14May

New Gambling Commission Guidance for Online Operators

14th May 2020 Jessica Wilson 325

On 12 May 2020, the Gambling Commission issued new “additional formal guidance” for online operators in response to “evidence that shows some gamblers may be at greater risk of harm during lockdown”.

Online operators must now take this new guidance into account and they are “expected to make changes to act on this guidance as soon as possible”.

The new guidance is issued under social responsibility code provision 3.4.1 of the LCCP which requires licensees to interact with customers in a way which minimises the risk of customers experiencing harms associated with gambling. This includes identifying customers, interacting with customers, understanding the impact of the interaction, and taking into account the Gambling Commission’s guidance on customer interaction, which now includes the new guidance of 12 May 2020.

The new measures, to be “implemented into customer interaction frameworks” by licensees, are as follows:

Reviews of all thresholds and triggers used to track vulnerability to ensure that they reflect changed financial circumstances that many consumers will be experiencing. An emphasis should be placed on those thresholds and triggers being proactively reset on a precautionary basis to ensure customers with emerging vulnerability, such as increased time spent at play or increased spend can be identified
Specifically, reviewing time indicators to capture play in excess of one hour as the Gambling Commission believes this is a proxy for potential harm.
Set additional or modify existing thresholds and triggers which are specific to new customers reflecting the operator’s lack of knowledge of that individual’s play and spend patterns.
Implement processes that ensure the continual monitoring of the operator’s customer base, identifying customers whose patterns of play, spend or behaviours have changed in the last few weeks.
Conduct affordability assessments for customers identified by existing or new thresholds and triggers which indicate customers experiencing harm. Consider limiting or blocking further play until the checks have been concluded and supporting evidence obtained.
Prevent reverse withdrawal options for customers until further notice.
Stop bonus offers or promotions to customers displaying indicators of harm.

Guidance or requirement

Whilst guidance may be appropriate to ensure vulnerable customers are protected, particularly during the current Covid-19 pandemic, it is questionable whether the measures can be considered to be “guidance” and whether they are wholly proportionate and necessary in the light of the data on which the Gambling Commission has based these measures. The wording of the measures appears to create an obligation on the part of licensees to “stop bonus offers” and “prevent reverse withdrawals” which give the impression of requirements, rather than guidance.

Data

The Gambling Commission published two sets of data. A first set collected through a YouGov survey and a second from “the biggest operators, covering approximately 80% of the online gambling market”.

YouGov data

The YouGov data was collected from just over 2,000 people, some of whom may have taken the survey multiple times. The data is based on gambling habits of customers within four weeks from “mid-March 2020”. Whilst the data does show increased spend on online gambling, for example a 2% increase on online slot games and 1.7% on sports betting, the biggest increase of 16.4% was on National Lottery products which are regulated separately and to whom the new guidance does not apply. The data analysis also fails to consider the potential adjustment of gambling habits due to the closure of land-based venues as an explanation for the increase of spend and time on certain products, as opposed to an increase in gambling habits.

Gambling Commission data

The second set of data was collected over the period 31 March 2019 to 31 March 2020. This period only covers one week in which the country was in lockdown. It follows that this data cannot be reliable evidence that customers are at a greater risk of harm during lockdown. Further, the data shows a decrease in reverse withdrawals. The new guidance at point 6 above includes the prevention of withdrawal options until further notice. It is clear that this measure was not based on the data published by the Gambling Commission, which questions whether it was necessary and proportionate to be included within this particular guidance. The Gambling Commission, supported by research, already considered reverse withdrawals to be a flag for potential gambling harms; however, action to tackle this through an industry consultation would have been more appropriate than a strict measure introduced under the guise of guidance.

Absence of consultation

The absence of an industry consultation on the guidance is particularly disappointing. When a code of practice is amended, the industry would usually be offered the opportunity to respond to a consultation on the proposed new amendments. This was the case when the Gambling Commission last issued guidance under social responsibility code 3.4.1 in July 2019. However, it seems that the Gambling Commission has decided to omit this stage due to lockdown being a present and continuing issue. The press statement notes that the Gambling Commission will bring forward plans to consult on whether further targeted protection measures are required on a permanent basis.

The Gambling Commission’s Statement of principles for licensing and regulation begins by stating that the Gambling Commission regulates in a “straight-forward, risk-based and transparent manner”. The lack of industry consultation here is plainly neither transparent, nor based on sufficient evidence of risk.

The new requirements are significant and will no doubt be burdensome for licensees to implement “as soon as possible”. However, they are likely to be welcomed by Culture Minister Nigel Huddleston (see our blog of 24 April 2020) and the Public Accounts Committee following Neil McArthur’s appearance at the session Gambling regulation: problem gambling and protecting vulnerable people on 27 April 2020.

To comply with the new measures significant updates are likely to be required to systems, customer terms and conditions and policies, each requiring input from different people, perhaps even third-parties, which will no doubt be a challenge given the current crisis. If, as the press release suggests, operators are expected to “interact with customers who have been playing for an hour in a single session of play” the impact will be significant, particularly for large operators who may have several thousand active customers at any one time. The threat of interim licence suspension, or licence review, increases this burden, which was thrown upon licensees without consultation, warning or a timeframe to implement the required changes.

As Julian Harris wrote in our previous blog, “for regulation to be effective it requires a healthy and collaborative working relationship between regulator and whom it regulates”. This statement is echoed here and whilst both the Gambling Commission and the industry as a whole are in agreement that new measures should be introduced to protect the most vulnerable during this novel and rare situation, any changes should be proportionate, necessary and founded upon strong and clear evidence.

A further blog post on the implementation of the new guidance will follow.

07May

Remain Vigilant to Ensure AML Compliance

7th May 2020 David Whyte 335

The Gambling Commission published the fifth edition of The prevention of money laundering and combating the financing of terrorism – Guidance for remote and non-remote casinos (the “Guidance”) in January 2020. The Guidance incorporates the amendments made by the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

In its 2018/2019 Enforcement Report, the Gambling Commission said:

“Compliance activity and enforcement cases revealed again and again that operators’ AML policies, procedures and controls are not fit for purpose. There has been the incorrect perception that all gambling regulators’ expectations are identical in addition to a failure to digest our guidance and implement the legislative requirements applicable to Great Britain. This must change, for these are not just regulatory matters but breaches of UK law. Those failing to learn these lessons will face further draconian action.”

Despite repeated messages and enforcement cases of a similar nature, due to ongoing failings by the industry, the Gambling Commission has “continued to imposed increasingly tough financial penalties (or payments in lieu of financial penalties) in cases where there have been major AML failings in order to send a clear message to the industry.”

Operators must take heed because the Gambling Commission will continue to hold you to account for failing to adhere to the Guidance.

As we noted in our blog on 31 March 2020, the current COVID-19 crisis presents some operators with an opportunity to ease regulatory and commercial burdens.

Operators should ensure that they have implemented all changes required following the update to the Guidance and take note of the Gambling Commission’s statement that:

“…the publication of this updated guidance must result in casino businesses reviewing, and accordingly amending, their money laundering and terrorist financing risk assessments as well as the associated policies, procedures and controls…”

Customer due diligence

Paragraphs 6.16 and 6.17 of the Guidance specify that, for the purposes of CDD (as required by Regulation 28), verify means verifying on the basis of documents or information which, in either case, have been obtained from a reliable source which is independent of the person whose identity is being verified. In addition to documents issued or made available by an official body made available by a customer themselves, information may be regarded as meeting this requirement if:

it is obtained by means of an electronic identification process (by using electronic identification means or by using a trust service); and
that process is secure from fraud and misuse and capable of providing an appropriate level of assurance that the person claiming a particular identity is, in fact, the person with that identity.

Enhanced customer due diligence and enhanced ongoing monitoring

There are now further requirements for EDD measures and/or an assessment of whether there is a high risk of money laundering or terrorist financing (which, if identified, would require EDD measures) where:

in relation to any transaction where there is a requirement apply CDD measures, either of the parties to the transaction are established in a high-risk third country;
a transaction is complex or unusually large, there are unusual patterns of transactions, or the transactions have no apparent economic or legal purpose;
the customer is the beneficiary of a life insurance policy; or
the customer is a third country national who is applying for residence rights in or citizenship of an EEA state in exchange for transfers of capital, purchase of a property, government bonds or investment in corporate entities in that EEA state.

Other changes

Other changes to the Guidance include changes to the risk-based approach, risk assessments, risk-based CDD and new flow diagrams showing the Architecture for the risk-based process (figure 2) and The risk framework and risk-based customer due diligence (figure 3). These highlight the requirement that licensed casino operators:

take appropriate measures in preparation for, and during, the adoption of new products or business practices, and assess and mitigate any money laundering risks arising from such adoption, in addition to the existing and similar requirement for new technology, including cryptocurrencies (Regulation 19(4));
have specific policies, procedures and controls for the measures described above (Regulation 19(1) and (2)); and
take appropriate measures to ensure that any agents used by operators, for the purposes of their business, are given appropriate training in AML and CTF (Regulation 24).

Factors to consider

The new requirements can be addressed by:

reviewing money laundering and terrorist financing risk assessments now, and each time a new product or business practice is introduced;
reviewing AML/CTF policies, procedures and controls to ensure that the Guidance has been considered;
ensuring that all employees are appropriately trained and understand the changes; and
amending contractual clauses and training procedures to ensure that agents are appropriately trained.

If you would like to discuss any of the issues raised, please do get in touch with us.

02Apr

Update on Gambling Commission Industry Working Groups

2nd April 2020 Bahar Alaeddini 330

On 2 October 2019, Neil McArthur, CEO of the Gambling Commission, delivered a speech at a CEO Breakfast Briefing in London in which he looked back at the year, talked about the challenges in the industry and three opportunities to reduce gambling harm:

opportunity 1: game and product design;
opportunity 2: inducements to gambling; and
opportunity 3: advertising technology.

We discussed these opportunities and industry working groups, formed in January 2020 in pursuit of these opportunities, in a blog post on 17 January 2020.

Yesterday, the Gambling Commission published an update on its “collaborative work” with the industry working groups, which included over 30 licensees, co-ordinated by the Betting and Gaming Council, and involved GamCare and people with lived experience of gambling harm.

Whilst “encouraged by the progress”, Neil McArthur challenged the industry to go further and deliver “real and rapid change for consumers”. He said:

“We set these challenges in order to deliver real and rapid change for consumers in key areas of risk. However, it is important these commitments are implemented as soon as possible. It should not take months to implement safeguards many would expect to be in place already…Whilst we are encouraged by industry proposals for making gambling products safer, we now call on operators to implement those proposals rapidly; but the proposals do not go far enough and we will now consider what additional measures we should impose on operators…Ultimately actions speak louder than words and any operator that does not put consumer safety first will find itself a target for enforcement action.”

Safer Products Working Group (opportunity 1: game and product design)

The industry has agreed to:

A minimum spin speed of 2.5 seconds on all slots.
Removal of game features which may encourage intensive play such as slam stops and turbo buttons.
Removal of split-screen slots which have been associated with potential loss of control.
A more detailed work plan which will include in-game messaging and the creation of a Betting and Gaming Council Testing Lab to investigate other game features.
Publication of the final industry code in September 2020.

The Gambling Commission’s response:

“…this work must now go further and faster, in particular around using demographics and behaviours to indicate risk.”
It will issue a consultation on “priority areas” for immediate action “as soon as possible”.

Incentivisation of High Value Customers Working Group (opportunity 2: inducements to gambling)

The industry has agreed to:

Restrict and prevent under 25s from being recruited to high value customer i.e. VIP schemes.
All customers must first pass thorough checks relating to spend, safer gambling and enhanced due diligence before becoming eligible for high value customer incentives.
Reward programmes will also be required to have full audit trails detailing decision making with specified senior oversight and accountability.
Implement some measures from 14 April 2020.

The Gambling Commission’s response:

It will issue a consultation on how to makes these permanent changes as part of the LCCP.
Expectation that the industry implements its industry code “as soon as possible and considers most measures should be implemented within 3 months.”
It will monitor and support implementation of the industry’s code as an interim measure.

Safer Advertising Online Working Group (opportunity 3: advertising technology)

The industry has agreed to:

Amend the Industry Code for Socially Responsible Advertising by July 2020 to include the points below.
A common list of negative search terms (e.g. how do I self-exclude from gambling?) and suppression websites, which will help shield vulnerable groups from online gambling ads.
Better and more consistent use of customer data to ensure paid-for-ads are targeting away from vulnerable groups across social media platforms, instead of targeting for business.
Implement an approach which means that advertising is only targeted at +25 age in social media and “Pay Per Click” advertising where platform facilities permit. This will protect young people and increase confidence in the social media platforms’ own age-gating.
Age-gating YouTube channels and content.
Adopting and rolling out to all affiliates a code of conduct which will be amended and updated on a regular basis to ensure all measures undertaken by the industry will be implemented equally by affiliates.

This working group will also:

Establish a permanent cross-industry Adtech Forum.
Continue the proactive engagement with a wide range of stakeholders (including platforms).
Work with the Gambling Commission to publish and promote consumer advice, and work with online platforms and broadcasters to identify a more effective, simple and consistent approach, about blocking gambling advertising.
Commit to monitoring and evaluating all actions to ensure only effective solutions are pursued.

The Gambling Commission’s response:

“The industry has developed an appropriate set of commitments which should help further limit exposure to online gambling adverts by vulnerable groups.”
It expects industry to work collaboratively with social media platforms to identify and implement further solutions.
Operators will be “held account for these commitments” from July 2020.

Final thoughts

At the October 2019 CEO Breakfast Briefing, Neil McArthur’s final words were:

“If we work together, I am sure we can make gambling fairer and safer.”

The industry’s response to working with the Gambling Commission and investment in meeting tough timeframes should be applauded. Much work is still to be done, particularly to deliver “real and rapid change for consumers”, as the Gambling commission expects. Widespread action and engagement across the industry when the industry codes are implemented and consultations published will be paramount.

31Mar

Productivity in This Time of Crisis

31st March 2020 David Whyte 322

The widespread closure of land-based gambling businesses, coupled with the impact of a hiatus in sport may, however undesirably, present some operators and suppliers with the opportunity to take advantage of additional spare time and ease regulatory and commercial burdens prior to the much-coveted return to normality.

Annual fees

In its recent update, the Gambling Commission (the “Commission”) has confirmed that due to the structure of its fee system, which is based on secondary legislation, it is unable to offer a reduction in annual fees or accept payment by instalments.

The only two options presented by the Commission are:

licence surrender; and
reducing the annual fee payable by applying to vary an operating licence to decrease the fee category where there is a reduction in gross gambling yield (“GGY”).

While option 2 may sound attractive, only some licensees will benefit. We recommend considering the following points when making a variation application to decrease a fee category:

it is the cheapest type of application and only costs £25.00;
it can be submitted quickly and easily though the Commission’s eServices portal;
apply as early as possible – the guideline processing time (up to eight weeks) is likely to be lengthened as the Commission experiences increased levels of absence;
the annual fee reduction will not take effect until the next annual fee is due; and
licensees who have recently paid their annual fee will not benefit from any such variation this year because the Commission does not issue refunds, as it has no statutory mechanism to do so.

Licensees whose annual fees are due in the coming weeks/months and expect to see a significant reduction in GGY should move quickly and submit variation applications as soon as possible.

Please remember that, in accordance with section 100 of the Gambling Act 2005, annual fees are payable before the licence anniversary and the Commission has the power to revoke an operating licence for non-payment.

Compliance

Neil McArthur, CEO of the Commission, has reminded licensees, particularly online operators, of the safer gambling and AML risks presented by COVID-19 and that consumer protection is paramount. In a message to online operators, on 26 March 2020, he said:

“…whilst I recognise the enormous challenges businesses are facing, I want to make the Commission’s expectations absolutely clear… If we see irresponsible behaviour we will step in immediately. So, whilst I know that the current climate is unprecedented, gambling operators must play their part in making sure that people are kept safe…”

As a follow-up to his blog on 25 March 2020, The Gambling Commission’s Response to the Coronavirus Crisis, Julian Harris will be posting his views on Neil McArthur’s latest message shortly. In the meantime, we strongly encourage licensees to view the Commission’s warning as an opportunity to take stock and respond positively and proactively as this is likely to result in improved business practices. Inevitably, this will reduce workloads when gambling businesses are finally able to operate as normal:

We recommend licensees consider the following:

AML business risk assessment

In accordance with licence condition 12.1.1 of the LCCP, all licensees (other than gaming machine technical and gambling software licences) are required to conduct an assessment of the risks of their business being used for money laundering and terrorist financing. This risk assessment must be reviewed at least annually and amongst other things in the light of any changes in circumstances or other material changes.

Licensees may wish to begin their review of this AML risk assessment now, considering internal business changes and the risks presented by COVID-19 (almost certainly a change in circumstances or other material change). Risk assessments that are part completed in draft now will require less time when premises reopen or sport recommences, meaning key employees can focus on other matters.

AML and safer gambling policies

Licensees should review their AML and safer gambling (“SG”) policies. This review should not just consider the adequacy of the policies now, but also the risks presented by COVID-19. Particular attention should be paid to the levels which trigger AML and SG customer interactions, and the approach taken to consider the customer’s affordability given the likelihood of disrupted income. Consideration should also be given as to how audits are completed, and whether any changes are required. Again, the completion of amendments in draft now will mean less effort and time is spent on this review when normality returns.

Marketing

Operators should review their marketing policies, ensuring new customers are on-boarded in a socially responsible way, cleanse customer marketing databases and review relationships with affiliates. They may wish to audit their affiliates and renegotiate terms to strengthen control and their position to deal with non-compliant affiliates.

Training

Employees who have been furloughed and/or who have not been operating in their primary role for prolonged periods of time, may need refresher training on key areas on their return to work. Licensees should take steps now to ensure that they have plans in place for this, to ensure that the high standards being adhered to prior to COVID-19 are maintained. We will discuss training in a separate blog post shortly.

The strong messages from the Commission to the remote industry during the COVID-19 crisis maintain a pre-existing tone that is likely to continue. Land-based and sports betting operators and suppliers should use this opportunity to their advantage so that they have a renewed sense of focus when the time eventually comes to return to normality.

If you would like to discuss any of these issues, please do get in touch with us.

Anti-Money Laundering

New Gambling Commission Guidance for Online Operators

Remain Vigilant to Ensure AML Compliance

Update on Gambling Commission Industry Working Groups

Productivity in This Time of Crisis