforcement cases, helpful case studies and guidance on white labels.

Betting exchanges

“This year has seen increased regulatory activity related to betting exchanges; an area of growing complexity as operators expand the breadth of markets available and the jurisdictions from which they draw their customers.”

The Gambling Commission reminds betting exchanges that they must apply “critical risk-based thinking” and must not assume that something good enough for one regulator will be acceptable to another. Due diligence should be undertaken for each individual customer.  In particular, source of funds and source of wealth must be monitored by adequate checks and controls, particularly where these may be obscure, unconventional and/or especially large – for instance, in relation to account to account transfers or syndicates.

Licensees are strongly encouraged to review the Gambling Commission’s notable enforcement cases.

We strongly encourage all Gambling Commission licensees and applicants to read the Enforcement Report carefully.