23Dec

Where is the harm? Implications of regulatory revisionism for customer interactions

23rd December 2022 David Whyte 184

In this – the second in a series of articles on the Gambling Commission’s (the “Commission”) consultation (the “Consultation”) on the proposed Customer Interaction – Guidance for remote operators (the “Guidance”) – Harris Hagan and Regulus Partners consider the concept of ‘vulnerability to harm’ that underpins the Guidance. The Commission proposes that licensees be required to identify “harm”, “potential harm” and “vulnerable states” by monitoring customer behaviour, scrutinising private information and making assessments based on a range of demographic characteristics. While licensees should always be sensitive to customer wellbeing, the Commission’s attempt to translate common sense into a bureaucratic checklist appears to be at odds with the intent of the Gambling Act 2005 (the “2005 Act”), regulatory coherence and the best interests of consumers.

Vulnerability and harm

The Guidance requires licensees to identify customers exhibiting “indicators of harm” as well as those who – for a wide variety of reasons – may be “vulnerable” to gambling harms. For these terms to be meaningful, it is important first to understand what the regulator wishes to convey by the term “harm”. While the Guidance itself is silent on this matter, the Commission has defined gambling harms in its Update: Pilot of survey questions to understand gambling-related harm as “the adverse impacts from gambling on the health and wellbeing of individuals, families, communities and society.” Emphasising the breadth of the concept, it adds that “these harms are diverse, affecting resources, relationships and health, and may reflect an interplay between individual, family and community processes. The harmful effects from gambling may be short-lived but can persist, having longer-term and enduring consequences that can exacerbate existing inequalities.”

To hammer home the scale of the problem, the Commission enumerates 27 “harms” experienced by gambling consumers and a further 13 “harms” to “affected others”. Some of these adverse impacts are incontrovertible – financial consequences such as problematic debt being the least ambiguous – but others are less clear-cut. The Commission, for example, defines having less money to go to the cinema or “other forms of entertainment” as a harm from gambling. Spending money on one pastime in preference to another – as the Australian academic, Professor Paul Delfabbro has pointed out – is “more akin to opportunity costs than true harm”. Its inclusion in the ‘Index’ suggests a moral judgement on those people who prefer to spend their own money on betting in preference to the movies or a meal out. Among the Commission’s other “harms”, we also encounter “feeling like a failure” which in its weakest form is a potential corollary of all unsuccessful wagers and “spending less time with people you care about”, a test that many activities, including going to work or attending a school or college, would fall foul of.

Are these the “harms” or “potential harms” that the Commission expects its licensees to identify? If so, how does it expect them to do so? Will licensees, for example, be required to scrutinise bank statements in order to understand whether or not customers are movie-goers? With what degree of regularity must customers be going to the flicks in order to satisfy the regulator? This may be a case of reductio ad absurdum – but it illustrates the fact that the Commission has in fact set some fairly absurd tests for what should be considered harmful. In the absence of clearer direction, operators are expected to make their own judgements about which of the “harms” listed by the Commission they should be attempting to identify.

A list of 21 prescribed “indicators of harm” are provided in the Guidance as a minimum – but not exhaustive – set of standards. The basis for the selection of these indicators is not made clear, supporting evidence is often not cited, and generally they lack all but the most conceptual definitions. For licensees, this presents a significant challenge in terms of operationalising the indicators. How, for example, should a licensee create a rule for “amount of money spent on gambling compared with other customers”? Is this intended to suggest that anyone spending above the mean (or median) is displaying an indicator of harm? As written, it could be used to describe anyone wagering more than the lowest-spending decile, which would be more than “other customers”. Another example is the “use of multiple products”, without any definition of what constitutes a “product”. Are football betting and tennis betting different “products” or a single product (i.e. sports betting)? Is a ‘Rainbow Riches’ slot game a different product to ‘Cleopatra’, as manufacturers would certainly contend? Where certain activities are concerned, any participation at all is considered potentially problematic. In-play betting is classified as an automatic indicator of harm. Although, as we will explain in a further blog, this appears to be based on the Commission’s misreading of its own evidence.

So much for harm; but what about “vulnerability”? Here, the Guidance does at least provide some kind of definition of what a “vulnerable person” is: “somebody who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care”.

Harris Hagan has raised previously its concerns about the transformation of what the Commission considers to be “vulnerability” and its inclusion of a definition of the term in guidance. It is for Parliament, not the Commission to define a statutory term that is included in the 2005 Act and which Parliament did not find it necessary to define, having clearly considered the interpretation of vulnerability a straightforward matter. Reference in the third licensing objective firstly to children, and then to other vulnerable persons adequately sets out Parliament’s intention that the licensing objectives apply to those people not able to make properly informed or ‘adult’ decisions.

The operative phrase in the definition in the Guidance – “especially susceptible to harm” – implies that vulnerability is a rare or exceptional condition rather than a state shared by the majority. This conceptualisation is however, undermined by the Commission’s use of illustrative examples. “Young adults” are categorised as vulnerable (around 12% of the population are between the ages of 18 and 24 years); but so are “older adults” (23% of the population are 65 or older). Poor physical health denotes vulnerability (43% of adults have a long-standing medical condition); as does poor mental health; (17% have a common mental health disorder; 16% have an eating disorder). One is vulnerable if one is bereaved (15% of us each year), has caring responsibilities (13%) or has dyslexia (10%). Most perplexing of all, a “higher than standard level of trust or appetite for risk” – a quality that might be said to be a defining characteristic of any gambler – is also sufficient to qualify an individual as vulnerable.

The Guidance refers to the Financial Conduct Authority’s (“FCA”) observation that 46% of adults “display one or more characteristics of vulnerability” and indeed, the Commission’s definition of vulnerability is identical to that used by the FCA in its Guidance for firms on the fair treatment of vulnerable customers – February 2021 (the “FCA Guidance”). The FCA Guidance is, however, prepared to serve an entirely different purpose. It is issued under s139A of the Financial Services and Markets Act 2000 (legislation which, unlike the 2005 Act, makes no reference to vulnerability) and provides guidance on the FCA’s Principles for Business, which state that, “a firm must pay regards to the interests of its customers and treat them fairly”. Principle-based regulation of this nature almost certainly requires guidance and the FCA is justified in defining vulnerability in that context; that the Commission seeks to take an identical approach to the FCA, in an entirely different context, is not.

There is a difference between the FCA’s intention that regulated firms identify “characteristics of vulnerability” to ensure they treat their customers fairly and in accordance with their needs, and the Commission’s duty under the 2005 Act to permit gambling in so far as it thinks it reasonably consistent with, the licensing objective of “protecting children and other vulnerable persons from being harmed or exploited by gambling”. The Commission’s reinterpretation of “vulnerability” as a universal rather than exceptional state risks distorting and undermining the legislation that it is required to enforce – replacing parliamentary sovereignty with regulatory fiat. Furthermore, the Commission prescribes a requirement in SRCP 3.4.3. It therefore had the opportunity, following consultation, to set out precisely its definition of vulnerability when introducing that requirement. That it now seeks to widen the parameters of that requirement in the Guidance, is plainly wrong.

The concept of vulnerability

The suggestion that we are all vulnerable may be true at a certain banal level – but it is inconsistent with the intent of the legislation and also the Commission’s own conception of ‘especial susceptibility to harm’. A system of customer monitoring predicated on the idea of universal vulnerability risks failing those in genuine need of protection. There are a number of other practical considerations which the Guidance fails to address. For instance, it suggests, by way of reference to past enforcement cases, that operators must routinely scrutinise customer bank statements in order to harvest medical information, or risk facing sanctions for failing to do so. This raises complex ethical issues of discrimination and data protection. Should operators, for example, treat customers differently on the basis of a perceived medical condition (which they are expected to glean from banking data)? How might customers feel about betting companies holding information (however obtained and however accurate) about their health?

To illustrate the scale of the challenge presented by the Guidance, consider the following fictitious scenario. A 24-year-old with dyslexia who bets in-play on football and cricket and spends slightly above the average for his age group could plausibly be said to raise three ‘vulnerability’ flags and three ‘indicators of harm’. As we observe in the next in this series of articles, a licensee would be required to determine for itself whether or not the presence of six ‘indicators’ would necessitate an interaction, and if so of what variety. It is inevitable that operators will adopt widely divergent interpretations in such instances, with implications for market distortion. Perhaps more significantly, the Guidance creates ample scope for disagreement between licensees and the Commission about whether a customer is vulnerable or displaying genuine indicators of harm.

That “vulnerability” is to be determined by whether a “firm”, which we understand to mean a licensed operator (again the use of “firm” a reflection of the Commission’s use of the FCA’s definition), is “acting with appropriate levels of care”. The decision as to whether a licensee has acted with appropriate levels of care must ultimately rest with the Commission and therefore it seems that vulnerability will be determined subjectively by the Commission, almost certainly in hindsight. Further, by suggesting, incorrectly, that licensees have a duty of care at law to prevent customers from gambling if they are or might meet the Commission’s definition of vulnerability, the Commission risks improperly introducing such a duty in law, or at least exposing licensees to such a challenge. This is dangerous territory for any regulator, and for licensees.

Autonomy – a wider debate

Finally, there are some genuine ‘slippery slope’ consequences for the wider economy, privacy and personal freedom. One of the Commission’s key items of evidence for the proposed interactions regime is a survey carried out in 2020 by the Money and Mental Health Policy Institute (‘MMHPI’) included in the report A Safer Bet. The Commission states that 24% of people with mental health problems experienced financial problems in consequence of online gambling and 32% said that they had bet more than they could afford to lose. This representation of the findings is misleading (the survey was of people with mental health problems who had gambled online and not all people with mental health problems – an important distinction); as is the Commission’s repeated misuse of the Problem Gambling Severity Index item “bet more than afford to lose”, which is a risky behaviour rather than a harm.

Quite aside from matters of precision, there is an important omission of context. In the same year, the MMHPI also published the results of a survey on online shopping by people with mental health problems – with very similar, and in some cases more alarming, results. The MMHPI report, Convenience at a cost found that 29% of respondents had spent more than they could afford when shopping online while 63% “had cut back on essentials” and 56% “had fallen seriously behind on payments for bills or debt repayments as a result of not being able to control their spending.” In short, the basis for regulatory intervention on remote gambling could just as easily be applied to shopping with Amazon or Tesco. Context is important because it helps us understand whether state action in one domain is consistent with broader societal ‘rules’ – and so deters unfair discrimination against particular groups (in this case, people who enjoy gambling). The Commission’s deliberate exclusion of this information, which was brought to its attention as part of the original consultation, is unhelpful and reinforces the idea that the regulator is not in earnest in its use of public consultations.

The Commission’s obsession with vulnerability suggests a rather hopeless outlook on life. To the extent that we are all, to some extent vulnerable, we are all resilient too and possessed of broad powers of self-regulation. An exclusive focus on what makes us weak with no recognition of what makes us strong is distortive and may lead to negative consequences – most obviously through undermining individual agency, which is an essential ingredient for wellbeing.

The identification of harm and vulnerability set out in the Guidance is the basis for ramping up operator interactions with customers, which may in some cases be warranted. The practical implications of the requirements to interact, and to evaluate the effect of those interactions, is the subject of our next article.

With thanks to Dan Waugh from Regulus Partners for his invaluable co-authorship.

22Dec

Putting the Customer First: Why all licensees should the take the Consultation on Customer Interaction Guidance seriously

22nd December 2022 David Whyte 193

A little over two years on from the launch of its consultation and call for evidence on remote customer interaction requirements and affordability checks, the Gambling Commission (the “Commission”) has initiated a new public consultation (the “Consultation”) – this time on the proposed Customer Interaction – Guidance for remote operators (the “Guidance”). While the Consultation has so far not attracted the same attention as the 2020 exercise, the implications are potentially just as profound. In a series of co-authored articles, Harris Hagan and Regulus Partners will explore the key proposals in the Guidance, examining the evidence that underpins them and asking whether they are in fact proportionate, legal and in the best interests of consumers.

We appreciate that some of the more cynical readers of this article may think there is little point in responding to the Consultation as the Commission will take little or no notice of any feedback it receives from licensees. However, we consider it critically important that all licensees, including non-remote licensees, do respond to the Consultation. It is more difficult for the Commission to ignore numerous representations on common concerns, and experience suggests that similar guidance may be produced for non-remote licensees in the future. Recognising that the timeframe for the Consultation will include the holiday period, the Commission has extended the originally proposed six weeks to approximately nine weeks, and it will now close on Monday 23 January 2023.

There are a number of areas of the Guidance which licensees should be concerned about – Harris Hagan included some of these in previous articles in July and September 2022. In this article, the first of the series, we set out a summary of those issues, and analyse the “Introduction” and “General requirements” sections of the Guidance. In subsequent articles we will also consider the central theme of assessing ‘vulnerability to harm’; and how licensees will be expected to take action to address it.

Key areas of concern

Our key areas of concern about the Guidance, many of which we will explore in more detail in this series of articles, are:

It has been poorly drafted. Many key terms are either undefined or defined in a fashion so highly generalised as to be almost meaningless. An absence of precision in the way that regulatory requirements are described inevitably invites a high level of subjectivity in terms of how they will be interpreted by both licensees and the Commission.
The evidence that underpins key measures contained in the Guidance is either absent or highly selective – and, in some cases, it is misleading.
It appears to conflate “indicators of harm” with actual harm – requiring licensees to take action to correct customer behaviours regardless of whether they are in fact harmful.
The definition of key terms is so broad as to make it almost impossible for licensees to justify not conducting a safer gambling interaction based on either “indicators of harm”, “vulnerability” or both.
It takes no account of the practicability of the measures required, the cost implications, or the potential for negative unintended consequences.
The Commission appears to have undertaken no research into consumer support for the measures that are being mandated or how they might react to them.
One of its more alarming aspects is the suggestion that licensees should harvest medical information about their customers. There is no demonstration within the Consultation that the Commission has considered the ethical or legal dimensions of this requirement, the extent to which licensees possess the requisite expertise to interpret such information, or whether this is even possible.

Issues not addressed in the Consultation

The Commission makes it clear that the Consultation relates solely to the Guidance which is issued on Social Responsibility Code Provision (“SRCP”) 3.4.3. The requirements of SRCP 3.4.3 itself are not within scope, nor are “matters associated with unaffordable gambling and specific thresholds which should apply”, the “separate consultation on the three key financial risks” the Commission committed to in May 2021 (yet to materialise), or matters associated with “single customer view”.

General requirements

“How to use this guidance”

There are inconsistencies in the Guidance between “aims” and “formal guidance”, and it is difficult to ascertain whether the Commission expects licensees to “take into account” or “address” its aim in setting each requirement.

The impact of this inconsistency can be seen throughout the Guidance. For example, requirement 1 states that “icensees must implement effective customer interaction systems and processes in a way which minimises the risk of customers experiencing harms associated with gambling.” However, aim 1 states that “Licensees must have effective controls to minimise the risk of customers experiencing harms associated with gambling”. There is a clear difference between implementing effective systems and having effective controls, the latter being more easily determined subjectively by the Commission and with hindsight: the assumption likely being that if any customer has suffered or experienced harm (a highly malleable term as we will explain further in our next article), the controls were ineffective.

It is critically important that the Commission ensures uniformity in the Guidance. If ‘aims’ are within scope, then the language used for requirements and aims should be consistent: if ‘aim’ is not within scope, then the “How to use this guidance” section of the Guidance should be amended and reference to licensees being obliged to “address that aim” removed, to ensure that this is abundantly clear.

Formal requirements as guidance?

Harris Hagan has previously set out its view that it is inappropriate, and arguably ultra vires, for the Commission to introduce formal requirements through guidance. The Commission seeks to address such concerns in the Consultation where it states:

“On occasion, the proposed guidance document uses the language of ‘must’ or ‘the Commission expects’. This language is used in contexts where the guidance is intended to reflect the requirements or SR Code Provision 3.4.3. The proposed guidance document also uses the word ‘should’, which denotes an approach or action that is not required by SR Code Provision 3.4.3, but which operators are required to consider. We are interested in stakeholders’ views on the language used in the proposed guidance document in this respect.”

Despite this statement, there are several areas of the Guidance where the language used does not reflect the requirements set out in SRCP 3.4.3, goes beyond those requirements, or is inconsistent with those requirements. This is inappropriate, will cause confusion, and exposes licensees to the risk of broad or inconsistent interpretation by Commission officials during compliance or enforcement action.

By means of an example:

Requirement 4 states: “Licensees must have in place effective systems and processes to monitor customer activity to identify harm or potential harm associated with gambling…”;
Aim 4 is stated as being to ensure “that customers who may be at risk of harm are identified”; and
Formal Guidance 4 states that “icensees must identify customers that may be at risk of harm.”

There is a clear distinction between “identifying harm or potential harm” and identifying customers “that may be at risk of harm”: the latter arguably being impossible as it applies to anyone who gambles. We will discuss this in more detail in a subsequent article. The importance of the Guidance being easily distinguished from the prescriptive requirements set out in SRCP 3.4.3, and of ensuring consistency between requirements and aims and formal guidance, must not be overlooked.

“How the Commission will use this guidance”

The Commission refers under this section of the Guidance to its expectation that “licensees demonstrate how their policies, procedures and practices meet the required outcomes”. However, at no point has the Commission set out what those required outcomes are. SRCP 3.4.3 is not outcome-led; it is, at least in part, prescriptive – as is the Guidance. We would therefore suggest that “requirements” rather than “required outcomes” is the more accurate language to be used here.

“Amending this guidance over time”

Under this heading, the Commission sets out that “for the purposes of raising standards, protecting customer interests, and preventing harm to customers, will update and re-issue guidance”. Harris Hagan has previously raised concerns about this approach. We remain of the view that the Commission should consult on any changes to the Guidance, particularly if those changes introduce formal requirements, or if they explain how the Commission may interpret those formal requirements. The Commission is comfortable with short consultation periods; it originally proposed that the Consultation be open for six weeks. To conduct further short consultations before amending the Guidance is hardly an arduous task, particularly given the benefit of doing so, not only to licensees and stakeholders, but to the Commission itself.

In our second article, we will discuss the concepts of “harm” and “vulnerability” that underpin the Guidance.

With thanks to Dan Waugh from Regulus Partners for his invaluable co-authorship.

14Nov

Licensing, compliance and enforcement policy statement: Gambling Commission consultation response – the “under the radar” compliance and enforcement changes you may not (yet) have noticed – Part 2

14th November 2022 Gemma Boore 202

On 23 June 2022, the Gambling Commission published the response to its November 2021 consultation (the “Consultation”) on its Licensing, Compliance and Enforcement Policy Statement (the “Policy”) and this is our second blog on the response. The first blog can be accessed here.

Compliance Changes

Proposal 9. Remote compliance assessments

Proposal: Policy to explain that compliance assessments may be carried out remotely and clarify what this involves.

Respondents’ views: Although the majority of respondents agreed with the proposal, some noted that:

1. the digital privacy of licensees and their customers must be considered;
2. face to face meetings are more productive;
3. assessments conducted in a remote environment allow for items to be lost in translation, talk to be taken out of context and prevent the relevant parties from engaging in open conversation and dialogue.

Gambling Commission’s position: The original proposals were implemented as drafted. The Gambling Commission addressed comments that remote assessments may jeopardise privacy byconfirming it had “considered the proportionality and legality of using this method of assessment and satisfied that appropriate controls in place to ensure that laws relating to data protection are complied with”. The regulator acknowledged concerns regarding perceived disadvantages of remote assessments and confirmed that it would take a flexible approach, conducting assessments both face-to-face and via remote means.

Our view: This is another example of the Policy being updated to reflect current practice. Remote assessments were of course, a necessity during the Covid pandemic and in the same way as remote working has become commonplace across the globe, they are here to stay. As remote assessments carry just as much weight as in-person assessments, they must be given the same level of care and attention by the business. Licensees must ensure that training records, revenue reports, customer accounts and AML/safer gambling procedures/records and other key policies and procedures are on hand and ready to be discussed and/or disclosed if necessary. The key people that have been asked to attend and any other personal management licence holders, should be present, ready to answer the Gambling Commission’s questions and critically, show the Gambling Commission how they carry out their roles. Please get in touch if you have any questions regarding compliance assessments.

Proposal 10. Changes to assessment framework

Proposal: Policy to update assessment framework to reflect terms actually used by Gambling Commission officials to judge levels of compliance: namely, ‘Serious failings’, ‘Improvement required’ and ‘Compliant’.

Respondents’ views: Some respondents noted that:

1. the categories appear clearer but there should be subcategories in the improvements required section, to separate minor and/or major improvements;
2. the section entitled ‘Improvement Required’ should not stipulate that a licensee ‘just meets’ the Commissions requirements as this would mean they are technically compliant; and
3. sections of the framework could be more prescriptive.

Gambling Commission’s position: The original proposals were implemented as drafted. The Gambling Commission rejected arguments that additional subcategories and/or outcome descriptions would be useful. The regulator further clarified that ‘Improvement required’ is used “to reflect circumstances where a licensee may be in breach of a licence condition or social responsibility code, or any other requirement attached to a licence. However, we would not use this description where we judge that there is likely to be a significant impact on consumers, the licensing objectives, or the reputation of the industry. We would also expect clear assurances that a licensee will make immediate changes to ensure that there is no future risk.”

Our view: This is the only proposal that does not appear to have gained approval from at least 50% of respondents. A strange outcome, as this is another prime example of a policy amendment made to catch up with what is happening on the ground. In practice, we have seen this language used in the Gambling Commission’s communications with licensees regarding the outcome of compliance assessmentssince 2019. The only oddity is the delay in the Gambling Commission updating its own policies to reflect practice. It is also not particularly surprising, given how long these phrases have been used, that the Gambling Commission is rejecting suggestions for improvement to its own lingo.

Proposal 11. Introduction of Special Measures

Proposal: Policy to outline the circumstances in which an operator may be placed in special measures and the consequence of this.

Respondents’ views: Although the majority of respondents agreed with the proposal, some noted that:

1. the approach to divestment needs to be clearer and the Gambling Commission should consider whether funds can be divested back to consumers; and
2. licensees should be able to refuse to enter Special Measures and to defend its position if a review is then instigated.

Other respondents queried whether the Gambling Commission should publish when licensees enter Special Measures to ensure consumers could assess if their risk appetite is big enough to continue to use the services of such operator.

Gambling Commission’s position: The original proposals were implemented as drafted. The Gambling Commission rejected the assertion that it should publicise circumstances where a licensee enters Special Measures – an outcome that will bring relief for many. The regulator also took the position that comments regarding divestment fell outside the parameters of the consultation. It further noted that “While it is open to a licensee to refuse Special Measures, this would most likely mean that the licensee, based on the identified failings, would be considered for review of its licence. As part of that review process, we would want to understand why the operator was unwilling to work to achieve compliance at pace. The review process allows for the licensee to make representations about the Commission’s findings and proposed course of action.”

Our view: For better or worse, several licensees have now experienced the Gambling Commission’s Special Measures process and more will experience it yet. Although we remain of the view that much greater informal engagement by the Gambling Commission with individual licensees would be preferable and appropriate when compliance issues are identified (assuming, of course, the regulator is proportionate, consistent and appropriate in those dealings), it is encouraging to see the Gambling Commission introducing a less draconian form of engagement than commencing a licence review under section 116 of the 2005 Act. Please see our blog on 11 October 2022 on Special Measures for further commentary on the implications for licensees and whether a cautious welcome for the new process is justified.

Enforcement changes

Proposal 12. Right to issue further preliminary findings letter

Proposal: Policy to be updated to permit the Gambling Commission to issue a further consolidated preliminary findings letter in situations where the regulator is not in a position to proceed to determination after a licensee has made its representations on the Gambling Commission’s initial findings.

Respondents’ views: Although most respondents agreed with the proposal, some noted that:

1. there is potential for ambiguity of the interpretation of ‘flexible approach’ and the need to ensure procedural fairness;
2. a balance would need to be struck between sufficient investigation, obtaining and properly considering representations whilst also ensuring overall process is fair, transparent and managed within a reasonable timeframe; and
3. the revised approach should not unduly benefit the Gambling Commission at the expense of licensees.

Gambling Commission’s position: The original proposals were implemented as drafted. The Gambling Commission sought to alleviate respondents’ concerns by confirming that “it is not envisaged that this amendment would be utilised solely for the benefit of the Commission… …It is anticipated this would be used exceptionally, rather than routinely.”

Our view: This change in policy effectively allows the Gambling Commission two bites at the metaphorical cherry in terms of reaching preliminary findings. It has been by argued by some that this is unfair (including in our blog on 13 December 2021) and that the Gambling Commission should apply sufficient diligence in its initial investigation to prevent the need for a second consolidated set of preliminary findings except, possibly, in rare situations where significant new evidence has come to light. Now the amendment to the Policy has been made, we shall see whether this new tool will be used exceptionally (and fairly) – or become a more routine part of the Gambling Commission’s increasingly aggressive repertoire.

Proposal 13. Financial resource of group and UBOs considered for financial penalties

Proposal: Policy to be updated to permit the Gambling Commission to request information regarding the financial resources available to a licensee’s group companies and ultimate beneficial owners. The Policy further clarifies that in the absence of sufficient information, it will infer that the licensee has the resources to pay.

Respondents’ views: Some respondents noted that the amendments may stray beyond the legislative parameters under the 2005 Act. Others queried whether the calculation of fines should be standalone in reference to the breaches and evidence. There was a concern that the provision invites unfairness for larger gambling businesses who may suffer more than smaller companies.

Gambling Commission’s position: The original proposals were implemented as drafted. The Gambling Commission rejected arguments that the requirement expanded its regulatory remit claiming that “The Act stipulates that the Commission will have regard to the affordability of a proposed penalty. The Act is not prescriptive on the definition of financial resources but for a group structure where dividends and loans are available to move monies around the group it follows that a licensee has more financial resources available to it than a stand-alone company and should be assessed accordingly. In addition, consideration of the group finances removes the ability of the licensee to move monies available to fund a penalty out of reach during the investigation period.”

Our view: As discussed in our blog on 13 December 2021, we consider that the revised wording in the Policy goes significantly beyond section 121(7)(c) of the 2005 Act, which requires the Gambling Commission to take into account “the nature of the Licensee including in particular his financial resources” when calculating a financial penalty. The Gambling Commission has effectively interpreted the phrase “nature of” as including not only group companies but also piercing the corporate veil between the licensed companies and its shareholders. The explanation provided in the consultation response does not get close to providing a clear rationale for this seismic change from a group perspective and ignores it completely from a beneficial owner’s perspective. We expect future disputes (private and perhaps by more public means) if and when the Gambling Commission looks to rely on these provisions when determining financial penalties. Please get in touch if you would like any advice on dealing with the Gambling Commission.

Proposal 14. Regulatory Panel to consider challenges to licence suspensions

Proposal: Policy to be updated to clarify that challenges to interim suspensions of operating licences would be heard before the Regulatory Panel of Commissioners, who would list the matter for hearing as soon as reasonably practicable.

Respondents’ views: Although most respondents agreed with the proposal, some noted that:

1. the challenges of appealing a decision to officials when officials made the initial suspension decision;
2. the perceived lack of industry experience on the Commission’s Board;
3. the need to further clarify ‘as soon as reasonably practicable’, recognising time is of the essence; and
4. the Gambling Commission should be clear and provide information on what failings could lead to a suspension.

Gambling Commission’s position: The original proposals were implemented as drafted. The Gambling Commission attempted to address concerns regarding the independence and experience of the Regulatory Panel in its response by stating that “where such a decision is challenged it would be before different officials… …Commissioners are not employees of the Commission and afford a layer of separation from officials which will help act as a safeguard to test our decision making”. It did not address comments requesting further clarity on timing or the type of failings that could lead to suspension.

Our view: This change to the Policy enshrines the principle that a hearing relating to a licence suspension will be held as soon as reasonably practicable. This is, in principle, positive for licensees. Although it is not clear whether “reasonably practicable” means days, weeks, or months; uncertainty over licensed status is bad for business so getting before the Regulatory Panel quickly is a good thing. It is even more important when the Gambling Commission exercises its right, under section 145 of the 2005 Act, to disapply the rule that the licence suspension should be stayed while the licensee is given the opportunity to appeal the decision because it deems there is an important or emergency need to do so. In such cases, licences are suspended with immediate effect – causing catastrophic damage to player (and investor) confidence in the business.

Proposal 15. Regulatory settlements only considered at an early stage

Proposal: Policy to be updated to clarify that regulatory settlements would only be considered at an early stage in enforcement proceedings and that the Gambling Commission would not normally accept offers after the licensee had made representations on the Gambling Commission’s preliminary findings.

Respondents’ views: Although most respondents agreed with the proposal, some noted:

1. a need for greater transparency around calculation of penalties and/or settlement amounts, acceptance criteria and timescales for decisions;
2. the amendment being contrary to furtherance of gambling as a statutory objective;
3. it is not in the interests of fairness to preclude representations before a settlement offer;
4. settlements should be permitted at any time with mitigation being given to earlier settlements made and reflected in a discount; and
5. affording the licensee a chance to fully understand the Gambling Commission’s case and evidence before submitting a settlement offer, particularly if there has been a further preliminary findings letter issued.

Gambling Commission’s position: The original proposals were implemented as drafted. The Gambling Commission clarified that it “does not invite, nor negotiate settlements. If a licensee wishes to submit a settlement the Commission up until now has been duty bound to consider it, irrespective of the stage submitted however our view that settlement is a privilege and not a right remains”. The regulator goes on to clarify its new policy position only to consider settlements before representations are made. It further confirms that “if a further preliminary finding is issued by the Commission, the clock would be reset to the last preliminary findings”.

Our view: As noted in our blog on 13 December 2021, the representation stage in proceedings is without doubt, the most critical in putting forward a licensee’s case. By effectively bypassing this stage, the Gambling Commission is requiring a licensee to accept that it is right with all of its findings. This is particularly poignant given that the public statement that is released to announce the outcome of a settlement will invariably refer to “agreed failings” of the licensee. Going forward, a critical observer (and hopefully investor) will do well to query whether a public statement relating to a settlement with the Gambling Commission could have looked drastically different should representations by the licensee have been permitted. Please get in touch if you would like advice on making representations and/or reaching a settlement with the Gambling Commission.

The changes to the Licensing, Compliance and Enforcement Policy Statement took effect on 23 June 2022. Please get in touch with us if you would like assistance on any compliance or enforcement matters.

14Nov

Licensing, compliance and enforcement policy statement: Gambling Commission consultation response – the “under the radar” licensing changes you may not (yet) have noticed – Part 1

14th November 2022 Gemma Boore 210

On 23 June 2022, the Gambling Commission published the response to its November 2021 consultation (the “Consultation”) on its Licensing, Compliance and Enforcement Policy Statement (the “Policy”). The Consultation had sought views on several amendments to the Policy, as discussed in our previous blogs on this subject on 1 December 2021 and 13 December 2021.

The changes, which were wide-ranging and significant, were broadly grouped into three categories: licensing, compliance and enforcement.

The Gambling Commission received 66 responses to the Consultation from licensees, trade associations, members of the public, the charity and not-for-profit sector and “others”. Key examples of support for and objections to each proposal are detailed in the 34-page response document.

Despite (at least some) respondents raising what we consider to be well-founded concerns regarding the changes – which we discuss below – the Gambling Commission implemented its proposals almost invariably without amendment. As noted in our blog on the Gambling Commission’s partial introduction of its new customer interaction requirements; this “consult > issue response > implement as originally planned” cycle is now commonplace as we increasingly see the Gambling Commission revise its policies in line with its initial proposals, irrespective of consultation responses received.

In addition to deciding to implement without affording much regard to industry comments, the Gambling Commission announced, at the bottom of the response document, that the changes would take effect on 23 June 2022: the same day that the Consultation was published on the Gambling Commission website. Oddly, there was no associated notification published on the news section on the regulator’s website. Instead, this key update was published only as a new response (amongst many) on the consultation page of the Gambling Commission website and the Policy replaced swiftly thereafter, with the updated version dated June 2022.

This ‘under the radar’ approach to updating the Policy, which – as noted in our previous blog, is an important document that underpins every aspect of the licensing lifecycle – means that many licensees may not yet have noticed the changes.

The purpose of this blog is to bring to our readers’ attention the key amendments and provide insight into the implications that those changes have for those that hold gambling licences in Great Britain.

The Consultation Questions

The Consultation contained 15 proposals for specific changes to the Policy.

For each proposal, respondents were invited to indicate whether they ‘strongly agree’, ‘agree’, ‘neither agree or disagree’, ‘disagree’ or ‘strongly disagree’ to the amendment, and give reasons for their answer. Interestingly, the Gambling Commission noted in its response that “the majority of respondents” (i.e., >50%) agreed with all but one of the proposals (Proposal 10: Assessment framework being the only exception to this rule). It would be interesting to know how this was further split between the available five options.

Proposal 1. No dual regulation of financial products

Proposal: Policy to clarify that the Gambling Commission will not normally grant operating licences in respect of products that blur the lines between gambling and financial products.

Respondents’ views: Although most respondents agreed with the proposal, some noted that:

1. products could fall through a regulatory gap, with little or no consumer protection in place;
2. the approach would stifle innovation and economic growth; and
3. the approach amounted to a blanket ban on products of a certain type.

Other respondents queried whether refusing to license a gambling product due to its presentation was aligned with the Gambling Commission’s duty to permit gambling in so far as it is reasonably consistent with the pursuit of the licensing objectives.

Gambling Commission’s position: The original proposals were implemented as drafted. While the Gambling Commission acknowledged – but did not agree with – views that the approach may stifle innovation / growth and/or be inconsistent with its duty to permit gambling, it failed to comment on whether its position could result in products falling through a regulatory gap with little or no consumer protection in place. It also failed to comment on whether the approach would amount, in practice, to a ‘blanket ban’.

Our view: The Gambling Commission noted in its initial call for evidence that issues relating to the dual regulation of products may be better resolved via legislative change but that “this is unlikely to happen before the current Gambling Act Review is concluded”. The change to its policy position therefore seems to be little more than a stopgap: an interim solution to prevent further embarrassment (similar to that experienced in the wake of the BetIndex t/a Football Index scandal; see our 1 December 2021 blog for further commentary). Whether the White Paper will adequately address issues relating to the dual regulation of products is another question. In our view, this is a complex area and proper consideration of the advantages and disadvantages of permitting properly run and regulated versions of these products will be key to the debate. Although a blanket ban may be the easiest option, is it the best step overall?

Proposal 2. Right to reject incomplete licence applications

Proposal: Policy to reflect the Gambling Commission’s existing position to reject incomplete application forms with no refund of the application fee.

Respondents’ views: Although most respondents agreed with the proposal, some noted that:

1. application forms on the website are difficult to navigate or enter appropriate information;
2. the Policy or website should more clearly state what constitutes a complete application;
3. applicants should be able to engage with the licensing department prior to and during the application process; and
4. it is unreasonable for the Gambling Commission to retain the whole fee for rejected applications when the licence application process needs (considerable, in our view) improvement.

Gambling Commission’s position: The original proposals were implemented as drafted. However, the Gambling Commission acknowledged that information on its website / application forms could be improved and committed to take this forward in the new financial year. The Gambling Commission also clarified that where an application is considered incomplete, it will write to the applicant informing them of the information that is missing and give them 10 working days to provide it. The application will be rejected only if the information is not provided within that period. With regard to the suggestion that applicants should be able to engage with the licensing department prior to and during the licence application process, the Gambling Commission commented as follows:

“Suggestions that applicants should be able to engage with the Licensing team are noted. Engagement currently takes place through the application process however pre-application support is necessarily limited to general advice. The Commission is responsible for assessing and making decisions about applications and there would be a clear conflict of interest if we assist applicants by providing more detailed support and advice beyond the general advice. The Commission’s current fee structure supports our licensing, compliance and enforcement work but does not extend to pre-application services.”

Our view: As noted in our blog on 1 December 2021, the Gambling Commission’s position on rejection emphasises the critical importance of submitting full applications, whether they relate to new licences, variations of existing licences or changes of corporate control. The Gambling Commission often requests complex information in support of such applications including information relating to third parties – such as current or former beneficial owners and those providing funding to the business – that can prove difficult to provide within a 10 working day period. Although it is positive that the Gambling Commission is looking to improve the information and guidance available on its website so that the average applicant has better insight in terms of what is required, its efforts are yet to be seen given, at the time of writing, the Gambling Commission’s information requirements on its website differs from the application portal!

The skills and expertise of specialist gambling lawyers are key to ensuring the best chance of success and securing a licence as quickly as possible. Please get in touch if you would like assistance with any licence applications.

Proposal 3. Persons relevant to a licence application

Proposal: Policy to include further examples of persons relevant to an operating licence application: namely, shadow directors, persons or other entities who are controllers of the applicant and/or those that are its ultimate beneficial owners.

Respondents’ views: Although most respondents agreed with the proposal, others asked for further examples and guidance on who could be considered relevant persons, noting that the current examples gave the Gambling Commission significant discretion.

Gambling Commission’s position: The proposal was implemented using slightly different wording – see below. In response to comments that the wording gave the Gambling Commission significant discretion, it commented as follows: “The Gambling Act 2005 (the “ Act”) necessarily gives the Commission discretion as to who are considered relevant persons. It is an applicant’s responsibility to identify who might be relevant, bearing the Policy in mind, but the Commission will, on a case-by-case basis, identify and ask for information about who it considers may be relevant persons not identified by an applicant”.

Amended paragraph 3.10 (changes to proposal highlighted):

3.10 In considering operating licence applications the Commission will include assessment of the suitability of those persons considered relevant to the application. The persons considered relevant may vary depending on the information provided in the operating licence application and on company structure, but are likely to exercise a function in connection with, or to have an interest in, the licensed activities. It may also include shadow directors, persons or other entities who, whether or not likely to exercise such a function or have such an interest, are shadow directors, who are controllers of the applicant and/or those who are its ultimate beneficial owners. General guidance on who may be considered relevant is available on the Commission’s website and in regulations.

Our view: As noted in our blog on 1 December 2021, the Gambling Commission’s position on relevant persons highlights the importance of applicants and licensees ensuring their stakeholders – especially the owners of the business and those funding it – understand the relevant gambling law, regulatory and licensing requirements of being licensed in Great Britain, the Gambling Commission’s assessment process, and its wide discretion to request any information it considers relevant.

Proposal 4. Timescale for using a new licence

Proposal: Policy to clarify that the Gambling Commission will consider whether an applicant will use its / their licence within a reasonable period.

Respondents’ views: Although most respondents agreed with the proposal, some noted that:

the term ‘reasonable’ is subjective and should be clearly defined, for example 3 months;
the Gambling Commission should consider how long it may take a business to get certain things into place, for example banking arrangements;
the Gambling Commission should clarify whether this only applies to personal licence applicants who work for a company rather than act on a consultancy basis; and
personal licence holders may be between jobs that require a personal licence.

Proposal 4. Timescale for using a new licence

Proposal: Policy to clarify that the Gambling Commission will consider whether an applicant will use its / their licence within a reasonable period.

Respondents’ views: Although most respondents agreed with the proposal, some noted that:

the term ‘reasonable’ is subjective and should be clearly defined, for example 3 months;
the Gambling Commission should consider how long it may take a business to get certain things into place, for example banking arrangements;
the Gambling Commission should clarify whether this only applies to personal licence applicants who work for a company rather than act on a consultancy basis; and
personal licence holders may be between jobs that require a personal licence.

Gambling Commission’s position: The original proposals were implemented as drafted. The Gambling Commission rejected comments that a reasonable period should be defined because this would be considered on a per case basis. In respect of personal licence holders, the regulator maintained its position that personal licence applicants would be required to be employed in a role that requires a personal licence within a reasonable time.

Our view: Whilst it is unhelpful that the Gambling Commission has not defined the meaning of reasonable, in our view, the general expectation is that an operating licence is used within 6 to 12 months to demonstrate a genuine need for it, although this is not set out in the Policy and as the Gambling Commission notes it depends on each licensees’ circumstances. The consultation response suggests that the Gambling Commission may be moving away from granting personal licences to those providing consultancy services to gambling businesses, which would be welcomed news.

Proposal 5. Clarification on suitability criteria

Proposal: Policy to include further information on how the Gambling Commission assesses the suitability of an applicant to hold an operating licence.

Respondents’ views: Although most respondents agreed with the proposal, some noted that:

1. further examples and guidance are needed on who could be considered relevant persons and definitions of ‘shareholder’, ‘beneficial owner’ etc., and how suitability is assessed;
2. public companies do not choose their shareholders or who owns stock, suitability should focus on board and management team; and
3. the Gambling Commission should take a balanced and risk-based approach as some connected individuals may already be approved or regulated by another regulator.

Gambling Commission’s position: In the updated Policy, the Gambling Commission make what they refer to as a “minor amendment” – see below. With regard to requests that it take differing approaches with public (vs. private) companies and for any applicants / individuals that are regulated elsewhere, the Gambling Commission’s response was as follows: “It would not be appropriate to differentiate between public and private companies; the suitability criteria apply to all applicants although the Commission will take a risk-based and proportionate approach when applying the criteria. This includes whether individuals or entities are already approved by the Commission or another regulator.”

Amended paragraph 3.13 (changes to proposal highlighted):

3.13 When considering the suitability of an applicant the Commission will look beyond the applicant itself and may for example consider those connected with the applicant such as • persons relevant to an application by reason of their being likely to exercise a function in connection with; or likely to exercise such a function or have such an interest in the licensed activities;, • are shadow directors;, • persons or other entities who are controllers of the applicant;, and/or • ultimate beneficial owners. In respect of the applicant and others connected with the applicant the Commission has regard to the following elements and seeks evidence to support and enable an assessment to be made against each one:

- - Identity and ownership – This includes the applicant’s transparency in relation to the beneficial ownership of the applicant and those who finance and profit from its operation.
  - Finances – For operating licences this will include the resources likely to be available to carry out the licensed activities and the legitimacy of the source of the capital and revenue finance of the operation.
  - Integrity – Honesty and trustworthiness. Willingness to comply with regulatory responsibilities, uphold the licensing objectives and work cooperatively with the Commission.
  - Competence – Experience, expertise, qualifications, and history of the applicant and/or person(s) relevant to the application. Ability to comply with the regulatory responsibilities, uphold the licensing objectives and work cooperatively with the Commission
  - Criminality – criminal record of the applicant and/or person(s) relevant to the application.

Our view: The Gambling Commission’s unwillingness to tailor its information requirements when dealing with public (vs. private) companies will frustrate many, including us, as this is something we have lobbied on for many years. Publicly traded companies are subject to usual and regular trading on the public market and are generally regulated by both a securities regulator (such as the US Securities and Exchange Commission) and the national stock exchange (such as the New York Stock Exchange). By their very nature, their ownership is ever-changing and subject to market volatility meaning it can fluctuate daily or even hourly. In certain cases, applicants/licensees, or their ultimate parent companies, that are publicly traded, are simply unable to comply with the Gambling Commission’s information requirements, which are sometimes without gambling law, regulatory or licensing basis. We have significant experience dealing with such issues; please get in touch if you would like advice.

We also note that, while removing the bullet points in the first list in paragraph 3.13, the Gambling Commission has removed the reason why the applicant may be considered connected (i.e., by having an interest in the licensed activities). A typo or just lazy draftmanship? Unfortunately, this adds ambiguity to a section of the Policy which is already prone to wide interpretation.

Proposal 6. Requirement to provide evidence of source of funds

Proposal: Policy to confirm that the Gambling Commission will request evidence of the source of finance for a new gambling business at the application stage in order to satisfy itself the operation is not being financed by the proceeds of crime and that profits would not be used to fund criminal activity.

Respondents’ views: Although most respondents agreed with the proposal, some noted that:

1. it would be beneficial to include examples of documents that would satisfy evidence requirements;
2. use of word ‘tainted’ is pejorative;
3. there should be specific mention of terrorist financing and sanctions; and
4. the reference to the Gambling Commission being ‘fully satisfied’ may indicate that it is going beyond its scope in terms of acting reasonably and proportionately in line with legislation.

Gambling Commission’s position: In this instance, the Gambling Commission took comments regarding the phrase “tainted by illegality” into account and replaced it with wording more closely aligned with the first licensing objective – see below. The first paragraph of the proposal was implemented as originally drafted. The Gambling Commission was clear in its response that it does not intend to provide further examples of documents that satisfy its evidence requirements. It also reiterated its policy to take a “risk-based and proportionate approach, including in respect to the amount and detail of information an applicant is required to provide.”

Amended paragraph 3.28 (changes to proposal highlighted):

As stated above, the Commission will also wish to be satisfied as to the sources of the applicant’s finance to satisfy itself that such funds are not ~~tainted by illegality~~ associated with crime or disorder.

Our view: As noted in our blog on 1 December 2021, it has long been the Gambling Commission’s policy to request evidence from applicants to satisfy itself that the business will not be financed by the proceeds of crime or used to finance criminal activity. Such requests unfortunately, often meet resistance as stakeholders, particularly institutional ones, are reluctant to share information on funding structures and/or individual investors – so it has been unhelpful that until now, there has been little mention of the regulator’s requirements in its policy documents. We therefore welcome this change to the Policy as it at least now reflects the Gambling Commission’s practices and will therefore put potential licensees (and their stakeholders, to the extent they are adequately informed) on notice that the regulator will, in detail, query and request evidence relating to, the source of finance for the proposed business. Please get in touch if you have any questions regarding the financial evidence that needs to be provided to the Gambling Commission.

Proposal 7. Clarification that licensees have ongoing reporting obligations

Proposal: Policy to include examples of the types of matters that should be notified to the Gambling Commission from time to time including changes in ownership/control, regulatory returns and licence variations if a licensee is likely to exceed its fee category.

Respondents’ views: Although most respondents agreed with the proposal, some noted that:

1. further examples could be added, for example changes to corporate and/or governance structures, change of name and/or organisation, changes to ‘natural persons’ benefitting from the gambling operations, all key events etc.;
2. the Policy suggests the onus is on the applicant to self-police the correctness of the licence when the Commission is operating for this specific reason; and
3. content in new paragraph is already covered elsewhere, for example in the Licence Conditions and Codes of Practice (“LCCP”)so not needed here and there is no rationale to explain the inclusion.

There was also a suggestion that licences should have an expiry date and require review (at the applicant’s cost) on a periodic basis.

Gambling Commission’s position: The original proposals were implemented as drafted. The Gambling Commission rejected requests for further examples claiming that the inclusion of examples was not intended to provide an exhaustive list of all matters that the licensee should report. The regulator acknowledged however, that the examples cited were already set out in the LCCP and/or on its website but complained that “some licensees are not reporting these changes, submitting regulatory returns, or submitting variation and/or change of control applications in the required timescales. We remain of the view that the addition of some key examples highlights to licensees the importance of these matters and, by extension, the importance of reading and understanding their licence conditions thoroughly and putting in place mechanisms to comply”. The regulator further noted that licences do not have an expiry date and a change of this nature would require an amendment to the 2005 Act.

Our view: It is essential that licensees consult the LCCP to understand their reporting requirements, including what types of changes in ownership/control are reportable as key or other reportable events. We agree with the Gambling Commission that all too often, we hear stories of licensees notifying the regulator months or years after changes of corporate control have occurred and/or a licensed entity has exceeded its fee category. It is important that licensees have controls in place to monitor such activities and ensure compliance with requirements. This is critical if a change of corporate control may have occurred given the risk of revocation for non-compliance with section 102 of the 2005 Act. Please get in touch if you have any questions regarding reporting requirements to the Gambling Commission.

Proposal 8. Minor updates to reflect changes in internal policies

Proposal: Several minor updates to the Policy.

Respondents’ Views: Respondents made a number of comments in connection with these changes including the following requests:

1. that online guidance be made available as a complete document;
2. that the Gambling Commission further define company structure and give further details about whether this means within the licensed entity group or the full group structure; and
3. that the Gambling Commission’s expectations on revenue from other jurisdictions be made clearer.

Gambling Commission’s position: The Gambling Commission acknowledged comments that online guidance would be better placed in one downloadable document and confirmed that “this improvement will be explored in the new financial year, as part of continuous improvement, and taken forward as soon as practicably possible”. Requests for more clarification on company structure were however, refused on the basis that this is a policy document and company structures can vary enormously. There was no response to the request for revenue notification requirements to be made clearer.

Our view: We look forward to the day when online guidance can be downloaded into one downloadable document – but query how long this will take. As an aside, we also agree with the Gambling Commission’s observation that company structure can vary enormously. If you are in any doubt regarding disclosure requirements, please get in touch with us and at an early stage if you are submitting an operating licence application to the Gambling Commission.

The changes to the Licensing, Compliance and Enforcement Policy Statement took effect on 23 June 2022. Please get in touch with us if you would like assistance on any licensing matters.

10Nov

The Legal 500 Country Comparative Guide 2022 – Gambling Law

10th November 2022 Adam Russell 155

Partner Bahar Alaeddini acted as the contributing editor, and together with Associate Francesca Burnett-Hall jointly contributed the UK chapter, to The Legal 500: Gambling Law Comparative Guide (the “Guide”).

UK Chapter Download

The esteemed publication (which currently spans 16 jurisdictions) provides an overview of gambling law, regulatory and licensing requirements in the UK, including: key gambling legislation; types of gambling licences with the associated application procedures; prohibited gambling products; gambling advertising; marketing affiliates; penalties for unlawful gambling; Licence Conditions and Codes of Practice; relevant anti-money laundering requirements; responsible gambling requirements; shareholder reporting and approval thresholds; enforcement powers; and tax rates. A critical commentary on key trends affecting the gambling industry is also covered.

The Guide provides readers with the opportunity to compare jurisdiction here.

11Oct

Gambling Commission Special Measures: Trick? or Treat?

11th October 2022 Julian Harris 204

For better or worse, a number of licensees have now experienced the Gambling Commission’s special measures process. Although we remain of the view that much greater informal engagement by the Gambling Commission with individual licensees would be preferable and appropriate when compliance issues are identified, it was encouraging to note the Gambling Commission introducing a less draconian form of engagement than commencing a licence review under section 116 of the Gambling Act 2005 (“the Act”). We now examine those measures, the implications for licensees and whether a cautious welcome for the new process is justified.

The background

Following the completion of an operating licence review under the Act, the Gambling Commission have specifically granted powers to:

suspend or revoke an operating licence
attach an additional condition to an operating licence
give the holder of an operating licence a warning
require the holder of an operating licence to pay a financial penalty.

To that armoury the Gambling Commission have added certain lesser measures over the years since the Act came into force, including issuing advice as to conduct to licensees.

Whilst the Gambling Commission say in their Enforcement Report for 2020 to 2021 (the 2021 Report”) that these measures served a useful purpose, they did not always result in swift intervention and remediation.

To counter this, as part of its regulatory toolkit, from September 2020, the Gambling Commission piloted the use of special measures, “to bring operators to compliance at pace” following the identification of failings during a compliance assessment. The 2021 Report stated that the pilot scheme was used in relation to eight licensees.

In the 2021 Report, the Gambling Commission explain that the special measures process was introduced for “isolated situations” where the Gambling Commission had a high level of confidence that, for example the licensee had accepted its failings, as identified by the Gambling Commission and is committed to raising standards.

Of late, those situations have become less isolated and have become more common in their application to licensees where, whilst there have been infractions or failings, there has been no criminal spend, serious consumer harm, or systematic failure to comply.

The current position

The new special measures process formed part of the consultation for the revised Licensing, Compliance and Enforcement Policy Statement published on 23 June, 2022. The process is now embodied in and included as part of that revised official Gambling Commission policy without any changes from the pilot scheme previously being trialled.

The requirements

If considered appropriate by the Gambling Commission, the process of special measures is commenced following a compliance assessment in which serious failings are identified. The Gambling Commission explains in the 2021 Report that “special measures are appropriate where the licensee has reached the threshold for a section 116 review but determines a very high level of confidence that there is no, or limited, ongoing risk of consumer harm, with demonstration of early acceptance of failings and a clear, proactive commitment to swiftly remediating the failings.” In order to qualify for the special measures process, the licensee must meet the following requirements:

the licensee must acknowledge and accept the failings;
a formal action plan detailing improvements to be made must be submitted within five days; this plan should implement controls that immediately mitigate the risk of consumer harm; and
key persons must attend a formal meeting and explain why there are failings and what will be done immediately to mitigate the risk of consumer harm.

The process

The Gambling Commission will consider the submitted action plan and decide whether it appears acceptable. A further short extension may be given if some alterations are required (not more than two days) to enable agreement on the suggested revision. Thereafter, the licensee is required to adhere to the following requirements and timetable:

report weekly on the progress against the action plan and meet the deadlines proposed
complete the action plan within three months
pass a further compliance assessment after three months
calculate how much they have financially benefited from non-compliance and propose how they will divest themselves of this amount.

Cases which the Gambling Commission do not consider suitable for special measures will not enter this process and will be subject to the usual suite of regulatory action. Where there is evidence that consumers may be at significant risk of harm, the Gambling Commission will consider suspending licensable activity immediately and special measures will be deemed inappropriate.

If the licensee fails to agree an action plan, or fails to implement the agreed action plan, the Gambling Commission is likely to proceed to review the licence. Importantly, the Commission specifically state that “compliance with the action plan does not prevent the Commission from reviewing the licence in any event, but that such compliance will be treated as a mitigating factor”: this point is dealt with further below. Where the licensee has fully complied with the action plan, it may request release from Special Measures. The Gambling Commission will consider such a request following a further compliance assessment.

Treat?

The process of special measures deserves a cautious welcome, especially if the alternative is a full licence review, with all that entails for licensees: the cost, the length of the review, the management time involved, the potential for substantial financial penalties, warnings, public statements, as well as the ever-present threat of suspension or even loss of licence. Against that background, the alternative of special measures is an attractive one.

For licensees, a further advantage of the process is that the Gambling Commission cannot impose either a financial penalty or warning. However, they will usually expect a divestment proposal, which we address below.

From the Gambling Commission’s perspective, the process produces quick results in relation to perceived failures in compliance, particularly in relation to anti money laundering and safer gambling issues, specifically in securing the lowering of thresholds. The nature of the process means considerably less work for the Gambling Commission, but this applies also to licensees, many of whom have now been through the process.

It is well known that the Gambling Commission has concerns throughout the industry with the level of customer losses before customer interactions, affordability (often linked to AML) or EDD enquiries are undertaken. The special measures process is a much less formal one than a licence review and can be less antagonistic. It goes some way to answer the call from many independent advisers to the industry, including Harris Hagan, for greater opportunity for discussion between regulator and licensee to resolve issues, though, as we have said, there is more to be done in this regard.

In our experience, the meetings are relatively good spirited, with the Gambling Commission sticking mainly to the points raised in the findings letter following the compliance assessment, looking for broad insight into the failings identified, and seeking to understand what actions have been and or are being taken to address those concerns. Given that the licensee will have submitted an action plan by the time of the meeting, it can serve as a sensible agenda for discussion in the meeting.

Trick

Whilst special measures may not be a Trojan horse, neither are they a gift horse. Inevitably there are downsides and traps for the unwary. The special measures process is not in reality an attempt by the Gambling Commission to “trick” licensees. However, there are difficult decisions to be made during the process, for which careful judgement is required.

A licensee may refuse Special Measures; however, this would probably mean that the licensee, based on the identified failings, would be subjected to a review of its licence. As part of that review process, the Gambling Commission would want to understand why the licensee was unwilling to work to achieve compliance quickly. Such a refusal could be prejudicial to the outcome of the review, so a compelling explanation would need to be offered.

There is also potential risk associated with the necessary acceptance of alleged failings, as well as in the preparation of an action with remedial measures. Both may result in the licensee admitting more and promising more than it necessarily agrees with. There is no option to challenge alleged failings without the attendant risk of a licence review, where the Gambling Commission’s findings can be challenged in the licensee’s representations. Therefore, there is potential prejudice for the licensee’s position should a licence review follow.

As mentioned above, there is no power for the Gambling Commission to impose a financial penalty or warning as part of the process, but only where a licence review has been commenced; however, there is an expectation for divestment where there is a finding of potential harm to customers. Any proposal for divestment is therefore voluntary, but that proposal must be balanced against the risk of the Gambling Commission deciding to commence a review.

The Gambling Commission will not only expect a quantum assessment, but also a report setting out how that quantum has been reached. It is important that this report is carefully considered as (1) it needs to be realistic and justifiable (2) it needs to meet the Gambling Commission’s expectations, (3) with an eye on the risk of regulatory action, licensees will not want to acknowledge and divest for failings beyond those with which they agree, and (4) it is important that any divestment is no more than strictly necessary. This is because, in the event of a future licence review, this could result in a financial penalty and an attendant risk of having to pay twice for the same failings.

There is no formal methodology for calculating any proposed divestment. Identifying an appropriate figure is best achieved through judgement and experience, combined with an analysis of the findings identified. Here lies the conundrum: start too low and the figure may be interpreted by the Gambling Commission as not demonstrating sufficient insight into alleged failings and/or that it may aggravate the Gambling Commission. Go too high and the point at (4) above may apply.

Formulating the correct approach therefore requires careful thought; it will vary according to the circumstances and to the nature and extent of the Gambling Commission’s findings: identifying an appropriate figure is best achieved through judgement and experience, combined with an analysis of the findings identified.

It should also be remembered that special measures can be an interim process: it is not a fixed alternative to a licence review, which remains an option available to the Gambling Commission. It may follow up both in relation to proposed actions and divestment. Most frequently, the greatest difficulty often is satisfying the Gambling Commission as to the level of thresholds in operation, or in relation to proposed divestment in relation to certain customers.

But the greatest risk is that a licensee fails to meet the Gambling Commission’s expectations at the three-month revisit and assessment. This inevitably risks the threat of suspension and/or the commencement of a licence review.

Licensees should be aware that in the event of an unsuccessful special measures process, with a subsequent licence review, the Gambling Commission may seek to introduce failings identified on the first assessment. It is therefore important that in carrying out this exercise, a licensee does not provide the Gambling Commission with the opportunity to point to comments or admissions made during the special measures process in any subsequent review process.

Final word

In conclusion, our view is that perhaps two cheers, rather than three, are raised for special measures; the new process is often effective both for the regulator and for the licensee. However, the licensee should always bear in mind that a licence review may follow, and act accordingly. Great care needs to be taken from the very beginning. Our advice to licensees is therefore to seek legal advice as soon as notification of special measures is received from the Gambling Commission.

03Oct

Changes to the way Licensing works at the Commission

3rd October 2022 Chris Biggs 190

On 27 June 2022, the Gambling Commission announced that it was changing the way that licensing applications are processed and determined to “make the best use of resources”. In doing so, the Gambling Commission stated it hoped “to be able to solve queries more efficiently and effectively”, which we would welcome given the longstanding and frustrating delays on applications, particularly changes of corporate control.

What are the changes?

As many of our readers will be aware, previously operating licensees were appointed dedicated account managers who were the first point of call for any enquiries or applications. This model has been gradually phased out and, in its place, Licensing has restructured into four sub-groups:

The Operating Licence New Group

Responsible for processing applications for new operating licences.

The Change of Corporate Control Group

Responsible for processing applications relating to changes of ownership and control for existing licensees.

The Operating Licence Vary Group

Responsible for processing applications relating to changes to existing operating licences.

The Personal Licence Group

Responsible for processing all applications relating to personal licences.

Licensing process

Where an online service exists for applications, such as those listed on the Gambling Commission’s website, this process has not changed.

Where applications cannot be submitted online, they must be submitted via email to [email protected].

Shortly after submission, the allocated caseworker should email the application contact and provide an estimated timeline for the process.

If applicants wish to query their application, and do not have caseworker, they must contact [email protected].

General enquiries should be submitted via an online form and the Gambling Commission “aim to respond…within 20 days” – it is not clear whether that is calendar or working days.

Recent experience

Despite its encouraging intention, given the significant licensing backlog, the reality is that so far we have experienced no noticeable improvement, particularly on change of corporate control applications. Also, and more worryingly, we continue to identify inconsistencies in the approach across Licensing, which is something we are able to do because of the breadth of our experience preparing and submitting all types of licensing applications to the Gambling Commission.

We act for a wide variety of B2C and B2B businesses, including start-ups, throughout the world extensively preparing, submitting and managing non-remote and remote operating licence applications to the Gambling Commission. We have unmatched licensing experience and provide every client with a bespoke service tailored to their needs and business. We provide our clients with extensive resources, reference guides and templates to help navigate the application process, streamline and accelerate their preparation of the application and ensure clients understand, at an early stage, the Gambling Commission’s requirements.

Please get in touch with us if you require assistance with any licensing applications.

26Sep

The Gambling Commission’s Checklist for Licensees on Good Practice Complaints Handling

26th September 2022 Adam Russell 193

Following a review of licensee complaints policies which contained “a number of areas for improvement”, the Gambling Commission published advice and good practice tips for operators on 21 July 2022. This blog serves to summarily remind licensees of existing rules and guidance enclosed in the Gambling Commission’s update.

Player complaints: relevant themes

Research from the Gambling Commission found that 8% of players have made a complaint in the past, with an additional 4% reporting their wish to complain but failure to do so. These statistics are supplemented by qualitative data which suggests that some players refrain from pursuing complaints procedures because it is often considered a “tedious process”, with some licensees appearing “purposefully difficult to reach”.

However, it is important that players can locate policies and “raise their complaints without any barriers” to “improve outcomes” for both them and operators.

Although mentioned in the detailed leaks in July 2022, it remains to be seen whether a gambling ombudsman scheme will be introduced, as part of the Gambling Act Review, to adjudicate gambling complaints.

Checklist for good practice complaints handling

In light of this, the Gambling Commission issued the following checklist for good practice complaints handling:

ensure your complaints process is clear and short;
include clickable and appropriately functioning links, including a link to the complaints procedure on your homepage;
avoid jargon/legalese and use plain English instead;
inform players what information is required to investigate their complaint;
include details of the 8-week time limit for either resolving the complaint or issuing a final response;
clearly indicate whether a final decision or ‘deadlock’ has been reached;
utilise technology (such as webforms and decision trees) to help guide consumers through the complaints process, but always provide alternative contact methods;
ensure that your complaints procedure is accessible for all, including vulnerable people, with adjustments readily made where required;
maintain a virtual paper trail;
utilise consumer support tools, such as Resolver; and
provide clear signposting to ADR providers.

The overarching theme is that licensees should design their complaints procedures in a transparent, clear and accessible manner.

Next steps

We strongly encourage licensees to review their complaints procedures against the Gambling Commission’s checklist on good practice for complaints handling, making them as simple as possible, and ensuring policies are implemented.

Please get in touch with us if you require assistance in developing appropriate internal policies and/or updating your complaints procedure in line with the Gambling Commission’s checklist.

21Sep

New remote customer interaction requirements take effect…in part

21st September 2022 David Whyte 190

On 12 September 2022, the Gambling Commission’s new Social Responsibility Code Provision (“SRCP”) 3.4.3, partly came into effect. For now, however, the Customer interaction guidance – for remote gambling licensees (Formal guidance under SR Code 3.4.3 (the “Guidance”) will not take effect.

Background

In its update of 2 September 2022, the Gambling Commission states that the delay in the implementation of parts of SRCP 3.4.3, and the Guidance, takes into account a request from the industry for “an extension to the timeframe for implementing these new measures”. Further, it “considers it would be beneficial to use the time now available to conduct further consultation on matters to be addressed in the guidance associated with SR Code 3.4.3 by way of a consultation on the guidance document itself”: something which, as we pointed out in July, it should have done in the first place.

The Gambling Commission describes the Guidance as a “living document which is intended to be amended over time”: we have previously set out our concerns about the Gambling Commission’s introduction or amendment, without consultation, of guidance that has the effect of a licence condition. The Gambling Commission states it is “particularly interested to hear about good practice in implementing the requirements, based on the lessons learned by operators during the period between April and September and to hear about any implications arising out of recent research, evidence and casework”. A cynic may suggest that its focus on good practice implementation is indicative that, following the consultation, any revised guidance issued is likely to be very similar to the Guidance, irrespective of any consultation responses submitted: a cycle that has become commonplace in recent times.

The Gambling Commission states that the consultation is “set to be launched during late September and will last six weeks” (rather than the usual 12). Its provisional intention is to “publish the guidance on requirements in December 2022 with it taking effect approximately 2 months after publication”. Whether it meets that deadline remains to be seen.

We strongly encourage all licensees to respond to the Consultation when it is launched.

The Guidance – delay and confusion

The Gambling Commission’s decision, at this late stage, to delay implementation of parts of SRCP 3.4.3 and consult on the Guidance is surprising, as is the fact that pending its consultation it will not require that remote licensees take into account any guidance whatsoever. It seems to us that the latter of these issues has largely been influenced by two factors. Firstly, the fact that the previous Customer interaction: formal guidance for remote gambling operators (the “Previous Guidance”) was issued under the old SRCP 3.4.1, which is also now no longer in effect. Secondly, the Gambling Commission is unable to amend the new SRCP 3.4.3 and require that licensees adhere to the Previous Guidance without further consultation.

This last-minute change creates a lacuna that will last until at least February 2023, which will confuse some remote licensees and infuriate others. Remote licensees are left in the unenviable position of being without any customer interaction guidance whatsoever at a time when, by its recent admission, the Gambling Commission’s “focus on customer interaction has been there for some time now and will certainly be continuing over the coming months”. There must surely also be a risk that consumers could be negatively impacted due to this lack of clarity.

The Guidance – fairness and reasonableness

It has been a requirement that remote licensees “take into account the Commission’s guidance on customer interaction” since 31 October 2019. As any licensee who has been subject to a compliance assessment or regulatory action will attest, in practice the Gambling Commission interprets “take into account” as “strictly adhere to”. This is clear not only from the actions of the Gambling Commission, but also from the affirmative language, such as “must” and “required”, that is contained in guidance it has issued in relation to customer interaction. The Previous Guidance has therefore, at least to some extent, had the effect of a licence condition.

Various regulatory sanctions have been imposed, or regulatory settlements agreed that can be linked, at least in part, to remote licensees’ failure to take into account the Previous Guidance. Those licensees may, rightly, feel aggrieved that a combination of convenient timing and poor regulatory governance, means that they were exposed to such sanctions when, contrastingly, their peers, who may be subjected to compliance assessments or regulatory action now, are no longer obliged to adhere to similar standards. Whether those licensees choose to challenge this unfairness remains to be seen and may depend on the Gambling Commission’s action during this hiatus.

Non-remote licensees remain subject to the requirement, by virtue of SRCP 3.4.1, to “take into account the Commission’s guidance on customer interaction”. This guidance, Customer interaction: formal guidance for premises-based operators (the “Non-remote Guidance”), sets out very similar requirements to the Previous Guidance. This difference in required standards is likely to aggravate non-remote operators, particularly if the Gambling Commission continues to take action against them based on a failure to take into account the Non-remote Guidance. They will also likely be concerned that their already diminishing pool of customers will continue to migrate to the remote sector, which, at least in the short term, is held to a lower standard or can justify non-compliance more easily.

We question whether the Gambling Commission has given adequate thought to the possible impact of this last-minute U-turn and the consequential risk of challenge:

What will the position be for those licensees currently subject to regulatory action for failing to adhere to the Previous Guidance, or for those subjected to a compliance assessment in a period that straddles the change? What standards will they be held to?

Will the Gambling Commission now expect licensees to adhere only to the literal wording of SRCP 3.4.3, ignoring not only the delayed Guidance but also the Previous Guidance?

What are the current affordability requirements? Those requirements, in particular the requirement to consider ONS data and national average salaries when assessing affordability, were set out in the Previous Guidance and repeated in the Guidance. On what basis does the Gambling Commission propose to hold remote licensees who fail to meet those standards to account during this period?

The Gambling Commission has almost certainly opened a can of worms through this seemingly haphazard change. Licensees, consumers, stakeholders, and Government are all likely to have varying concerns. Whilst it is pleasing to see that the Gambling Commission has identified the risks linked to bringing all the requirements under SRCP 3.4.3 and the Guidance into effect without consultation, these issues could have been avoided if the Gambling Commission had given earlier credence to comments made by licensees, or industry stakeholders and advisors. The lateness of this change is embarrassing and the consequential complexities that now follow should be carefully navigated or the Gambling Commission may be exposed to challenge.

Next steps and SRCP 3.4.3

It is the Gambling Commission’s intention, subject to consultation, to introduce the remaining requirements of SR Code 3.4.3 and the associated guidance on 12 February 2023.

In the meantime, we encourage remote licensees to ensure that their policies, processes, and procedures comply with the existing requirements.

To assist licensees, we set out below SCRP 3.4.3 with deletions for those requirements not brought into effect on 12 September 2022.

Customer interaction 

All remote licences, except any remote lottery licence the holder of which does not provide facilities for participation in instant win or high frequency lotteries1, remote gaming machine technical, gambling software, host, ancillary remote bingo, ancillary remote casino, ancillary remote betting, remote betting intermediary (trading rooms only) and remote general betting limited licences.

Licensees must implement effective customer interaction systems and processes in a way which minimises the risk of customers experiencing harms associated with gambling. These systems and processes must embed the three elements of customer interaction – identify, act and evaluate – and which reflect that customer interaction is an ongoing process ~~as explained in the Commission’s guidance (see paragraph 2)~~.
~~Licensees must take into account the Commission’s guidance on customer interaction for remote operators as published and revised from time to time (‘the Guidance’).~~ 
Licensees must consider the factors that might make a customer more vulnerable to experiencing gambling harms and implement systems and processes to take appropriate and timely action where indicators of vulnerability are identified. Licensees must take account of the Commission’s approach to vulnerability as set out in the Commission’s Guidance.
Licensees must have in place effective systems and processes to monitor customer activity to identify harm or potential harm associated with gambling, from the point when an account is opened. 
Licensees must use a range of indicators relevant to their customer and the nature of the gambling facilities provided in order to identify harm or potential harm associated with gambling. These must include: 
- customer spend
- patterns of spend
- time spent gambling
- gambling behaviour indicators 
- customer-led contact 
- use of gambling management tools
- account indicators.
In accordance with SR Code Provision 1.1.2, licensees are responsible for ensuring compliance with the requirements. In particular, if the licensee contracts with third party business-to-business providers to offer any aspect of the licensee’s business related to the licensed activities, the licensee is responsible for ensuring that systems and processes are in place to monitor the activity on the account for each of the indicators in paragraph 5 (a-g) and in a timely way as set out in paragraphs 7 and 8.
A licensee’s systems and processes for customer interaction must flag indicators of risk of harm in a timely manner for manual intervention, and feed into automated processes as required by paragraph 11. 
Licensees must take appropriate action in a timely manner when they have identified the risk of harm. 
Licensees must tailor the type of action they take based on the number and level of indicators of harm exhibited. This must include, but not be limited to, systems and processes which deliver:
- tailored action at lower levels of indicators of harm which seeks to minimise future harm
- increasing action where earlier stages have not had the impact required
- strong or stronger action as the immediate next step in cases where that is appropriate, rather than increasing action gradually
- reducing or preventing marketing or the take-up of new bonus offers where appropriate
- ending the business relationship where necessary. 
~~Licensees must prevent marketing and the take up of new bonus offers where strong indicators of harm, as defined within the licensee’s processes, have been identified.~~
Licensees must ensure that strong indicators of harm, as defined within the licensee’s processes, are acted on in a timely manner by implementing automated processes. Where such automated processes are applied, the licensee must manually review their operation in each individual customer’s case and the licensee must allow the customer the opportunity to contest any automated decision which affects them.
Licensees must implement processes to understand the impact of individual interactions and actions on a customer’s behaviour, the continued risk of harm and therefore whether and, if so, what further action is needed.  
Licensees must take all reasonable steps to evaluate the effectiveness of their overall approach, for example by trialling and measuring impact, and be able to demonstrate to the Commission the outcomes of their evaluation.
Licensees must take account of problem gambling rates for the relevant gambling activity as published by the Commission, in order to check whether the number of customer interactions is, at a minimum, in line with this level. For the avoidance of doubt, this provision is not intended to mandate the outcome of those customer interactions.

18Jul

Customer interaction guidance for remote gambling licensees (formal guidance under SR Code 3.4.3)

18th July 2022 David Whyte 196

Following its announcement, in April 2022, of the introduction of a new Social Responsibility Code Provision (“SRCP”) 3.4.3 that comes into effect on 12 September 2022, the Gambling Commission (the “Commission”) published its customer interaction guidance – for remote gambling businesses (formal guidance under SR Code 3.4.3) (the “2022 Guidance”) on 20 June 2022, which comes into effect at the same time as SRCP 3.4.3. To date the Commission has made no reference to the revision of its guidance for premises-based businesses and therefore those licensees remain in the dark about any changes that may be introduced in the future.

However, the Commission’s reference to “ew consumer protection guidance” in the press release for the 2022 Guidance demonstrates further its self-driven evolution into a consumer protection body and, given that the requirements set out in SRCP 3.4.3 require action across licensees’ entire customer base, the Commission’s reference to “new rules on action for at risk customers” in the release for the new SRCP is a further indication that the Commission considers all gamblers to be “at risk”. It is therefore likely that revisions to the requirements for premises-based licensees will follow. As we know from the affordability issue, whether formal inclusion of these licensees occurs or not, the Commission is not averse to applying guidance to the entire industry. As we have explained before, the Commission’s approach is difficult to reconcile with the licensing objectives set out in section 1 of the Gambling Act 2005 (the “2005 Act”) and in the Commission’s statutory obligations under section 22 of the Act:

“(a) to pursue, and wherever appropriate to have regard to, the licensing objectives, and

(b) to permit gambling, in so far as thinks it reasonably consistent with pursuit of the licensing objectives”

The Commission is not charged with protecting all consumers, however admirable that may be; it could be the purpose of an ombudsman if appointed as part of the changes to gambling legislation. It was certainly not the intention of Parliament when passing the 2005 Act that the third licensing objective – “protecting children and other vulnerable persons from being harmed or exploited by gambling” apply to all customers who, at some point in time, may be “at risk”.

The 2022 Guidance, which we recommend licensees review in detail, reveals an apparent ignorance on the Commission’s part of various concerns that have been raised in the past about its approach, thereby exposing it to the risk of challenge. This article does not attempt a detailed critique of the entire 2022 Guidance; rather we have sought to identify the most salient points which we believe may have the greatest impact on licensees, or where we believe the Commission’s approach is misconceived.

Section A – General requirements

Paragraphs 1 and 2 – Formal guidance?

The Commission maintains its previous approach in paragraphs 1 and 2 of SRCP 3.4.3, requiring licensees to “embed the three elements of customer interaction – identify, act and evaluate”. Its replacement of the previous requirement to “interact” with a requirement to “act to minimise harm” illustrates its expectation that licensees do more than simply engage with customers and that tailored, proactive steps are taken to minimise the risk of harm.

The 2022 Guidance is more prescriptive than the existing guidance documents that the Commission has issued in relation to customer interaction, and it is certainly less outcome focussed. It requires licensees to undertake specific measures, for example that “licenses must understand that there are many reasons a person may be in a vulnerable situation” or that “licensees must identify customers that may be at risk of harm using all of the information available about the customer.” The use of words such as “must” and “required” have no place in guidance: they are the language of statute, conditions and codes of practice. We will leave for now the bigger issue that this prescription undermines the entire premise of the 2005 Act, which introduced a principles and risk-based system, as opposed to the prescriptive regime of the Gaming Act 1968 which it replaced.

It is of note that paragraph 2 requires that licensees “take into account the Commission’s guidance on customer interaction … as published and revised from time to time…” and that the Commission makes similar reference in the 2022 Guidance, stating that “for the purposes of raising standards, protecting customer interests, and preventing harm to customers, will update and re-issue guidance.” It is intriguing how the Commission considers that future updates to guidance “intended to support compliance with LCCP SR code 3.4.3” can raise standards or prevent harm. Unless, that is, the Commission intends to use the “formal” 2022 Guidance to implement “formal” requirements.

For a number of reasons, the Commission’s attempt to make a silk purse out of a sow’s ear is evident from the questionable foundations upon which the evolved 2022 Guidance is based. Firstly, and somewhat unsurprisingly, the Commission continues to ignore previous concerns raised, not least by us, about its use of guidance: guidance that enables the Commission to outline its expectations to licensees to assist their understanding of licence conditions or codes of practice is sensible. However, the Commission continues to introduce formal requirements through its use of guidance and without consultation, which is wrong. The Commission’s powers are controlled by statute and are therefore the preserve of Parliament. The 2005 Act requires that the Commission must consult before specifying a licence condition (section 76) and before issuing or revising a code of practice (section 24). Guidance must therefore be easily distinguished from a licence condition or code of practice (including those that carry the weight of a licence conditions such as SRCP 3.4.3) and should not prescribe additional requirements.

The distinction is not more apparent than real. Aside from the fact that it exceeds the Commission’s powers to introduce a licence condition or code of practice without consultation, by using guidance which should only be explanatory rather than mandatory, the distinction has very different consequences. Breach of a licence condition or code of practice carrying the weight of a licence condition is a criminal offence and allows the Commission to prosecute or resort to its full armoury of penalties through licence review. By contrast, licensees must “take into account” guidance and therefore not following it should not be an automatic breach. It is therefore wrong, and confusing, for the Commission to include specific requirements in the 2022 Guidance, particularly when it has very recently consulted on the introduction of SRCP 3.4.3 and has thus had the opportunity formally to introduce whatever further formal requirements it wished at that time. Reference to “formal” guidance in the title of the 2022 Guidance is indicative that it knew what it was doing.

Secondly, if the Commission is willing and able to circumvent statutory controls now, and not for the first time (it introduced its Covid-19 guidance very quickly and not alongside a change to the SRCP or consultation), it is likely to do so again. This leaves licensees and other stakeholders exposed to the risk of further change without fair notice or the ability to challenge.

Thirdly, whilst it may seem somewhat hypocritical to challenge now this prescription when licensees have been desperate for clarity for many years, a more thorough analysis of the 2022 Guidance reveals that, despite it being more prescriptive, it is unlikely to provide licensees with the clarity that they desire and will certainly lead to a continuance of the ‘flexible interpretation’ experienced by licensees during compliance assessments and subsequent regulatory investigations. One might argue that, like licensees, the Commission has also struggled to identify what specific controls and thresholds will adequately identify who might be at risk of harm and balance those controls against the freedom of choice.

It seems that in recent times, guidance, formal guidance and licence conditions have become one and the same thing in the belief of the Commission, the only difference being that the former two contain requirements that the Commission have found inconvenient.

Section B: Identify

Paragraph 3 – Transforming vulnerability

Paragraph 3 requires that “Licensees must consider the factors that might make a customer more vulnerable to experiencing gambling harms and implement systems and processes to take appropriate and timely action where indicators of vulnerability are identified. Licensees must take account of the Commission’s approach to vulnerability as set out in the Commission’s Guidance.” Prior to the publication of the 2022 Guidance, the wording of paragraph 3 indicated that the Commission may have taken a step back from its intention, set out in its consultation, to require that licensees “take account of its definition of vulnerability”. However, it is clear in the 2022 Guidance that this is not the case: the requirement remains but it is drafted more subtly. The Commission sets out in “Aim 3” (which reads as more of an obligation than an aim – a theme that runs throughout the 2022 Guidance) that “ require operators to take action when they are aware that a customer is in a vulnerable situation”, and sets out its own definition of a vulnerable person as

“somebody who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care”.

The Commission requires (amongst other things) that “licensees must understand that there are many reasons a person may be in a vulnerable situation…” explaining that a vulnerable situation “can be permanent, temporary or intermittent, and may be related to health, capability, resilience, or the impact of a life event such as a bereavement or loss of income”.

In recent years the transformation of what the Commission considers to be “vulnerability” is bewildering. Parliament clearly considered the interpretation of vulnerability a straightforward matter: it did not find it necessary to include a statutory definition in the 2005 Act. This is understandable: as we have discussed previously, the reference in the third licensing objective firstly to children, and then to other vulnerable persons, adequately set out Parliament’s intention that the licensing objective apply to those people who are not able to make properly informed or ‘adult’ decisions.

Most worrying, however, is that vulnerability as now defined, is to be determined by whether a “firm”, which we understand to mean a licensed operator, is “acting with appropriate levels of care”. Given that the decision about whether a licensee has acted with “appropriate levels of care” rests with the Commission, it seems that vulnerability will be determined subjectively by the Commission, in hindsight, most likely during compliance assessments, and based primarily on a licensee’s actions and controls in relation to each individual customer. In referring to those “appropriate levels of care” the Commission also suggests incorrectly that licensees have a duty of care at law to prevent customers from gambling if they are or might be vulnerable and risks improperly seeking to introduce such a duty in law, or at least exposing licensees to such a challenge based on its definition.

Matters are likely to become further complicated when the Commission launches its further consultation on the ways to tackle what it considers to be three key financial risks for consumers: binge gambling, significant unaffordable losses over time, and risks for those who are financially vulnerable (the “Financial Risks Consultation”). Licensees who are hoping that this consultation will provide clarity about affordability expectations may be disappointed and faced with a further definition to consider, this time of “financial vulnerability”. Based on its current approach, the Commission is likely to permit itself a similar level of hindsight, the focus of its decisions being on action taken and controls implemented.

The Commission apparently considers itself lawmaker on a par with Parliament: it will determine who is and who is not vulnerable, and will further amend its definition without consultation, whenever it sees fit.

Paragraphs 4 and 5 – Affordability?

Paragraphs 4 and 5 require licensees to “have in place effective systems and processes for monitoring customer activity” and set out a range of indicators which must be operated by licensees. The 2022 Guidance expands on these requirements, making it clear that the Commission expects a mix of automated and manual processes and that systems should “draw on all available sources of data”.

The 2022 Guidance does nothing to clarify the uncertainty about affordability, with the Commission’s position largely replicating the previous guidance. In setting out examples of indicators which should be used by licensees (some of which have now been made requirements) the Commission refers to “mounts spent compared with other customers, taking account of financial vulnerability”. It is of note that in its reference to the Financial Risks Consultation, the Commission indicates that further “guidance” will follow. Again, given that the Commission has considered it necessary to define “vulnerability”, this is an indication that a further definition for “financial vulnerability” seems likely.

Section C – Act

Paragraphs 8, 9, and 11 – An absence of prescription or guidance?

These paragraphs require that licensees take “appropriate action in a timely manner when they have identified a risk of harm” and that this action is tailored “based on the number and level of indicators of harm exhibited.” The 2022 Guidance obliges licensees to have a suite of actions in place ranging from “early generic action” to “very strong” action (this essentially amounting to ending the business relationship). The Commission does not, however, specify which indicators of harm it considers lower level and which it considers strong. Rather, strong indicators must be “defined within the licensees’ processes”. Prescription, when most likely to be helpful, is absent. The resulting inevitability of inconsistent standards and expectations being applied during compliance assessments will further frustrate licensees.

The requirement not only to “implement automated processes”, but also when those automated processes are applied to “manually review their operation in each individual customer’s case” is burdensome, impracticable, counterproductive and undermines the benefits of automation. The limited guidance – in its true sense – in relation to this requirement and the lack of clarity about when any manual review must take place, is indicative that the Commission has not considered fully how it is “consistent with data protection requirements”.

Section D – Evaluate

Paragraphs 12, 13 and 14 – Impact?

Evaluating the impact of each customer interaction is no easy task. As licensees have already experienced, it doubles the operational impact, with additional and equivalent resource required to follow up on the original interaction. The Commission fairly points out in the 2022 Guidance that “not every customer who receives an interaction will require a follow up” however it overlooks the fact that not every interaction will require evaluation. The Commission states that “by impact we mean a change in the customer’s gambling activity which could be attributed to the interaction”. The implication here is that if the customer’s gambling activity does not change for the better (i.e stop or reduce), they are suffering, or continue to be at risk of suffering harm. This cannot be correct. Some customers will, for various reasons, simply continue to gamble at previous levels, or may even increase their spend, particularly if they are winning (as is commonplace when most people gamble). This is certainly not always an indicator of harm. This lack of clarity will mean that licensees will continue to feel obligated to ensure that on every occasion they interact with a customer they see a change in behaviour, and where this is not the case will feel bound to take further action whether or not any such action is wanted by a customer or thought necessary to prevent harm.

The requirement that licensees evaluate the effectiveness of their overall approach maintains the current requirements, however the Commission sets out in more detail its expectations. The new obligation to “take account of problem gambling rates for the relevant activity published by the Commission in order to check whether the number of customer interactions is, at a minimum, in line with this level” is something of a step away from the tailored approach of other requirements in SRCP 3.4.3 and the 2022 Guidance. To avoid criticism, licensees will need to be acutely aware of any updated publication of problem gambling rates by the Commission, however questionable that data may be, and ensure that this is reflected in their approach.

Conclusion

Whatever the Commission’s intention, and however strongly it feels that licensees are not going far enough to protect consumers, it is vitally important that it acts within its statutory remit. Not for the first time, the 2022 Guidance reveals a willingness on the Commission’s part to act beyond its powers, this time under the guise of the new SRCP and its intention to introduce “stronger and more prescriptive” rules. The Commission’s willingness to continually use guidance as a means of introducing formal requirements through the back door is concerning and it may only be a matter of time before it faces challenge. In the meantime, licensees should ensure that they take steps to ensure that they are able to adhere to both the SRCP and the 2022 Guidance to mitigate the risk of regulatory action.

With thanks to Julian Harris for his invaluable co-authorship.

Responsible Gambling