22Apr

The Affordability Debate (2): Ambiguous Regulatory Requirements

22nd April 2021 David Whyte 248

Following the closure of the Gambling Commission’s (the “Commission”) consultation Remote customer interaction – Consultation and Call for Evidence (the “Consultation”), on 9 February 2021, which yielded some 13,000 responses, we are now in the midst of an ‘affordability debate’. However, this debate is largely focused on the future, to the detriment of the present. At a time when licensees are proactively striving to improve their standards and prioritising their approach to safer gambling, it is apparent that licensees are unsure as to precisely what they need to do to remain compliant with present Commission affordability requirements, what those requirements are, and where they are specified.

Tim Miller, in his speech at the CMS Conference in March 2021, stated that “the process of giving detailed consideration to all the evidence is still ongoing with extensive further work and engagement likely to be needed.” Mr Miller went on to state that “clarifying existing rules will be our immediate priority in any next steps.” What Mr Miller does not say, however, is when that will be and what is going to happen in the interim.

A cynic may say that this lack of clarity operates to the benefit of the Commission in its pursuit of its affordability objectives as outlined in the Consultation. Two consequences are clear. Firstly, there are signs that the Commission is subjecting licensees to a series of requirements, none of which are clearly set out in licence conditions, codes of practice, or formal guidance issued by the Commission under its statutory remit.

Secondly, licensees concerned to ensure that they adhere to the Commission’s expectations are likely to interpret the limited formal guidance on affordability cautiously; many in our experience even taking into account the Consultation itself. This can only be to the advancement of the Commission’s affordability objectives. We will deal in a later article with the impact of this precipitate action by the Commission on the Consultation and the Gambling Review.

Current position

Despite what some licensees may have experienced when engaging with the Commission, the measures proposed in the Consultation are not in force. The Commission’s present requirements are instead spread across its last two annual enforcement reports and one formal guidance document, in addition to its published regulatory sanctions and/or settlements.

The Commission takes the view that its enforcement reports serve as indicators to licensees of its expectations, for which licensees can be held to account; these reports therefore arguably contain policy positions that, if enforced, are more akin to licence conditions or code provisions. We have discussed previously our concerns that the Commission may be making indirect changes to licence conditions and/or code provisions through its introduction of requirements to adhere to guidance and this is perhaps another, somewhat broader, example of the same.

We do not agree that the enforcement reports carry the weight of formal guidance. It is clear from the content of the licence conditions and codes of practice (“LCCP”) that in cases where the Commission expects licensees to adhere to formal guidance, it says so. Social Responsibility Code Provisions 2.1 (anti-money laundering – casino) and 3.4 (customer interaction) are examples of the Commission explicitly requiring licensees to adhere to, or take into account, specific formal guidance, the latter requiring that licensees take into account the Commission’s formal guidance on customer interaction. Nowhere in the LCCP is there any reference to the enforcement reports carrying such weight: the closest the Commission comes to this is in licence condition 12.1.1 (3) which, solely in relation to licensees’ obligation to ensure they have appropriate policies, procedures and controls to prevent money laundering and terrorist financing, requires that they:

“… take into account any applicable learning or guidelines published by the Gambling Commission from time to time.”

Putting aside the breadth by which this statement may be interpreted, it is clear that this obligation relates to anti-money laundering and not directly to safer gambling or affordability. This appears to be the cause for ambiguity in this area; an evolution of affordability from its apparent origins as a money laundering concern – historically some licensees’ customers having been identified as having gambled with criminal spend – to it now being central to the Commission’s expectations from a safer gambling perspective.

This is further evident from a consideration of the Commission’s introduction to its section on affordability in Raising Standards for Consumers – Enforcement report 2018-19 (the “Enforcement Report 2019”) where it states:

“Some of these individuals have funded their gambling activity through the misappropriation of monies from businesses, the taking out of unaffordable loans and misappropriating the funds from vulnerable people.”

The obligation, as outlined in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, that licensees who hold casino operating licences obtain evidence of source of funds and source of wealth on a risk-based approach in order to mitigate money laundering risks will of course extend to their consideration of affordability. However, this should be as a risk factor that may, when subjectively assessed, increase the risk of money laundering and the financing of terrorism and trigger further enquiries. It is not at present a requirement at a certain level of spend.

When affordability is considered solely from a safer gambling perspective, a formal requirement to obtain evidence of affordability is impossible to identify and the Commission’s expectations are ambiguous at best, even more so given our contention that the enforcement reports may not operate as formal guidance on this matter. How then, is it reasonable for the Commission to hold licensees to account for failings in this area?

1. Enforcement Report 2019

The Enforcement Report 2019 outlines various open-source data sources that may help licensees to “assess affordability for its GB customer base and improve its risk assessment and customer interventions.” This data focusses largely on Office of National Statistics (ONS) and YouGov data highlighting average annual salary and monthly personal disposable income. The report goes on to state that:

“The above disposable income data identified clear benchmarks that should drive Social Responsibility (SR) triggers which will help to identify gambling-related harm by considering affordability.”
“Benchmark triggers should be a starting point for engaging with customers and are not intended to definitively demonstrate a customer is suffering from gambling related harm – but they can help identify instances when an operator needs to understand more about a customer, their play and affordability.”
“If an operator is going to set specific triggers for a customer base not representative of the general public, various documents sources should be relied upon, but they must contain sufficient information to substantiate the trigger level set.
In conclusion, we would recommend that operators revisit their framework on triggers and consider their customer base and their disposable income levels as a starting point for deciding benchmark triggers.”

It is of note that there is no recommendation in the Enforcement Report 2019 that licensees should obtain evidence of affordability from customers whose losses reach national average incomes. As we have discussed above, this requirement, it seems, comes from the Commission’s interpretation of money laundering legislation and certain licensees’ obligations to obtain, on a risk-based approach, evidence of source of funds and source of wealth. Rather, the Enforcement Report 2019 focusses on disposable income data being used to set “benchmark triggers” as a starting point for engagement.

2. Customer interaction – formal guidance for remote/premises based gambling operators – July 2019 (the “CI Guidance”)

When describing the Commission’s expectations as to how licensees must identify customers who may be at risk of experiencing harms associated with gambling, the CI Guidance refers to affordability and states:

“Operators should aim to identify those experiencing or at risk of harm and intervene to try to reduce harm at the earliest opportunity. Reliance on deposit or loss thresholds that are set too high will result in failing to detect some customers who may be experiencing significant harms associated with their gambling. It is therefore imperative that threshold levels are set appropriately.

Open source data exists which can help operators assess affordability for their GB customer base and improve their risk assessment for customer interactions. Thresholds should be realistic, based on average available income for your customers. This should include Office of National Statistics publications on levels of household income.”

Again, as with the Enforcement Report 2019, there is no suggestion in the CI Guidance that licensees should be obtaining evidence of affordability from customers whose losses reach national averages, rather it suggests that affordability is a factor that should be considered when developing customer interaction policies and aiming to identify customers who may be experiencing or at risk of experiencing harm. There is a significant difference between “ to try to reduce harm at the earliest opportunity” and requiring customers to produce extensive evidence to justify their level of spend when they reach a threshold.

3. Raising standards for consumers – Compliance and Enforcement report 2019-20 (the “Enforcement Report 2020”)

The Enforcement Report 2020 was published three days after the Consultation – a decision that will not have helped licensees to understand what is, and what is not, required. In referring to the recommendations it made in the Enforcement Report 2019, and considering customers who have “demonstrated gambling related harm indicators and been able to continue to gamble without effective engagement”, the Commission states:

“Furthermore, these individuals have funded their gambling without satisfactory affordability checks and appropriate evidence being obtained.”

The Enforcement Report 2020 goes on to outline various open source data sources that can help licensees to “assess affordability for GB customers and improve risk assessment and customer inventions”. Again, the data presented primarily focusses on average annual salary as outlined in the ONS survey of Hours and Earnings. The Commission goes on to state that:

“Open source information is an important element of an affordability framework because it is a parameter to consider when setting benchmark triggers that will drive early engagement with customers.”
“We are concerned licensees are creating complex and convoluted matrices and mappings within their affordability framework to place customers into trigger groups well over the gross earnings stated above, before disposable income is factored in. Of more concern, these trigger groups are set without any sort of customer interaction to influence their true affordability determination.”
“Operators must interact with customers early on to set adequate, informed affordability triggers to protect customers from gambling related harm. Failure to do so could render the operator non-compliant.”
“Customers wishing to spend more than the national average should be asked to provide information to support a higher affordability trigger such as three months’ payslips, P60s, tax returns or bank statements which will both inform the affordability level the customer may believe appropriate with objective evidence whilst enabling the licensee to have better insight into the source of those funds and whether they are legitimate or not.”

Importantly, outside of the Consultation, this is the first occasion on which the Commission makes any reference to licensees requiring customers to provide information or evidence in relation to affordability. This time, suggesting evidence is required only when customers wish to “spend more than the national average”. The obvious question here, and a conundrum which we know licensees have been struggling with, is “to what national average does the Commission refer?”

There is a significant difference between the national average salary (stated as c£30,500) and average weekly gross earnings (stated as c£585.00). Should customers be evidencing affordability for losses exceeding £585 per week, or for losses exceeding £30,000 per year; or is there another average that is relevant?

What is expected now?

In his Speech at the CMS Conference in March 2021, Tim Miller suggested in that he did not expect the Commission to be announcing its plans on affordability imminently. Mr Miller also stated:

“…in our casework and compliance activity we continue to see example after example of operators who have allowed people to gamble amounts that are clearly unaffordable with very limited or no customer interaction until a very late stage. Just to be clear, we are not talking about grey areas here. We are talking about clearly unaffordable levels of gambling.”

Some of the handpicked examples in the enforcement reports demonstrate what almost all would agree are, without evidence of affordability, “clearly unacceptable levels of gambling”, for example a customer losing £187,000 in two days with no regular source of income. However, other examples of which we are aware are not so straightforward and are certainly not at, on any reasonable interpretation, “clearly unacceptable levels”. This is, in practice, most certainly a grey area. The consequence is that licensees who have prioritised safer gambling and, due to their misunderstanding of the Commission’s expectations, are at best criticised, or at worst subjected to regulatory action, because of a failure to meet those expectations in relation to affordability.

Since the publication of the Consultation, we have heard of licensees being criticised during compliance assessments for failing to obtain evidence of affordability from customers who have exhibited no clear signs of problem gambling, are at a low risk of harm, have never raised any concerns themselves, and who have informed licensees that they are comfortable with their gambling spend. This is not to say that licensees should not adhere to the CI Guidance and conduct customer interactions with these customers when and if they reach internally identified thresholds. It is also not to say that licensees should not take affordability into account and discuss the same with customers; but when are they required to evidence affordability?

Ambiguity inevitably leads to inconsistencies. Can “benchmark triggers” or “trigger groups” roll over and/or reset monthly/annually or are they expected to be final? Spend of say £60,000 presents very differently when it has taken place at a consistent rate over 10 years. The same applies to losses of £5,000 in a 3–6-month period when there are no other reasons for concern; yet examples such as these are being raised as concerns by the Commission. These customers are not spending “above the national average”, whatever average to which the Commission means to refer in the Enforcement Report 2020, and therefore it is at least reasonable for licensees, to decide at their discretion that there is no need to require evidence of affordability in these cases.

Licensees’ use of open-source data is also criticised for being inadequate, even in cases where this data more than adequately mitigates risk by demonstrating income at or above the national average, despite reference in the Enforcement Report 2020 to the same being “an important element of an affordability framework”.

The result of this ambiguity is that in our experience Commission activity demonstrates a much lower tolerated threshold than the CI Guidance and enforcement reports suggest; a threshold more aligned with the Consultation. In the current climate, this not only exposes licensees to unreasonable criticism from the Commission, but also places those licensees who are unlucky enough to undergo a compliance assessment at a time of such uncertainty, at a commercial disadvantage; a diligent response to criticism being to reduce thresholds and require evidence of affordability sooner, even if this is neither deemed necessary nor yet a formal requirement. One may question whether the Commission has overlooked its statutory obligation to “permit gambling, in so far as thinks it reasonably consistent with the pursuit of the licensing objectives”.

The impact

It is no secret that licensees are frustrated and confused, and understandably so. Discretion has given way to prudence; licensees are in the unenviable position of having to second guess what the Commission really expects and compliance assessments are becoming one-sided affairs where, in the main, Commission employees attend with an almost preconceived view as to what is and is not acceptable application of discretion. Nobody is perfect and, due to ambiguity, it is easy enough to call into question individual cases. This is not to say, however, that the vulnerable are not being protected. A very large proportion of the customers whose accounts are reviewed by the Commission never have and never will identify as problem gamblers; they are simply spending their money as they wish, even if at a level that Commission considers inappropriate.

Of course, the regulatory framework permits licensees to challenge the Commission’s findings. The reality, however, is that few choose to do so. Commercial realities, protracted Commission investigations, publicity considerations, cost and perhaps shareholder influence, result in most licensees entering into regulatory settlements with the Commission or accepting its findings. This is often their decision whatever the merits of their case. It would not be unreasonable to suggest that a general consensus amongst licensees is that the ultimate sanction will likely be the same anyway, particularly given the ambiguous guidance, so why incur further costs and prolong the inevitable?

Rather than regulate an industry that operates in fear: not the fear of deserved punishment, but fear of a being chosen and inevitably sanctioned for failing to do something it did not fully understand, the Commission would be better placed regulating an industry that is clear on what is expected of it. The present regulatory expectations in relation to affordability are grey and unclear. The Commission has acknowledged as much by consulting on prescriptive requirements. That Consultation now appears stymied, and it is incumbent upon the Commission to back up Tim Miller’s positive acknowledgement that “clarifying existing rules will be immediate priority” and act with urgency to clarify the existing requirements against which it is enforcing. The Commission had no reservation in moving quickly to issue additional formal guidance for remote operators during the Covid-19 outbreak last year, albeit without consultation, so it is capable of acting in haste.

Better understanding will raise standards and could easily be achieved through clarity in guidance. Informal engagement and discussion with the industry, and even possibly training (both internally and externally) controlled, prepared or delivered by the Commission would also be of benefit. How better to put effectively to use some of the £30 million paid in financial penalties and regulatory settlements in the past 12 months? In the meantime, what is absolutely not acceptable is for the Commission to wield its powers through compliance assessments to impose affordability requirements upon licensees which it has so far failed to implement through statutory consultation.

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

31Mar

Gambling Commission Consultation Response on Online Slots Game Design and Reverse Withdrawals

31st March 2021 Lucy Paterson 467

In July 2020, we blogged about the Gambling Commission’s consultation on online slots game design and reverse withdrawals, which proposed several changes aimed at reducing gambling-related harm caused by online slots games by reducing the intensity of slots play. The consultation proposed amending the Gambling Commission’s Remote gambling and software technical standards (“RTS”) to introduce new controls on online slots and to remove operators’ ability to reverse customer withdrawal requests.

The consultation closed on 3 September 2020, and on 2 February 2021 the Gambling Commission published its consultation response, announcing the new measures to be introduced in the updated RTS. The new provisions, which come into force on 31 October 2021, are clearly marked in red within the updated RTS, which are now available online.

Neil McArthur, now former Chief Executive of the Gambling Commission, said:

“This is another important step in making gambling safer and where the evidence shows that there are other opportunities to do that, we are determined to take them.”

The Gambling Commission, as expected, has proceeded with almost all of the proposed changes set out in the consultation document. We set out below the changes to the RTS and the Gambling Commission’s rationale for their introduction.

Display of elapsed time and net position

Expenditure and time spent gambling have been identified as the most relevant data points in minimising the risk of gambling related harm for consumers. From 31 October 2021, licensees providing slots will be required to permanently display consumers’ net position and time spent during slots gaming sessions on the screen. For the purposes of this new RTS, a “gaming session” begins when the game is opened or once play commences.

Display of elapsed time:

RTS requirement 13C

The elapsed time should be displayed for the duration of the gaming session.

RTS implementation guidance 13C

Time displayed should begin either when the game is opened or once play commences
Elapsed time should be displayed in seconds, minutes and hours

In relation to display of net position:

RTS requirement 2E:

All gaming sessions must clearly display the net position, in the currency of their account or product (e.g. pounds sterling, dollar, Euro) since the session started.

RTS implementation guidance 2E:

Net position is defined as the total of all winnings minus the sum of all losses since the start of the session.

Prohibiting auto-play functionality for online slots

The Gambling Commission’s proposal to prohibit auto-play functionality received low rates of support from all consultation respondent categories. Concerns raised ranged from the evidential basis for banning auto-play, to suggestions that auto-play could be used as a way to control gambling expenditure, and that removing it may negatively affect access to play for those with disabilities or other physical conditions. Given the views expressed, the Gambling Commission carried out further research (set out in Annex 2 of its consultation response), which, it states, supported its concerns regarding the potential intensity impact of auto-play. In our view, the Gambling Commission’s further research was very limited in scope. The sample size, which the Gambling Commission considered to be a “sizeable base”, was a mere 190 adults (from 358 online slots players) who had indicated they had used auto-play.

The Gambling Commission is therefore introducing a new RTS provision which will prohibit auto-play for slots from 31 October 2021.

RTS requirement 8C:

The gambling system must require a customer to commit to each game cycle individually. Providing auto-play for slots is not permitted.

Prohibiting reverse withdrawals

Reverse withdrawals allow customers to change their mind about withdrawing funds from their account by cancelling a withdrawal before the transfer to their bank or wallet is completed. In its guidance to remote operators issued on 12 May 2020 in the height of the Covid-19 pandemic, the Gambling Commission advised that remote operators should “prevent reverse withdrawal options for customers until further notice”. The changes to the RTS mean that this temporary ban on reverse withdrawals will be permanent from 31 October 2020. Importantly, the prohibition on reverse withdrawals will apply to all remote operators, and not just remote operators offering slots games.

RTS requirement 14B:

Consumers must not be given the option to cancel their withdrawal request.

RTS implementation guidance 14B:

a. Once a customer has made a request to withdraw funds, they should not be given the option to deposit using these funds. Operators should make the process to withdraw funds as frictionless as possible.

Prohibiting multiple slot games

The Gambling Commission consulted on this proposal due to concerns regarding the introduction of functionality deliberately designed to encourage play on multiple slots simultaneously via a split screen. The new RTS requirement will prohibit operator-led functionality specifically designed to facilitate such play, but will not go as far as proposed in the consultation in requiring licensees to ensure that customers can only play one slot game at a time across multiple tabs, browsers, applications or devices, on the basis that this would be very complex to implement (though the Gambling Commission is continuing to explore this as part of its Single Customer View project).

RTS requirement 14C:

The gambling system must prevent multiple slots games from being played by a single account at the same time.

RTS implementation guidance 14C:

a. Operators are not permitted to offer functionality designed to allow players to play multiple slots at the same time. This includes, but is not limited to, split screen or multi-screen functionality.

b. Combining multiple slots titles in a way which facilitates simultaneous play is not permitted.

Introducing speed of play limits

The Gambling Commission is introducing a minimum game cycle of 2.5 seconds for online slots. The new provision also applies to any game played with funds made available to a customer in lieu of a stake, such as bonus funds.

RTS requirement 14D:

It must be a minimum of 2.5 seconds from the time a game is started until a player can commence the next game cycle. It must always be necessary to release and then depress the ‘start button’ or take equivalent action to commence a game cycle.

RTS implementation guidance 14D:

a. A game cycle starts when a player depresses the ‘start button’ or takes equivalent action to initiate the game and ends when all money or money’s worth staked or won during the game has been either lost or delivered to, or made available for collection by the player and the start button or equivalent becomes available to initiate the next game.

b. A game cycle starts when a player depresses the ‘start button’ or takes equivalent action to initiate the game and ends when all money or money’s worth staked or won during the game has been either lost or delivered to, or made available for collection by the player and the start button or equivalent becomes available to initiate the next game.

Prohibiting player-led ‘spin stop’ features

The Gambling Commission is introducing the proposed requirement to prohibit features that speed up play or give the illusion of control such as turbo mode, quick spin and slam stop. Features that allow customers to skip the animation that plays after the result is communicated are still permissible, as are “genuine” choice elements of play such as picking which box to open, or the number of steps to progress in a feature and/or bonus round.

RTS requirement 14E:

The gambling system must not permit a customer to reduce the time until the result is presented.

RTS implementation guidance 14E:

a. Features such as turbo, quick spin, slam stop are not permitted. This is not intended to be an exhaustive list but to illustrate the types of features the requirement is referring to.

b. This applies to all remote slots, regardless of game cycle speed.

c. This requirement does not apply to bonus/feature games where an additional stake is not wagered.

Prohibiting effects that give the illusion of “false wins”

The Gambling Commission’s consultation set out its concerns about the fairness of celebratory effects and the psychological impact that this could have by inducing a “hot state” in a customer, and proposed prohibiting such effects where the return is less than or equal to the amount staked. Despite concerns from many licensees that this would require redesign, redevelopment, internal and independent testing, the new RTS provisions will prohibit such effects in the circumstances set out in the consultation.

RTS requirement 14F:

The gambling system must not celebrate a return which is less than or equal to the total amount staked.

RTS implementation guidance 14F:

a. By ‘celebrate’ we mean the use of auditory or visual effects that are associated with a win are not permitted for returns which are less than or equal to last total amount staked.

b. The following items provide guidelines for reasonable steps to inform the customer of the result of their game cycle:

Display of total amount awarded.

Winning lines displayed for a short period of time that will be considered sufficient to inform the customer of the result. This implementation should not override any of the display requirements (as set out in RTS 7E).

Brief sound to indicate the result of the game and transfer to player balance. The sound should be distinguishable to that utilised with a win above total stake.

The suite of measures set out above must be implemented by licensees by 31 October 2020, although members of the Betting and Gaming Council (“BGC”), or supplying BGC members, will find that implementing the BGC’s Code of Conduct, they are one step ahead and will already have introduced some of the Gambling Commission’s new measures, including slowing down spin speeds and banning certain gaming features such as turbo play and multi-slot play.

Importantly, those licensees required to implement the new measures should bear in mind that they must satisfy themselves that they are offering games that are compliant. Where they are not sure, any existing game will require independent retesting by a Gambling Commission-approved testing house. Given that demand on external testing houses is likely to be high as licensees surge to implement the new measures, we would urge that licensees review their games now with a view to ensuring that testing is complete and games are updated in time for 31 October 2021 deadline.

If you would like any advice on implementing the Gambling Commission’s new RTS, please get in touch with us.

15Mar

DCMS consults on significant increases to Gambling Commission fees

15th March 2021 Francesca Burnett-Hall 244

The Department for Digital, Culture, Media and Sport (“DCMS”) has launched a consultation which proposes significant increases to Gambling Commission fees, which will affect existing licensees and new applicants. The fee hikes are based on recommendations made by the Gambling Commission to Government, and are intended to fund its costs and increase its resources to respond to emerging risks and technologies. It follows considerable concerns about the funding of the Gambling Commission raised in February 2020, by the National Audit Office, in June 2020, by the House of Commons Public Accounts Committee, and in July 2020, by the House of Lords Select Committee on the Social and Economic Impact of the Gambling Industry.

It is worth noting that the Government Call for Evidence, published on 8 December 2020, includes review of the Gambling Commission’s power and resources. To heed off any criticism that the proposed fee increase is premature, the consultation states “the proposals are aimed at ensuring the Gambling Commission is able to meet ongoing challenges while the Review progresses.” It, therefore, does not close the door on further increases!

“Key challenges”

The Gambling Commission identified the following “key challenges” in regulation which are expected to grow in significance in coming years and are used as justification for the proposed increased fees:

Challenge 1: Increased technological developments, including product and payment innovation, requiring:

more specialist staff, including a Chief Product Officer, to understand and translate the impact of technological changes, and other staff with technical and investigative expertise;
investment in tools to improve the Gambling Commission’s approach to compliance; and
development of the Gambling Commission’s approach to making better use of the wealth of data available to it.

Challenge 2: Changes in the size and shape of the market, particularly consolidation by mergers and acquisitions, and globalisation, requiring:

more staff to drive the international regulatory agenda and work with international regulatory partners and agencies;
specialist staff to interrogate and understand complex corporate structures; and
increased legal capacity to defend positions.

Challenge 3: Increasing risks associated with unlicensed operators to protect consumers and the industry from “black market” encroachment, requiring:

more staff to identify, proactively and systematically, the scale of illegal gambling; and
more resources to tackle illegal gambling more robustly, including increased legal capacity for prosecutions.

The inclusion of Challenge 3 is perhaps most surprising given that the Gambling Commission has, for some time, maintained the view that the impact of the black market has been “exaggerated”.

The Gambling Commission acknowledges its proposed responses to these key challenges “are not fixed and will need to evolve over time”.

Annex One of the consultation includes the Gambling Commission’s detailed assessment of these key challenges.

Current funding

The Gambling Commission’s funding comes from its fee income (from application and annual fees), and in recent years, it has been drawing on its reserves which are now running low and will not be able to sustain its operations in the future.

In 2020-2021 the Gambling Commission’s budgeted income was £20.4 million and the latest figures suggest that its actual income will be approximately £700k less due to the impact of Covid-19. Its operating budget is £21.39 million, broken down as follows:

43%	Operational
24%	Policy
12%	Partnerships
11%	Licensing
10%	Gathering Information

Without increased fees, the Gambling Commission expects to see a difference between its income and expenditure of approximately £3 million per year by 2023-24. This is without any additional investment in new work to deal with the challenges set out above which it estimates will cost between £2m and £3m per annum.

Proposed changes

Proposed changes from October 2021:

60% increase to all application fees (both remote and non-remote licences) regardless of the licence type or fee category;
55% increase to annual fees for all remote operating licences (except for lottery and gaming machine technical licences) and all gambling software licences (both remote and non-remote);
the removal of existing 5% discounts on annual fees for combined or multiple licences (both remote and non-remote);
100% increase to the “flat” additional annual fee paid by licensees who hold operating licences authorising multiple RNG-based activities (including “host” licensees);
additional fee bands for society lotteries (remote and non-remote) and external lottery manager licences, increasing annual fees by at least 15%; and
15% increase to annual fees for all gaming machine technical licences

Non-remote annual fees will also be increased, but not until April 2022, as the Gambling Commission and Government appreciate the overwhelming impact Covid-19 has had on the land-based gambling industry, requiring non-remote operators to have been closed for almost all of the last year. When the annual fee increase comes into effect for non-remote licensees, it will be an increase of just 15%, as the Gambling Commission has identified that it is remote B2C operators, gambling software licensees and host licensees which are driving the increased regulatory burden and are responsible for the bulk of the Gambling Commission’s workload and costs.

Application to vary and change of corporate control fees remain unchanged; however, as these fees are usually calculated based on a percentage of a standard licence fee (with the exception of flat-rate fees in specific circumstances), the knock-on effect of the above-mentioned proposed changes will mean that these fees will also significantly increase.

Annex Two of the consultation sets out the proposed new fees for each licence type and fee category.

Consultation questions

There are only five questions that DCMS request feedback on:

1: Do you agree that annual fees should be increased in line with the proposals set out here, in order to enable the Commission to meet the challenges it has identified?

2: Do you agree with the proposals to increase the additional flat fees for licences that combine remote casino, bingo and/or virtual event betting (RNG licences), and the flat fees for those that combine host licences?

3: Do you agree with the proposals to remove the 5% annual fee (and first annual fee) discounts for other types of combined licence, and the 5% annual fee discount where both non-remote and remote licences are held?

4: Do you agree with the proposals to introduce additional fee categories for society lotteries and ELMs that generate (or manage) greater than £10m proceeds per annum?

5: Do you agree with the proposal to increase application fees to better reflect the costs involved in processing applications?

Next steps

We strongly recommend:

Any new operating licence application is submitted urgently (if you are ready!) for two reasons. Firstly, to pay lower application fees. Secondly, if your new licence is granted before October 2021 – which may be tight depending on where you are in the process – to pay lower annual fees.

Existing licensees review their fee categories to ensure they are in the correct fee category before their next annual fee is payable.

The fees consultation closes on 26 March 2021 and we urge you to respond, as one thing is certain: soon you will be paying a lot more for your licence.

You can respond to the consultation by emailing [email protected] copied to [email protected]

09Mar

Changes of Corporate Control: The Basics

9th March 2021 Bahar Alaeddini 269

In our experience, there is often confusion regarding change of corporate control (“CoCC”) requirements and, in particular, what events trigger a CoCC. CoCCs are easy to miss in complex corporate structures. Further, often “the left hand does not talk to the right hand” and the relevant individuals within the business, such as the PMLs or Compliance Department, who are fully aware of the licensing implications, are not notified of an event that triggers a CoCC until after the event or, worse, after the deadline has passed.

In this blog we summarise the basics of CoCCs. This will be supplemented by further blogs on the Gambling Commission’s areas of focus and common pitfalls we have identified in our work on numerous CoCC applications.

We strongly recommend you always seek legal advice, if in any doubt, given the risk to your licence(s), as highlighted below.

What is a CoCC?

Under section 102 of the Gambling Act 2005, a CoCC takes place when a new person or other legal entity becomes a new “controller” of the licensee. The definition of a controller stems from section 422 of the Financial Services and Markets Act 2000 (“FSMA”), which is financial services legislation. This is a complex provision, which even the Gambling Commission summarises incorrectly on its website and in its application forms.

Broadly speaking, section 422 of FSMA covers a person or entity that holds:

10% of more of the shares in the licensee or in a parent company of the licensee (i.e. directly or indirectly);
10% of more of the voting power in the licensee or in a parent company of the licensee; or
less than 10%, but able to exercise significant influence over the management of the licensee.

When considering whether a person or entity holds 10%, it is critical to consider:

whether the threshold has been reached as filtered by the corporate layers (i.e. directly or indirectly in the licensee);
cumulative interests; and
equity interests and voting rights separately if they are not aligned at any point in the corporate structure.

5-week deadline

Section 102(5) of the Gambling Act 2005 requires a licensee to submit a CoCC application to the Gambling Commission when there is a new controller within 5 weeks of the change occurring, for the licence(s) to continue to have effect. This is a statutory deadline.

Why is it important?

Pursuant to section 102(5), the Gambling Commission has the power to revoke the licence(s) – without a licence review – if a CoCC application, along with the application fee, has not been submitted within 5 weeks.

In our experience, the Gambling Commission has become increasingly stricter with CoCC application deadlines and we would strongly recommend you comply with the statutory deadline. The Gambling Commission is no longer generous in giving extensions, sometimes with extension requests being refused, so their goodwill cannot be relied upon. Further, in our recent experience, the Gambling Commission no longer overlooks failures to apply in time, often issuing “advice as to conduct” for the failure to comply with section 102.

Given the potential ramifications, it is essential that someone, with detailed knowledge of the Gambling Commission’s licensing requirements, is monitoring changes in corporate structure promptly and liaising with your stakeholders, as required. You need to develop effective internal procedures, relative to the size and complexity of your business, to ensure that equity and voting interests are regularly monitored.

Please get in touch with us if you believe you have failed to comply with the statutory deadline or require assistance preparing a CoCC application.

02Feb

The Affordability Debate: Protection, Responsibility and the Right to Choose

2nd February 2021 Julian Harris 283

That affordability checks are a critical issue for the British gambling industry is undeniable; they place a yet further onerous burden on an already stretched gambling industry. However, without fear of exaggeration, they also raise a question about the rights of British adults to make their own free choices, both good and bad and to have responsibility for their own actions. Other industry commentators have written at length on this controversial issue, but its importance is such that it bears further examination, not least as to the way in which this line of regulation is developing.

Where’s the evidence?

In its Consultation and call for evidence – Remote customer interaction requirements (the “Consultation”), the Gambling Commission identify the problem leading to the consultation and proposed new measures as being that some operators have inadequate customer interaction processes and triggers which are set too high, as evidenced by research, casework and “lived experience” evidence. They conclude that the resolution of this will be defined affordability assessments at thresholds set by the Gambling Commission.

Ultimately, the Gambling Commission seeks to reform the way that operators are required to identify customers who may be at risk of gambling harms, by imposing mandatory triggers for activity that should flag such customers to the operator, what action must be taken by operators when such triggers are identified, and how operators must ensure that they evaluate the effectiveness of their approach to interacting with customers. A new customer interaction ‘manual’ is proposed as part of the customer interaction reforms, which will explain the new requirements of the Licence Conditions and Codes of Practice and how operators are expected to meet these requirements. This would replace the current guidance, Customer interaction – formal guidance for remote gambling operators (July 2019). The actual spending limits on which the Gambling Commission will settle, remain to be determined following the Consultation. However, the references in the Raising standards for consumers – Compliance and enforcement report 2019-20 (the “Enforcement Report”) and the Consultation suggest very low figures indeed before intervention is mandated and evidence required: the Gambling Commission have referred to “firm requirements”.

We are concerned that the Gambling Commission is not adopting a risk based and proportionate approach, combined with the fact that the evidential basis for this Consultation includes research in which customers admit to having sometimes lost more than they can afford, rather than their gambling being unaffordable. Have not we all sometimes had more to drink than is good for us, without being harmed by alcohol any more than we choose to be? Further, the Gambling Commission cite the Enforcement Report, as evidence in support of these measures, when in fact the Enforcement Report deals with “clearly unaffordable’ gambling, whilst the proposed affordability constraints go far beyond customers losing tens of thousands, extending to affordability checks after lifetime losses of as little as hundreds of pounds. The Gambling Commission seems intent on eliminating any harm at all from gambling, seemingly believing all gambling to be inherently bad.

It is unfortunately the case that, as the Gambling Commission’s casework demonstrates, some operators are having insufficient regard for the existing requirements as to intervention and triggers at appropriate levels, leading to licence reviews and sanctions. This, however, is manifestly a problem which the Gambling Commission is addressing as regulator. Operators may not all have adapted to the tsunami of changes and additional requirements as quickly as they should, but progress has been made, and the cases referred to in the Enforcement Report are not sufficient evidence for a de facto penalty against the industry as a whole. Better surely to educate, persuade and, where necessary, take action to ensure compliance with current measures.

A further cogent reason for adopting this approach is that by prescribing fixed thresholds, the Gambling Commission would be moving away from the risk based system of regulation which is the basis of the legislation and regulation.

One additional word of caution; currently the Consultation is expressed to apply only to the online gambling industry. Do not take from this. In our opinion it will inevitable be applied to the land based sector as well; indeed the signs are that it already is.

Does the end justify the means?

One of the stated objectives of the Government’s Response to the House of Lords Gambling Industry Committee Report (the “Report”) is to “ensure balance between consumer freedom and preventing harm to the vulnerable”. We share the concern of others, that these fine words, stating a noble aim, may not reflect genuine intent. As yet, there is no new legislation, the Gambling Review has only just commenced, but already draconian new measures requiring affordability checks are effectively in force. Support for this approach is to be found as early as paragraph 5 of the Report’s introduction, which states:

“The Committee is also right to say that further progress to make gambling safer does not need to wait for the outcome of the Act Review.”

We have written previously of the Gambling Commission’s worrying foray into creating what is in effect new law and regulation without due process or consultation, commenting then that the Gambling Commission was “taking a novel approach that facilitates prescriptive changes to its regulatory framework without consultation or notice” (our blog on 18 May 2020: “New Gambling Commission Guidance for Online Operators: Changing the Basis of Regulation?”). Now that approach is apparently beingsanctioned by Government. Not that the Gambling Commission even waited for that rather pale green light; in the Enforcement Report, the Gambling Commission stated that operators must interact with customers early on to set adequate affordability triggers to protect customers from gambling related harm, threatening that “failure to do so could render the operator non-compliant.” Customers wishing to spend more than the national average disposable income should, according to the Gambling Commission, be asked to provide evidence to support a higher trigger. The Enforcement Report was published on 6 November 2020, just three days after the Gambling Commission launched its consultation on further checks.

Without being unduly cynical, once again the Gambling Commission has jumped the gun. It appears, as has been previously established with such consultations, that they are little more than a box ticking exercise; at worst, with no real intention to entertain alternative opinions and suggestions, or even expertise.

In this case, the emperor truly has been shown to have no clothes; the Gambling Commission has not simply disregarded the results of the Consultation, it has pre-empted it, demonstrating that the exercise is a sham. In effect, the word of the Gambling Commission is now law. We do not need to question their motives, which may be all to the good, with a genuine desire to protect the vulnerable. However, the end cannot always justify the means. The idea that the Gambling Commission has the power, in effect, to regulate by decree, an instrument reminiscent of autocracy or totalitarianism, is abhorrent.

Where’s the balance?

Tim Miller of the Gambling Commission has expressed the intention of having “an open discussion with the gambling industry, consumers, people with lived experience and other stakeholders, to ensure we strike the right balance between allowing consumer freedom and ensuring that there are protections in place to prevent gambling harm.”

Operators will no doubt do their utmost to challenge as part of the Consultation, the levels at which these inevitable new requirements are to be set. However, the evidence on which the Gambling Commission is likely to rely, will almost certainly not include the views of the silent majority of consumers who safely enjoy gambling; they are not included in the group of “people with lived experience”, which is made up solely of those adversely affected by gambling. But the real issue of liberty here is the principle that adults should be free to make their own choices: even bad ones. Most people would regard as unacceptable, the suggestion that their spending should be questioned by any authority; for example when buying alcohol. Nor do most consider it right that anyone, and certainly not a commercial enterprise, should demand private financial information from them. The fact that this is coming to pass in this industry perhaps illustrates the strength of the anti-gambling lobby and its sympathisers, if not supporters, within the regulatory authority. This is a threat to us all.

What are the implications? It does not need a Sherlock Holmes, or even an Inspector Clouseau to understand that in the absence of operators adopting affordability checks now, their licences are at risk of review, and consequently, of suspension or revocation. Indeed, we have already seen the Gambling Commission requiring such checks of those numerous operators currently the subject of regulatory action. Inevitably this, temporarily at least, places them at a disadvantage to their competitors. The means to protect the vulnerable are already in place. We do not need to assume that all gamblers, or all drinkers or any other class of consumer, is inherently and automatically at risk of harm. We must preserve the principle of freedom of choice.

20Jan

Covid-19: Gambling Commission reminder to online operators

20th January 2021 Ting Fung 274

Gambling Commission CEO, Neil McArthur, issued a reminder on 11 January 2021 on the continued need for online operators to provide their customers with additional protection.

The latest national lockdown, which began on 5 January 2021, is one of the primary reasons for the regulator’s call for extra vigilance. Its reasoning being that:

“Most people will be spending more time at home and many people are likely to be feeling more isolated and vulnerable as a result of the length of the pandemic period, the new restrictions and further uncertainty about their personal or financial circumstances.”

The reasoning also relates fundamentally to operators’ licence requirements under the social responsibility code provisions of the Licence Conditions and Codes of Practice (“LCCP”), Part 3 – Protection of children and other vulnerable persons. This includes helping customers to gamble safely and responsibly by:

helping customers to not spend more time or money than they can reasonably afford; and
recognising behaviours which may be indicative of risk or harm.

The other reasons given for the reminder relate to Phases 1 and 2 of the Gambling Commission’s research on the impact of Covid-19 on UK gambling, the evidence of which was published in its National Strategic Assessment 2020. Both phases indicated that:

consumers, such as highly engaged gamblers who play a range of products, are likely to spend more time and money gambling;
the continuation of sports provides greater opportunities for betting customers to gamble; and that
some people may gamble for the first time as a result of the current circumstances.

The Gambling Commission will continue to assess the impact of Covid-19 on gambling and asks online operators in the meantime to:

Continue following its “additional formal guidance”, in particular, ensuring that close interest is given to data which indicates that customers are expanding their games portfolio and/or spending more time or money than before;
Interact directly with customers where triggers are reached and increase email engagement with customers more generally;
Ensure that marketing remains compliant and non-exploitative of the current situation; and proceed very cautiously when cross-selling products;
Take particular care when on-boarding new customers and carefully consider affordability information and checks, especially in light of any recent or subsequent changes to financial circumstances.

In turn, the Gambling Commission has stated that it will continue to:

Permanently strengthen regulatory requirements in respect of RTS and LCCP updates to further protect customers; and
Monitor both operator and consumer behaviour closely as well as conducting compliance assessments during the latest lockdown.

For a full reminder of the additional steps that online operators should be taking, please see our blog post from last May regarding the Gambling Commission’s “additional formal guidance”.

18Nov

Gambling Commission Compliance and Enforcement Report 2019-2020

18th November 2020 Bahar Alaeddini 329

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

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

Chief Executive’s message

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

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

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

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

Neil McArthur also emphasised:

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

Summary of other key points from the Enforcement Report:

Triggers and customer affordability

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

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

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

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

Further, the Gambling Commission is concerned that:

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

Most notably, the Gambling Commission adds that:

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

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

Customer interaction and social responsibility failings

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

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

The responsible teams for social responsibility should be adequately resourced.

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

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

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

Anti-money laundering and counter terrorist financing

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

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

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

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

PML Reviews

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

Common failings have emerged from:

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

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

Illegal gambling

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

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

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

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

White label partnerships

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

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

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

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

Operators are encouraged to:

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

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

Betting exchanges

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

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

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

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

29Sep

“On your marks, get set…” – Fourth National Lottery Competition

29th September 2020 Ting Fung 284

The Fourth National Lottery licence has been in the spotlight since the competition (“4NLC”) was announced in November 2018, with the Gambling Commission reporting “a healthy level of interest from a range of different parties”.

A false start…

However, the 4NLC faced criticism in February this year, when delays to the competition process were announced as a result of the Covid-19 pandemic. The main concern of potential bidders was the fairness of the competition and the perceived disadvantages they faced against existing licensee, Camelot. These included, increased costs and reduced scope for delivery as a result of an uncertain timeframe and potentially shortened transition period between the third and fourth licence. In response, the Commission reiterated that:

“… focused on running a fair and open competition to find the right operator… ensuring that all potential bidders are on an equal footing is very important and we will welcome as many bidders as possible to the competition…”

Where are we now?

The Gambling Commission was also quick to reassure that its below dates are indicative and therefore, also subject to change.

August 2020 to October 2020: First stage – Selection Questionnaire
October 2020 to July 2021: Second stage – Invitation to Apply (“ITA”)
September 2021: Preferred applicant announced
October 2021 to July 2023: Transition period
August 2023: Expiry of third National Lottery licence / commencement of fourth licence

After a three-month delay and the initiation of 4NLC on 28 August 2020, the competition is still in its first stage, with the deadline being 24 days after the launch date. Therefore, potential bidders have until midnight on 1 October 2020 to complete the Selection Questionnaire before the Gambling Commission proceeds to the second stage, the ITA.

What to expect?

In Future of the National Lottery, the Gambling Commission outlines seven key changes to the Fourth National Lottery licence. The overarching themes all reflect the Gambling Commission’s statutory duties on propriety, player protection and returns to good causes, and include:

A more outcomes-based approach, which is in line with the Gambling Commission’s approach to regulating other gambling licences.
Innovation (commercial and technological) which reflects the updated context in which the fourth licence holder will operate.
Increased emphasis on the licensing objectives of fair and open and socially responsible provision of gambling.
Development of the National Lottery brand without compromising fairness or integrity.

Key changes to the licence

Increased player protection
Fixed 10-year licence
Focus on performance
Further incentivising returns to good causes
Commercial and technological innovation
Protecting the National Lottery brand
Safeguarding key features eg, guaranteeing at least one draw-based game, with life-changing prizes, every week

Commission Chief Executive, Neil McArthur reinforced this by adding:

“In line with our outcomes-focussed approach to regulation, we want the next licensee to have greater autonomy to meet the needs of players in 2023 and beyond, whilst ensuring there is clear accountability for the performance of the National Lottery.”

A marathon, not a sprint

The key changes have also impacted on the proposed financial structure of the National Lottery licence operations. This follows criticism in recent years that Camelot’s returns to good causes have not been proportional to their profits. For the period 2019/2020, ticket sales increased by nearly 10 percent to £7.9 billion, of which £1.85 billion went to good causes. Therefore, in an effort to ensure that returns to good causes remain central to National Lottery licence operations, the fourth licence holder will be required to give a fixed sum to the relevant funds for distribution to good causes, as well as a percentage of any profits made. The fixed sum will be established as part of the bidding process.

Consequently, the finish line for bidders extends beyond securing the contract to hold the licence. One industry executive quoted in the Financial Times, called the move a “radical shift”, which would result in the fourth licence holder running the risk of becoming leveraged if they failed to make the requisite sales to deliver the fixed sum. Nevertheless, as the fifth largest lottery in the world, the tender for the National Lottery licence remains one of the UK’s most lucrative public sector contracts.

Raising the bar

In line with the continued regulatory, political and public drive towards safer gambling, it is currently expected that the renewal of the National Lottery licence will coincide with raising the minimum playing age from 16 to 18. The proposed measure was raised by former Digital, Culture, Media and Sport minister, Tracey Crouch in 2018 but did not gain traction. However, Camelot CEO, Nigel Railton, has since agreed that “For 25 years, the age has been 16, so it is probably a good time to look at it.”

Additional details of the 4NLC, including scope and indicators, may be found here.

28Sep

Gambling Commission Consultation Response on Display of Licensed Status

28th September 2020 Jessica Wilson 303

On 30 July 2020, the Gambling Commission published its response to a consultation carried out between 26 February 2020 and 20 May 2020 on proposals to amend licence conditions relating to the display of licensed status on screens from which customers can access remote gambling activities such as websites and mobile apps.

The consultation response confirms that changes will be made to licence conditions 8.1.1 and 8.1.2 and a new licence condition 8.1.3 will be introduced as follows:

Licence condition 8.1.1

All remote casino, bingo and betting licences other than ancillary, host, remote betting intermediary (trading room only), remote general betting (limited) and remote general betting (standard) (remote platform) licences

Licensees providing facilities for remote gambling must display on every screen from which customers are able to access gambling facilities provided in reliance on this licence:
- a statement that they are licensed and regulated by the Gambling Commission;
- their account number; and
- a link (which will be supplied by the Commission) to their current licensed status as recorded on the Commission’s website.
Such statement, account number and link must be in the format, provided by the means, and contain the information from time to time specified by the Commission in its technical standards applicable to the kind of facilities for gambling provided in accordance with this licence or otherwise notified to licensees for the purposes of this condition.
Licensees may also display on screens accessible from Great Britain information about licences or other permissions they hold from regulators in, or by virtue of the laws of, jurisdictions outside Great Britain provided it is made plain on those screens that the licensee provides facilities for gambling to persons in Great Britain in reliance on their Gambling Commission licence(s).

Licence condition 8.1.2

All gaming machine technical, gambling software and host licences

Licensees offering the supply of gaming machines or gambling software on websites must:
- display the following information on the first page of the website which offers gaming machines or gambling software in reliance on the licence:
  - a statement that they are licensed and regulated by the Gambling Commission;
  - their account number; and
  - a link (which will be supplied by the Commission) to their current licensed status as recorded on the Commission’s website.
- display at least the information at a above on each page of the website which offers gaming machines or gambling software in reliance on the licence; and
- where they offer on pages of, or by means of a link from, their website, the supply of gaming machines or gambling software which are not provided in reliance on their licence, clearly distinguish those products which are regulated by the Commission from those which are not.
Such statement, account number and link must be in the format, provided by the means, and contain the information from time to time specified by the Commission in its technical standards applicable to the kind of facilities for gambling provided in accordance with this licence or otherwise notified to licensees for the purposes of this condition.

Licence condition 8.1.3

All lottery operating licences issued to non-commercial societies, local authorities and external lottery managers

Licensees offering the supply of lotteries on websites or mobile applications must display on every screen from which customers are able to access lottery products provided in reliance of this licence:
- a statement that they are licensed and regulated by the Gambling Commission;
- their account number; and
- a link (which will be supplied by the Commission) to their current licensed status as recorded on the Commission’s website.
Such statement, account number and link must be in the format, provided by the means, and contain the information from time to time specified by the Commission

The Gambling Commission has introduced these changes to:

standardise the type of information that must be displayed on B2C and B2B websites and mobile applications about an operator’s licensed status; and
extend the requirements to non-commercial societies, local authorities and external lottery managers offering access to lottery products online.

The changes also align with the Gambling Commission’s ongoing work to redesign its public registers of licensed operators, personal licence holders and premises.

The consultation response confirms that an up-to-date link to its public register will be provided to each licensee. Additionally, the form and manner of the display requirements “will be published before, or alongside, the issuing of new links to public register”.

The Gambling Commission has further confirmed that “when the new links are issued, will allow licensees three months to make the required changes to their websites and mobile applications. Specific dates will be in the letters by which issue the new links to the public register”.

We recommend that all remote licensees read the consultation response and become familiar with the new display requirements which are due to come into effect on 31 October 2020.

17Aug

Consultation Response on Changes to Information Requirements

17th August 2020 David Whyte 322

In our blog of 7 April 2020 we summarised the Gambling Commission’s consultation, launched on 26 February 2020, in two parts, on planned changes to regulatory information and data reporting requirements. On 30 July 2020, the Gambling Commission published its consultation response document (the “Consultation Response”). The Gambling Commission received 70 written responses to its consultation, including 50 from licensees.

We recommend that all licensees read the Consultation Response and new/amended LCCP provisions. We highlight some of the Gambling Commission’s significant changes:

Additional obligations

Licence condition 15.1.3 (reporting of systematic or organised money lending)

This new licence condition requires licensees to provide the Gambling Commission with any information relating to cases where they encounter systematic, organised or substantial money lending between customers.

We discuss this new licence condition in a separate blog.

Licence condition 15.2.2 (other reportable events)

A new requirement that licensees notify the Gambling Commission of any actual or potential breaches by the licensee of the requirements imposed by or under Parts 7 or 8 of the Proceeds of Crime Act 2002, or Part III of the Terrorism Act 2000, or any superseding legislation has been added.

We discuss this new licence condition in a separate blog.

Licence condition 15.2.3 (other reportable events – money laundering, terrorist financing, etc)

This new licence condition requires licensees to notify the Gambling Commission:

as soon as reasonably practicable, of any actual or potential breaches by the licensee of the provisions of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the “Regulations”);
within 14 days of appointment, the identity of the officer responsible for the licensee’s compliance with the Regulations
within 14 days of appointment, the identity of the nominated officer; and
within 14 days of the departure of removal of the above-mentioned positions.

We discuss this new licence condition in a separate blog.

Removed obligations

Licence conditions 13.1.1 and 13.1.2 (pool betting)

The requirement for licensees to notify the Gambling Commission about persons they have authorised to offer pool betting on a track in connection with a horserace or dog race in reliance on an occasional use notice, or to offer football pool betting have been removed.

It is of note that this change does not affect the substance of (existing) licence conditions 13.1.1(2) and 13.1.2(2). Licensees will therefore still be required to produce and retain a record relevant to each pool that they offer and make this information available to the Gambling Commission on request.

Licence condition 15.2.1 (reporting key events)

Various key event notification requirements have been removed. Pertinent removals include:

investments in the licensee other than by way of subscription by shares;
entering into arrangements with third parties for services other than for full value;
changes to the structure or organisation of the business that affect a key position or the responsibility of its holder;
court judgements against the licensee remaining unpaid for 14 days;
issues relating to auditing or the submission of audited accounts;
changes to arrangements concerning the protection of customer funds (this requirement has been moved to licence condition 15.2.2 and is therefore no longer a key event);
customer fund reconciliation deficits;
the receipt from any professional, statutory or other regulatory or government body of the outcome of a compliance assessment;
any change in the identity of the ADR entity or entities for the handling of customer disputes (this requirement has been moved to licence condition 15.2.2 and is therefore no longer a key event); and
the reference of a dispute to an ADR entity, other than one in respect of which contact details were given in accordance with the social responsibility code provision on complaints and disputes.

Licence condition 15.2.2 (other reportable events)

Requirements to notify the Gambling Commission about the conclusion of a dispute referred to an ADR entity and of any outcome adverse to the licensee of proceedings taken against the licensee by a customer in relation to a gambling transaction have been removed.

Other proposed amendments

Licence conditions 15.1.1 and 15.1.2 (reporting suspicion of offences)

These licence conditions have been amended to introduce additional text which will enable the Gambling Commission to specify the form and manner of the reporting of suspicion of offences etc. and to provide clarification on the reporting of suspected breaches of betting rules to the appropriate sport governing body.

The changes also reinforce the principle that responsibility for meeting this licence condition rests with licensees, not third parties. The Gambling Commission notes that while it is acceptable for one licensee to provide information on behalf of another within a group, that ultimate responsibility for the timing and content of the submission rests with the licence holder.

Licence condition 15.2.1 (reporting key events)

Other key event notification requirements have been amended. Amendments of note include:

key events relating to the presentation of a winding up order or petition, entering into administration or receivership, bankruptcy, sequestration, or an individual voluntary arrangement have now been merged into a single key event. This has been expanded to include any person holding a key position for a licensee, group companies and shareholders or members holding 3% or more of the issued share capital of the licensee or its holding company;
the definition of a ‘key person’ in relation to anti-money laundering has been expanded and now covers a position, the holder of which, has overall responsibility for the licensee’s anti-money laundering and/or terrorist financing compliance and/or for the reporting of known or suspected money laundering or terrorist financing activity;
notification requirements about investigations by professional, statutory, regulatory or government bodies into the licensees’ activities have been narrowed to apply to persons in ‘key positions’, rather than to ‘personal licence holders or persons occupying a qualifying position employed by them’;
notification requirements about criminal investigations have been amended and must be reported if it concerns the licensee or a person in a key position and if the Gambling Commission may have cause to question whether the licensee’s measures to keep crime out of gambling had failed;
notification requirements in the event of a breach in the licensee’s information security have been amended. Licensees are now required to notify the Gambling Commission in the event of any security breach to the licensee’s environment that adversely affects the confidentiality of customer data; or prevents the licensee’s customers, staff, or legitimate users from accessing their accounts for longer than 12 hours;
in the case of remote gambling, notification of the commencement or cessation of trading on website domains has been expanded to include domains covered by ‘white label’ arrangements.

Submission of key events

The Gambling Commission has amended the wording in licence conditions 15.2.1 (reporting key events) and 15.2.2 (other reportable events)to include wording that they “are to be reported” via eServices. Key events will therefore no longer be able to be submitted by email unless they have technical issues with eServices (as is often the case!):

If licensees do experience technical issues preventing them reporting key events to us via eServices within 5 days, they should capture evidence of the problems experienced and contact their Licensing Account Manager for assistance.

Ordinary code provision 8.1.1

The Gambling Commission decided not to proceed with its proposals to elevate elements into licence condition 15.2.2 at this stage. The code provision therefore remains in its current form.

Licence condition 15.3.1

The Gambling Commission has harmonised the reporting periods for the submission of regulatory returns, with unified reporting periods across the industry. It has retained the 42-day period for the submission of annual returns for the time being. The regulatory reporting periods are therefore as follows:

Type of return	Reporting period	Submission window
Annual	1 April to 31 March	1 April to 13 May
Quarterly	1 April to 30 June 1 July to 30 September 1 October to 31 December 1 January to 31 March	1 to 28 July 1 to 28 October 1 to 28 January 1 to 28 April

The Gambling Commission received a response about the “stability of the eServices system and a suggestion…to develop an API”, which it is exploring to enable data submission via an API.

Technical scoping work for the harmonisation of reporting periods will start in the Autumn 2020.

Social responsibility code provisions 3.2.1, 3.2.3, 3.2.5 and 3.2.7 (access to gambling by children and young persons)

These code provisions have been amended to allow the Gambling Commission to specify the form or manner of reporting test purchasing results. The Gambling Commission is yet to specify a standardised format for the submission of these results.

Social responsibility code provision 6.1.1 (complaints and disputes)

This code provision has been amended to remove the requirement for routine reporting of the outcomes of complaints and disputes referred to ADR and court proceedings that are adverse to the licensee.

Changes to personal licence conditions

The time within which personal licence holders must report key events to the Gambling Commission has been extended from up to 5 working days to up to 10 working days. Wording has been included that requires all key events to be reported via Personal eServices. Key events will therefore no longer be able to be submitted by email.

The changes come into force on 31 October 2020.

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