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. 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 [was] satisfied that [it had] 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. 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. 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. 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. 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. 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 [to] the Commission up until now [it] 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.