20Dec

DCMS publishes Gambling Commission Framework Document

20th December 2023 Ting Fung 132

Further to its consideration of the Gambling Commission’s powers and resources in the White Paper, the Department for Culture, Media & Sport (“DCMS”) published the Gambling Commission Framework Document (the “Policy Paper”) on 11 December 2023.

The Policy Paper, which has been agreed between DCMS and the Gambling Commission and approved by HM Treasury, sets out the broad governance framework within which DCMS will work with the Gambling Commission to provide:

“an effective environment for the Commission to achieve its statutory objectives through the promotion of partnership and trust.”

The Policy Paper updates the previous version of the corporate governance framework, which was published on 29 October 2021.

What are the Gambling Commission’s statutory objectives?

As a reminder, the Gambling Commission’s key statutory duty, as set out in the Gambling Act 2005, is to permit gambling insofar as it thinks is reasonably consistent with the licensing objectives of:

a) preventing gambling from being a source of crime or disorder, being associated with crime or disorder or being used to support crime;

b) ensuring that gambling is conducted in a fair and open way; and

c) protecting children and other vulnerable people from being harmed or exploited by gambling.

In addition, the Gambling Commission is responsible for regulating the National Lottery by virtue of the National Lottery etc Act 1993. In this regard, the Gambling Commission’s objectives are to manage the National Lottery in a manner most likely to secure:

a) that the interests of all participants are protected;

b) that the Lottery is run with all due propriety; and

c) that, subject to the objectives above, returns to good causes are maximised.

What does the Policy Paper do?

The Policy Paper sets out the manner in which DCMS and the Gambling Commission will work together to provide an effective environment for the Gambling Commission to achieve its statutory objectives.

The Policy Paper “does not convey any legal powers or responsibilities”. Instead, it provides a framework of good corporate governance practice and applicable regulatory requirements and expectations that accords with principles set out in the Treasury’s handbook, Managing Public Money (“MPM”), and within which both parties have agreed to operate.

Broadly, this means that the Policy Paper sets out the Gambling Commission’s core responsibilities, describes the governance and accountability framework that applies between the roles of DCMS and the Gambling Commission, and sets out how the day-to-day relationship works in practice, including in relation to governance and financial matters.

What does the Policy Paper say?

Some of the more notable aspects of the Policy Paper include:

In accordance with MPM Annex 3.1 a requirement for the Gambling Commission to provide “an account of corporate governance in its annual governance statement” including an assessment of its compliance with the Corporate Governance in Central Government Departments Code of Good Practice, with explanations of any material departures.
A requirement for Gambling Commission officials to liaise regularly with officials in DCMS’ Gambling Commission sponsorship team, DCMS’ primary contact with the Gambling Commission, to review performance against plans, achievement against targets and expenditure. This relationship, in turn, is overseen by the Deputy Director for Gambling and Lotteries.
Annual submission by the Gambling Commission of a draft corporate plan considering the following key matters in the year ahead:
- key objectives and associated key performance targets for the forward years, and the strategy for achieving those objectives;
- key non-financial performance targets;
- a review of performance in the preceding financial year, together with comparable outturns for the previous 2-5 years, and an estimate of performance in the current year;
- alternative scenarios and an assessment of the risk factors that may significantly affect the execution of the plan but that cannot be accurately forecast; and
- other matters as agreed between the department and the Gambling Commission.
The first year of the corporate plan will form the basis of the Gambling Commission’s business plan, which shall then be updated annually regarding key targets and milestones for the year immediately ahead. DCMS will also use the draft corporate plan to allocate the Gambling Commission’s annual budget and send this to the Gambling Commission by May/June each year.
A requirement for the Gambling Commission to publish an annual report of its activities, with the draft submitted to DCMS at least two weeks before the proposed publication date. The annual report must:
- cover any corporate, subsidiary or joint ventures under the Gambling Commission’s control;
- comply with the Treasury’s Financial Reporting Manual; and
- outline the Gambling Commission’s main activities and performance during the previous financial year and summary form forward plans.
In addition, the annual report must include the Gambling Commission’s finalised (audited) accounts. However, these will need to be provided to DCMS by May/early June each year so that they may be consolidated within DCMS, laid in Parliament and made available on the Gambling Commission’s website.
Formal performance review by DCMS four times a year.
Annual meeting between the Responsible Gambling Minister and Gambling Commission Chair as well as annual review of the Chair’s performance by DCMS.
Annual meeting between the Principal Accounting Officer (the Permanent Secretary of the department) and Gambling Commission Chief Executive (who is also the Accounting Officer responsible for safeguarding public funds and ensuring that the Gambling Commission is being run according to the MPM standards regarding governance, decision making and financial management).
A requirement for the Gambling Commission to provide information to DCMS monthly (at a minimum) to enable DCMS to satisfactorily monitor the Gambling Commission, including but not limited to its cash management.
Internal audits to be conducted (according to the Public Sector Internal Audit Standards, as adopted by HM Treasury) and reviewed by DCMS’ sponsorship department.

In addition, the Gambling Commission’s agrees to comply with the guidance set out at Annex A of the Policy Paper in areas of corporate governance, financial management and reporting, management of risk, commercial management, public appointments, staff and remuneration, and other general guidance.

Gambling Commission Fees

Notably, in relation to Gambling Commission fees (a topic upon which DCMS is expected to consult next year), the Policy Paper confirms that review of Gambling Commission fees remains at the discretion of the Secretary of State, to be exercised in accordance with MPM principles. Nevertheless, the Policy Paper confirms that the:

“Gambling Commission and DCMS will carry out an annual health check to determine whether fee levels remain appropriate or whether a further comprehensive review is required”.

The annual health check will consider:

any significant changes to legislation or the number/complexity of regulated operators;
levels of inflation;
efficiency savings made by the Gambling Commission; and
whether changes to industry structures or patterns of risk have significantly altered the focus of the Gambling Commission’s regulatory effort.

DCMS can bring the annual health check forward or initiate a comprehensive review of fees if it is clear this is required. Otherwise, the outcome of the annual health check will be recorded and signed off by the Director of Finance or the Head of Gambling and Lotteries in DCMS and by the Chief Executive or Chief Operating Officer of the Gambling Commission.

Next steps

The Policy Paper confirms that it should be reviewed and updated at least triennially unless there are exceptional reasons. However it goes on to state that the latest date for the next review and update is 1 September 2025, just under two years from now.

Given the amount of work on both DCMS and the Gambling Commission’s respective “plates” at the moment – with many of the reforms in the White Paper yet to be implemented – DCMS and the Gambling Commission will likely be pleased that the Policy Paper has now been agreed and that they can both take positive steps to progress other matters.

Please let us know if you have any questions or wish to discuss.

For further details on the Policy Paper, see the DCMS’ website.

18Dec

“Naughty or Nice?” – the Gambling Commission publishes its latest consultation on financial penalties and financial key event reporting

18th December 2023 Ting Fung 127

Between August 2021 and July 2023, Gambling Commission licensees paid around £38 million in financial penalties to HM Treasury’s consolidated fund and £44 million in lieu of a financial penalty via the regulatory settlement process.

After continued calls for clarification on the calculation of and challenges to its financial penalties, the Gambling Commission published its 2023 Consultation on proposed changes related to financial penalties and financial key event reporting (the “Consultation”) on 15 December 2023. The Consultation also addresses updates to the licence conditions and codes of practice (“LCCP”) in relation to financial key event reporting.

We set out below a summary of the key changes proposed in the Consultation.

Enforcement – financial penalties quantum

Aim?

The Gambling Commission’s intention is to:

“ensure a consistent process for the determination and imposition of financial penalties… provide greater transparency and clarity over how financial penalties are calculated … allow a sufficient scope to exercise necessary judgment in the determination of the quantum based on individual case characteristics, and to mitigate the risk of legal challenges on our approach.”

The Gambling Commission hopes that greater transparency and clarity for licensees will streamline its enforcement process by reducing protracted correspondence between licensees and the Gambling Commission, which will also help take the pressure off the two-year limit it has for imposing a financial penalty.

How will penalties be calculated?

The Gambling Commission proposes to update its Statement of Principles for Determining Financial Penalties to introduce a more clearly defined six-step process (new wording in bold and italics):

Calculate the disgorgement element of the penalty (if appropriate) ~~to reflect any financial detriment suffered by consumers and/or remove the financial gain to the Licensee, if possible~~.
~~Consider the seriousness of the breach to determine the appropriate~~ Determine the starting point for the penal element of the fine, in most cases by reference to seriousness and a percentage of GGY for the relevant breach period.
Consider aggravating and mitigating factors which may increase or decrease the penal element.
Consider the need for a deterrence uplift to the penal element~~, having regard to the principle that non-compliance should be more costly than compliance and that enforcement should deliver strong deterrence against future non-compliance~~.
Consider a any discount ~~to the penal element where early resolution has been reached~~ for early resolution.
Consider ~~whether an~~ any adjustment ~~should be made to ensure the sum of the figures at steps 1 (if calculated) and step 5 are reasonable and proportionate in respect of~~ for affordability and proportionality.

Financial penalties calculations will primarily be based on a proportion of the licensee’s GGY and will be based on the “level of seriousness” of the breach, with an escalating five-level scale starting at 0% to 0.99% for a level 1 breach (for example, one-off breaches) up to 10-15% of GGY for a level 5 breach, representing “a very serious threat to the licensing objectives”. Higher penalties may be imposed in “exceptional circumstances”, including using a non-GGY approach where more appropriate.

In line with the proposed updated six-step process, these baseline calculations would be subject to the adjustments set out at 3-6 above.

Financial key event reporting – scrutiny of investor source of funds

Aim?

The proposed changes to the LCCP are designed:

“to take account of the increase in complexity of mergers and acquisitions, and the increased globalisation of gambling.”

Key updates?

The current reporting threshold under licence condition 15.2.1(2) of the LCCP (reporting key events) regarding investors will be raised from 3% to 5% to align with requirements in other global jurisdictions.

The Gambling Commission is also proposing to expand reporting requirements regarding ‘relevant persons’ “significantly, but proportionately” to include “partnerships, trusts, charities and investment funds” which have “both direct and indirect interests in the gambling licensee of 5% or more”.

A new requirement will also necessitate disclosure of:

individuals who acquire the equivalent of £50,000 or more worth of new shares in a rolling twelve-month period; and
entities that acquire the equivalent of £1 million of new shares in a rolling 12-month period.

The Gambling Commission has indicated in the Consultation that:

“Given that this proposed new key event is focused on the raising of investment by the gambling licensee by issuing new shares, our expectation is that the source of funds evidence is gathered upfront as part of the share issuing process and should be reportable in the normal key event reporting timeframe.”

As such, this disclosure will include not only the identity of the investor and the value of the acquisition, it will also require the provision of evidence of the source of funds for the investment.

What’s next?

The Consultation is expected to close on 15 March 2024.

Subject to the actual changes to be made by the Gambling Commission, which it will outline when it publishes its response to the Consultation in due course, licensees can expect one or more versions of the following documents to be published in the next year:

We will be providing further insight on the proposals in the Consultation in upcoming blogs. In the meantime, please see David Whyte’s previous pre-emptive article, White Paper Series: The Gambling Commission’s powers – more to come?

We thoroughly encourage all licensees to respond to the Consultation.

Please get in touch if you have any questions or would like any assistance drafting your response.

12Dec

Gambling Commission releases its updated risk assessment of money laundering and terrorist financing in the British gambling market

12th December 2023 Chris Biggs 141

On 30 November 2023, the Gambling Commission published its updated money laundering and terrorist financing risk assessment for the British gambling industry in 2023 (the “ML/TF Risk Assessment”). The release of the updated ML/TF Risk Assessment has been a long time coming: the Gambling Commission had not updated its ML/TF Risk Assessment since December 2020.

The Gambling Commission sets out that the purpose of the ML/TF Risk Assessment:

“…is to:

provide a resource for the industry in informing their own ML and TF risk assessments
provide the Commission’s support to HM Treasury’s National Risk Assessment
inform and prioritise licensing, compliance, and enforcement activity to raise standards in the industry and meet duties under …”

Key points of note are:

The Gambling Commission reminds casino licensees to consider their obligations in the light of the update to the Regulations in September 2022 which requires those businesses to identify, assess, understand and mitigate the risk of proliferation financing.

The overall risk rating for each gambling sector has not changed since the Gambling Commission’s previous risk assessment from 2020 (the “2020 ML/TF Risk Assessment”).

The methodology applied by the Gambling Commission to assess the risks in the British gambling industry has been developed from its 2020 ML/TF Risk Assessment and it therefore recommends that the ML/TF Risk Assessment is read in conjunction with the 2020 ML/TF Risk Assessment.

Licensee requirements

Licence Condition (“LC”) 12.1.1 of the Licence Conditions and Codes of Practice requires that all operating licence holders (with the exception of gaming machine technical and gambling software licences):

conduct a risk assessment addressing “the risks of their business being used for money laundering and terrorist financing”;

following the completion of that risk assessment, ensure they have “appropriate policies, procedures and controls to prevent money laundering and terrorist financing”; and

ensure that their policies, procedures and controls for the prevention of money laundering and terrorist financing are “implemented effectively, kept under review, revised appropriately to ensure that they remain effective, and take into account any applicable learning or guidelines published by the Gambling Commission from time to time”.

Licensees must therefore ensure that they review the ML/TF Risk Assessment in detail, with a view to:

reviewing and refining (as applicable) their own money laundering and terrorist financing risk assessment in the light of the ML/TF Risk Assessment; and

updating their policies, procedures and controls to take into account any changes made to their risk assessment.

Please get in contact with us if you require assistance with reviewing your money laundering and terrorist financing risk assessment and/or your AML policies, procedures and controls.

06Dec

Andrew Rhodes’ speech at the CEO Briefing 2023: The beginning of a new chapter?

6th December 2023 Gemma Boore 133

The Chief Executive Officer of the Gambling Commission, Andrew Rhodes, delivered a speech on 8 November 2023 at the CEO Briefing 2023, an event organised by the Gambling Commission for C-level executives in the gambling industry to discuss progress with the implementation of the White Paper, share insights and explore current challenges.

This blog outlines the key themes from Rhodes’ speech, upon which we have been reflecting. It also highlights why, in our view, Rhodes is, by virtue of his plain-speaking leadership style at the Gambling Commission, making strides in improving the regulator’s relationship with its licensees, during an unprecedented period of change for the industry.

A more grown-up relationship

Rhodes opened the speech by reflecting on progress made since the Gambling Commission’s last CEO briefing (which we wrote about here). He acknowledged that the Gambling Commission “are seeing far less…extreme cases emerge from casework” in terms of player protection and commended operators and trade bodies for progress made. However, Rhodes made clear that more work has yet to be done:

“Last year I was clear that eliminating… …cases of extreme harm would lead to a new and – if anything – more challenging phase – how to tackle the more difficult issues where the balance between the licencing objectives and legitimate innovation, consumer choice and fair business practice is harder to define…

And all of that comes together in how we want the relationship between us, as the regulator, and you, as operators, to be if we want to continue to keep pace on the progress we have made over the last 12 months. A much more grown-up relationship where we can be transparent about the issues that matter and collaborative in how to address them.“

This message will be music to the ears of many because, for seemingly as long as anyone can remember, licensees have been complaining of being unable to engage constructively with the Gambling Commission. If Rhodes can deliver on his promise of creating a more communicative and collaborative relationship between regulator and regulated, this can only be good for the industry and regulator alike.

It is very positive that this message is being delivered from the top-down. However, as we all know, even a well-led organisation is only as good as those on the ground and to truly deliver on his promise of cultivating a more “grown up relationship“, Rhodes will need to ensure that his message filters through the Gambling Commission’s licensing, compliance and enforcement divisions, with which the industry interact, with varying degrees of cordiality, on a daily basis.

Praise where praise is due

Rhodes went on to reflect on the core messages he delivered at his speech at the 2022 CEO Briefing, noting that “last year I said we are still seeing too many of the extreme cases – the top of the chart – and that this was holding us back from grappling with those more complicated and harder to solve challenges”.

This year, the message to licensees was much more positive and represented a somewhat rare ‘pat on the back’ from the Gambling Commission:

“Now I’m not going to say everything is perfect now, but twelve months on we are seeing far less of those extreme cases emerge from our casework. The industry has made progress and I want to thank the many operators in the room today and your trade bodies for having worked with the Commission to achieve this step forward.“

Rhodes went on to note that the reduction in extreme casework will allow the Gambling Commission to start considering more complex issues. He hinted that this could involve the regulator gaining a better understanding of the issues faced by different types and sizes of operators, so it can better regulate a diverse industry with a dynamic customer base; and understand how technology can be used to “reduce reliance on manual processes” – even though human judgement will always be needed in some instances.

A more collaborative approach to tackling the illegal market

Rhodes also touched on the work the Gambling Commission has been doing to tackle the illegal, unlicensed gambling market in Great Britain. This is a topic on which we have extensively written (please see our recent blog here for example, which provides a checklist for licensees who find themselves contacted by the Gambling Commission regarding the use of their software or placement of ads by black market operators), so we will not repeat ourselves; but two statements made by Rhodes in the CEO Briefing are worth emphasising.

First, Rhodes noted in his introduction to this topic that he has often been misquoted regarding the risk of illegal gambling in Great Britain (which, as regular readers of other gambling publications will know, is quite true), and helpfully clarified that in his view (emphasis added):

“The risk of illegal gambling and the black market as an argument against reform of regulation is, I think, overstated, based on what we see in reality… …That does not mean there is no risk, as I have said many times. It does not mean there are no problems…“

Secondly, Rhodes explained that the Gambling Commission is hopeful it will soon begin seconding people from the industry to boost its insight and expertise in relation to tackling illegal, unlicensed gambling. Again, this will be a welcome message for the industry, who have long felt that they have much to offer to help the Gambling Commission to carry out its functions in this important area – another indication that Rhodes will continue, during his tenure at the Gambling Commission, to do more to improve collaboration with industry stakeholders.

High growth operators to be under the spotlight

Rhodes also hinted in his speech that in the forthcoming year, the Gambling Commission will be focusing its attention on a slightly different category of licensee. Specifically, he explained that the Gambling Commission will be turning its sights to Tier 2 and Tier 3 operators, “particularly where they have grown rapidly”.

This is not because they see growth as a “bad thing” – but because it may be an indication that the business may be growing faster than the underpinning compliance infrastructure.

This is a valid observation and operators that fall into this category will be well-advised (if they have not done so already) to commence a review of their internal policies and procedures to ensure they continue to be both:

fit for the business given its changing size, nature and/or customers; and

regularly updated to reflect recent changes to the Licence Conditions and Codes of Practice and associated guidance; for example, in relation to remote customer interaction, a subject upon which we have extensively written – most recently, here.

To be or not to be bound by the Regulators’ Code?

Perhaps the most controversial section of Rhodes’ speech concerned his nod to the Regulators’ Code – and more specifically, his indication that the Gambling Commission does not consider itself to need to strictly adhere to these standards, which are intended to provide a “principles-based framework for regulatory delivery that supports and enables regulators to design their service and enforcement policies in a manner that best suits the needs of businesses and other regulated entities”.

In broaching the subject, Rhodes referred to “questions about the Gambling Commission’s adherence to the Regulators’ Code” (explored in some of our previous blogs, including this article), and went on, somewhat dismissively, to refer to the Regulator’s Code as “a seven page document written some years ago” that contains:

“a number of very sensible guiding principles for regulators, but it is meant to be just that – a sensible set of guiding principles – it does not try to cover the exact application of regulation in all circumstances.”

Rhodes went on to give some context to this statement by highlighting that the Gambling Commission’s role in regulating the gambling industry is to find an appropriate balance. For example, to find a balance between complying with its duty to aim to permit gambling, and consistency with the licensing objectives. Or, in terms of balancing the interests of the 22.5 million people that gamble in this country every year (44% of the adult population) with the risk that some of that cohort will experience harms from gambling.

Although we agree that the Regulator’s Code is a set of guiding principles which requires the Gambling Commission to “choose proportionate approaches” to those it regulates based on “business size and capacity”, “minimis negative economic impacts of their regulatory activities”, it is much more than that and we suspect that this part of Rhodes’ speech is likely to stimulate future debate.

No one can reasonably argue that the man at the helm of the Gambling Commission does not have a difficult job, and Rhodes appears to be balancing the issues with which he is faced with gumption. However, it is clear that regulators such as the Gambling Commission must have regard to the Regulator’s Code when developing policies and operational procedures that guide their activities. This is not so dissimilar from the obligation the Gambling Commission imposes upon its licensees to have regard to the Gambling Commission’s formal guidance and advice under the Licence Conditions and Codes of Practice. If the Gambling Commission expects the industry to properly take into account its own guidance, surely it must practise what it preaches.

Swallowing a bitter pill

Next, Rhodes addressed the elephant in the room – the recent high-profile discussions regarding the introduction of financial risk and vulnerability checks and how these would impact the British horseracing industry.

Labelling it as “an exceptionally difficult and sometimes very bitter debate”, Rhodes disclosed that he has spent a lot of time meeting with and speaking to senior leaders in horseracing and groups representing punters. Despite this, Rhodes’ message was that it is not the job of the Gambling Commission to “consider or advise on the wider implications for any given sport – that is the role of the ”.

Rhodes went on to draw comparisons between the relationship between gambling and football vis a vis horseracing, commenting that many would “probably agree football would still happen even if people could not gamble on it”, but horseracing:

“is unique in its relationship with gambling and has a critical dependency on gambling as a funding stream. If less people lose money betting on horseracing, the income into horseracing goes down.”

Despite this, Rhodes brought attention to the Patterns of Play research, which showed that out of the accounts used for horseracing bets, “the most profitable 1 percent from the operators’ perspective accounted for 70.4 percent of Gross Gambling Yield” – that 1% being a proportion five times smaller than the equivalent percentage for other types of sports betting; and that operators needed to take this into account when determining the financial thresholds to apply when assessing the risk of different customers’ spend.

Rhodes effectively therefore poured cold water on a campaign by the horseracing industry that there should be no checks at all on how affordable someone’s gambling is in horseracing. For example, in the recent petition presented to UK Government that has (as at the time of writing) accumulated 102,806 signatures (more than the 100,000 signatures needed to be considered for debate in Parliament), and which has recently attracted the following response from the UK Government:

“We are committed to a proportionate, frictionless system of financial risk checks, to protect those at risk of harm without over regulating….

….this petition raises the important link between betting and horseracing. The government recognises the enormous value of horseracing as both a spectator sport and through its economic contribution. The white paper’s estimate was that financial risk checks will reduce online horserace betting yield by 6% to 11%, which would in turn reduce racing’s income by £8.4 to £14.9 million per year (0.5% to 1% of its total income) through a reduction in levy, media rights and sponsorship returns.”

Rhodes’ comments and the Governmental response therefore confirm – perhaps to the dismay of signatories of this petition – that both the Gambling Commission and the Secretary of State are committed to rolling out financial risk checks – but that these will only be tested, trialled and rolled out when the Government and Gambling Commission are confident the checks “will be frictionless for the vast majority of customers”.

How precisely this will be achieved is a thorny issue. It is not yet clear what is meant by the phrases ‘frictionless’ or ‘vast majority’ and the interpretation of these words will be critical to ensuring that financial risk checks do not have unintended consequences for the gambling industry in Great Britain. We truly hope that the Government and Gambling Commission identify some innovative solutions by the time the Gambling Commission’s response to its Summer 2023 consultation (which considered how financial vulnerability and financial risk checks would be implemented) is published in 2024.

Future developments

In concluding his speech, Rhodes highlighted two forthcoming developments:

the Gambling Commission’s new three-year Corporate Strategy (due to be published next Spring), where they are “baking into it a focus on communicating clearly and building effective partnerships” which “will include engaging constructively with industry”, with a view to “reduc the reliance on formal enforcement”; and

a one-day conference hosted by the Gambling Commission during which, similar to an event hosted in 2023, the Gambling Commission will invite collaboration with operators, academics and the third sector to discuss how to improve the evidence base in gambling and tackle the illegal market. The next conference in this series is scheduled for March 2024.

Finally, Rhodes reiterated the key message in his speech by calling on the industry to “commit to working together” as it will “lead to a better regulation, better outcomes and safer, fairer and crime free gambling across Great Britain”.

Our thoughts

Rhodes’ comments in the CEO Briefing, as well as his general approach since he has been appointed as Chief Executive Officer of the Gambling Commission, are encouraging and potentially signal the beginnings of a relationship between the Gambling Commission and its licensees. However, as they say: “the proof of the pudding is in the eating” and we will be closely watching to see whether Rhodes’ approach is reflected in the Gambling Commission’s work during 2024 – particularly in relation to its responses to the recently closed Summer 2023 consultation and recently opened Autumn 2023 consultation; and in its future enforcement action.

Next steps

If you would like to discuss Rhodes’ speech or any of the themes therein, please get in touch with your usual contact at Harris Hagan.

With credit and sincere thanks to John Hagan for his invaluable co-authorship

29Nov

Chambers Gaming Law 2023 Global Practice Guide

29th November 2023 Harris Hagan 136

We are pleased to announce that Bahar Alaeddini has reprised her role as Contributing Editor to the Chambers Global Practice Guide for Gaming Law 2023, and Jessica Wilson has again contributed as a co-author. The latest edition of the Gaming Law 2023 guide is now live and describes the licensing and regulatory regimes in 35 jurisdictions, including many of the major global jurisdictions.

In a year that saw a number of significant developments and regulatory updates in the UK and abroad, Gaming Law 2023 is a helpful guide to lawyers, gambling businesses and others in the industry. It provides the latest legal information on a range of topics, including: land-based and online gambling; B2C and B2B licences; application requirements; affiliates; white labels; responsible gambling; AML legislation; restrictions on advertising; acquisitions and changes of control; trends in social gaming, esports, fantasy sports and blockchain; and taxation.

Harris Hagan contributed to the following parts of the publication:

Key trends are covered by jurisdiction under the Trends and Developments section, and the practice guide also provides users with the opportunity to perform jurisdiction comparisons using the Compare locations tool.

Please use the above links to review our contributions and use the practice guide.

29Nov

Understanding the impact of increased cost of living on gambling behaviour: Gambling Commission’s interim findings

29th November 2023 Chris Biggs 137

Last month, the Gambling Commission published its interim findings on the impact of increased cost of living on gambling behaviour. The Gambling Commission’s research aims to improve its understanding of the impact of increased cost of living by examining the behaviours and motivations of gamblers during the period of high cost of living in Great Britain (“COL Research”).

The Gambling Commission commenced the COL Research in December 2022 in partnership with Yonder Consulting, and undertook a “mixed-methodology research approach” with a longitudinal survey taking place over three waves between December 2022 and June 2023. This was followed by qualitative depth interviews to further understand the impact of the rise in cost of living on lifestyle and gambling behaviours.

In this blog, we summarise the COL Research, set out the Gambling Commission’s interim findings and identify key points for licensees in Great Britain to note.

What is the COL Research?

The Gambling Commission sets out its definition of ‘cost of living’, as:

“the amount of money that is needed to cover basic expenses such as housing, food, taxes, healthcare, and a certain standard of living.”

The COL Research specifically aims to test three core hypotheses:

The rise in cost of living is likely to impact consumers’ gambling behaviour in different ways, depending on their personal circumstances and the way in which gambling fits into their lives.
Some gamblers will report that the rise in cost of living has had a mediating effect on their gambling behaviour.
The rise in cost of living may negatively impact vulnerabilities for some consumers, putting them at an increased risk of gambling-related harm.

The project commenced with three waves of quantitative research, which sought to: (1) initially establish a baseline of key gambling behaviours; (2) explore the impact of external triggers for gambling; and (3) subsequently track any changes to the core gambling behaviours.

Wave 1

Between 21 and 22 December 2022 the Gambling Commission commenced the nationally representative survey of 2,065 adults aged 18 or over. 973 participants (47%) had engaged in gambling activity in the last four weeks.

Wave 2

Between 27 February and 3 March 2023, 1,694 of the same sample group were recontacted to capture changes in the core gambling behaviours surveyed. 820 participants (48%) had engaged in gambling activity in the last four weeks.

Wave 3

Between 26 May and 2 June 2023, 1,391 of the same sample group (who all took part in Wave 2) were recontacted to capture further changes in the core gambling behaviours. 666 participants (48%) had engaged in gambling activity in the last four weeks.

Qualitative wave

The qualitative phase took place in August 2023, with the aim to build a “more rounded impression and picture of each individual”. This phase engaged with 16 individuals who each completed a three-day “digital diary pre-task” to reflect on spending habits. 16 one-hour online interviews were then conducted with gamblers who engage in a variety of different gambling types and with different gambling behaviours (whilst it is not clear, we assume these were the same 16 individuals who participated in the digital diary pre-task).

The Gambling Commission’s interim report does not discuss findings from the qualitative phase; these will accompany further quantitative and longitudinal analyses in the final report expected in “early 2024”.

Key findings

The quantitative phase of the COL Research (i.e. the three waves) surveyed the participants across three broad topics. We set out the Gambling Commission’s key findings for each topic below.

Topic 1: Financial comfort and concerns, and wellbeing

Just under half of the respondents indicated they were “just about managing but felt confident that they would be okay” with the cost of living, whereas between 40% and 43% of individuals indicated they were “financially comfortable”.

The subgroups most likely to have broader concerns about their personal finances are those who gamble online and those who score 8 or more on the Problem Gambling Severity Index (“PGSI”), however most individuals signalled the need to take steps to make their income go further during the tracked period.

In terms of wellbeing, between 45% and 49% of respondents reported “not being able to enjoy the things that they used to due to the rising cost of living” throughout the tracked period.

Topic 2: Changes in gambling behaviours

Despite the rise in cost of living, a clear majority of gamblers reported that their gambling behaviours (amount of time and money spent, number of gambling occasions and typical stake placed) had remained stable, the majority ranging from 62% to 75% depending on the type of gambling behaviour.

If a change in gambling behaviour was reported, it was much more likely to be a decrease in gambling. For example, between 22% and 26% of individuals reported a decrease in the amount of time spent gambling, compared to 6% to 7% that reported an increase in time spent gambling.

69% of individuals who did report changes indicated that these changes were “at least partially a direct consequence” of increases in the cost of living.

Individuals who scored 8 or more on the PGSI were more likely to report an increase in the gambling behaviours surveyed, despite the rise in cost of living.

Topic 3: Motivations for gambling

Respondents who previously indicated they had changed their gambling behaviours were asked questions about four specific motivations in Waves 1 and 3, displayed in the Gambling Commission’s Table 4.1:

Between 10% and 20% of online gamblers indicated that bolstering their finances was their motivation for gambling, and this motivation applied to “significantly more” individuals who scored 8 or more on the PGSI.

Interim conclusions

The concluding remarks in the Gambling Commission’s report considered the interim findings in the context of the following two hypotheses:

Has the rise in cost of living had a mediating effect on gambling behaviour?

Initial quantitative evidence does not suggest that the rise in cost of living has had a mediating effect on gambling behaviours. However, the “small proportion” of those who did make changes to their gambling during this period were more likely to have deceased their gambling; the exception being individuals who scored 8 or higher on the PGSI, who were more likely to have increased their gambling compared to other groups of participants.

Has the rise in cost of living negatively impacted vulnerabilities for some consumers?

A small minority of gamblers who said that they have changed at least one of the surveyed gambling behaviours reported using gambling to support their finances in some way, with a greater proportion of those doing so being online gamblers and/or those who scored 8 or more on the PGSI. The individuals who did change their gambling behaviours indicated that the rise of cost of living has at least partially contributed to their change in behaviour.

Takeaway points

It can be inferred from the interim findings that online gamblers and individuals scoring 8 or higher on the PGSI may be more vulnerable to gambling-related harms when faced with a rise in cost of living.

Given that the interim findings come at a time when the spotlight is on affordability and customer interaction, it will be interesting to see whether the COL Research findings feature prominently in the Gambling Commission’s response to its summer consultation that closed on 18 October 2023 and included consideration of new obligations on licensees to conduct financial vulnerability checks and financial risk assessments.

For the meantime, online operators in particular, should bear these interim findings in mind while they are updating their safer gambling policies and procedures to reflect the Gambling Commission’s revised customer interaction guidance for remote gambling licensees; and evaluate whether they ought to take increased cost of living into account in their assessment of financial risk – pending formal direction from the Gambling Commission.

The Gambling Commission’s final report in “early 2024” will combine its interim findings with further quantitative analysis of the longitudinal impact of the increased cost of living across different demographic groups, and key findings from its qualitative phase of the COL Research.

Please get in contact with us if you have any questions about the Gambling Commission’s interim findings and/or your business’ approach to customer interaction and financial vulnerability.

28Nov

Autumn Statement 2023: Upcoming consultation and tax implications for the gambling sector

28th November 2023 Adam Russell 124

On 22 November 2023, it was announced in the Treasury’s Autumn Statement 2023 (the “Statement”) that the Government will “shortly publish a consultation on proposals to bring remote gambling into a single tax rather than taxing it through a three tax structure as at present.”

This would represent a significant shift from the current position, whereby taxation of remote gambling (defined in the Statement as “gambling offered over the internet, telephone, TV and radio”) is through a three-tax structure consisting of remote gaming duty (21% of gross win), general betting duty (15% of gross win) and pool betting duty (15% of gross win).

When these proposals are considered alongside the impact of proposed Gambling Act reforms which include the proposed introduction of a statutory levy, there will likely be financial implications for remote gambling licensees. It is therefore vital that industry and its stakeholders are fully engaged with the Government’s consultation on single tax proposals to ensure that all potential consequences are considered.

Although the proposals do not impact the land-based sector, the Government also announced in the Statement that gross gambling yield bandings for gaming duty (payable by land-based casinos) will be frozen, again, until 31 March 2025. The Betting and Gaming Council has criticised this announcement stating that it will, in effect, mean that land-based casinos will see their tax bills increase because the bands are not being increased in line with inflation.

Next steps

We will blog further on this topic when the Government’s consultation has been published. Please get in touch with us if you have any questions or if we can assist.

24Nov

Gambling Survey of Great Britain: Gambling Commission’s new approach to collecting gambling participation and prevalence data

24th November 2023 Chris Biggs 131

In December 2020, the Gambling Commission launched a consultation on proposals to change the way it collects data about adult gambling participation and problem gambling prevalence. Since then, the Gambling Commission has been developing a “single, gold standard population survey for the whole of Great Britain”, in an effort to improve the quality, robustness and timeliness of its official statistics.

Following two years of pilot surveys, stakeholder engagement, interim findings reports and fieldwork conducted by the National Centre for Social Research (“NatCen”), an independent not-for-profit organisation and registered charity, and the University of Glasgow, on 23 November 2023, the Gambling Commission published the first “experimental” statistics of the Gambling Survey of Great Britain (“GSGB”). Thus begins the roll-out of, as the Gambling Commission’s CEO Andrew Rhodes recently described it in a two-part podcast discussion with The Gambling Files, the “largest survey in the world of its kind, on gambling behaviours, attitudes, participation”.

In this blog, we discuss the background to the GSGB, its current status in light of the recent announcement, and why the GSGB is such an important project for the gambling industry in Great Britain.

What is the GSGB?

Background

Prior to the Gambling Commission’s December 2020 consultation, the GSGB was foreshadowed in the Gambling Commission’s Business plan 2020-2021, where the Gambling Commission stated, in connection with its key strategic priority to prevent gambling harm to consumers and the public, it would “review approach to measuring participation and prevalence and publish conclusions”.

As noted above, the December 2020 consultation on gambling participation and problem gambling prevalence research was subsequently launched, which included proposals to change the Gambling Commission’s research methodology to, amongst other things, consolidate the different surveys the Gambling Commission previously relied upon to understand adult gambling participation and prevalence into one population survey, and improve the frequency and turnaround time of the survey data. The response to the consultation, when it was published, confirmed that respondents largely supported these proposals, with an average of two-thirds of respondents agreeing with the proposals to change the research methodology and only one-fifth of respondents disagreeing.

In the meantime, the Gambling Commission had been conducting quarterly telephone surveys on participation and prevalence of problem gambling (the most recent results of which were published on 11 May 2023). However, it was noted by the Government in the White Paper that the telephone survey was “less robust” than the national health surveys of Great Britain in its tracking of gambling trends, and that there are gaps in the evidence and the Government’s understanding of gambling participation and prevalence of harm. This criticism reflected conclusions we had also reached in our joint blog with Regulus Partners on the topic of in-play betting.

It was thus clear, from an industry, regulatory and Governmental perspective, that there was a need for the Gambling Commission to revamp its methodology for the collection of gambling data. In light of the release of the experimental figures, the Gambling Commission’s continued roll-out of the GSGB will be closely followed by the industry.

How is the GSGB carried out?

NatCen describes the GSGB as a survey that asks individuals for their “views on and experiences of playing different games, lotteries and betting, and the effects that these activities may or may not have on people’s lives.” It explains that the GSGB will provide the Gambling Commission with high-quality information about the gaming, betting and playing habits, attitudes and harms experienced across the adult population in Great Britain.

In terms of the specific methodology, the GSGB will be an annual “push to web” survey of up to two adults per household in Great Britain. The Gambling Commission hopes that the GSGB will collect responses from 20,000 individuals each year.

Procedure

NatCen explains that survey invitation letters have been sent to addresses selected at random from the Postcode Address File. In these invitations, NatCen asks that up to two adults in each household take part in the survey online by either:

scanning one of the QR codes provided in the survey invitation letter; or
visiting the webpage (survey.natcen.ac.uk/GSGB2) and entering one of the unique access codes provided in the survey invitation letter.

Participants will be asked a series of questions that should take approximately 20 minutes to complete. As a reward for taking part, those who complete the GSGB will receive a £10 shopping e-voucher.

Further information about the GSGB and the procedure can be found on NatCen’s website.

Timeline

The Gambling Commission has published a timeline tracking the progress of the GSGB since its December 2020 consultation. This displays the various stages of the Gambling Commission and NatCen’s progress, such as the consultation, stakeholder engagement, pilot testing and interim reporting on the GSGB project.

Release of experimental statistics

What are the findings?

The findings are (in the Gambling Commission’s words) “not yet fully developed and are still under evaluation”. In the Gambling Commission’s blog announcing the update, Helen Bryce, Head of Statistics at the Gambling Commission, explained that the findings are from the “final step in the experimental stage of the project”, and have been published so users (i.e. industry stakeholders) can familiarise themselves with the GSGB’s methods and findings before they become the Gambling Commission’s official statistics.

On our initial review, we note the experimental data was based on a sample group of approximately 4,000 (up to 3,774) respondents and presents some interesting key findings:

50% of respondents (of which 53% were male and 47% female) had gambled in the past 4 weeks, whereas 61% of respondents had gambled in the last 12 months.
The three most popular gambling activities in the past 4 weeks were the National Lottery (32%), charity lotteries (15%) and National lottery scratchcards (13%).
Most gambling respondents indicated they had gambled for the chance of winning big money (84%) and because it is fun (72%).
2.5% of respondents were considered to be problem gamblers, having scored 8 or higher on the Problem Gambling Severity Index (“PGSI”) screen, and a further 3.5% of respondents were considered moderate-risk gamblers (scoring between 3-7 on the PGSI screen).

Ms Bryce explained in the Gambling Commission’s blog, due to the significant changes in its methodology for collecting this data, these results should not be compared to previous figures sourced from its quarterly telephone surveys or NHS health surveys. Generally speaking this is a reasonable point of clarification to make, but it is made in a clear effort to dampen industry outcry to the alarming increase in the problem gambling rates: as at March 2023, the overall headline problem gambling rate (measured by the PGSI screen) was “statistically stable” at 0.3%.

The Gambling Commission has also set out its views on the strengths and limitations of the GSGB methodology. Notably, it has reiterated that although the experimental sample size was approximately 4,000 respondents, the Gambling Commission still expects to gather data from 20,000 respondents annually when it moves to the official statistics phase.

The findings, which are set out in an easily navigated spreadsheet, can be downloaded here. The Gambling Commission is also seeking industry feedback on the GSGB, which can be submitted through its online form.

Current status of the GSGB

The Gambling Commission has recruited Professor Patrick Sturgis, Professor of Quantitative Social Science at the London School of Economics, to undertake an independent review of the GSGB methodology. Professor Sturgis’ findings and recommendations will be published by the Gambling Commission “early next year”, with a view to the GSGB methodology becoming the Gambling Commission’s official statistics “later in 2024”.

The Gambling Commission’s previous update on the GSGB came in a blog from July this year. Having hosted panel workshops with three stakeholder engagement groups (academics, representatives from the gambling industry and individuals with lived experience), the Gambling Commission stated that it intended to publish the first set of quarterly official statistics in Spring 2024, alongside a timeline for future quarterly release dates. With the Gambling Commission seeking an independent review of the GSGB’s methodology, it now appears that the Gambling Commission will not adopt the results of the GSGB as its official statistics until later next year.

Why is the GSGB important?

The Gambling Commission has a duty to advise the Secretary of State on: (a) the incidence of gambling; (b) the manner in which gambling is carried on; (c) the effects of gambling; and (d) the regulation of gambling (see section 26(1) of the Gambling Act 2005).

NatCen explains that the information collected by the GSGB will help the Gambling Commission to fulfil this duty by being “written up in reports for policy makers to use in their decision-making process” so it may be used to “inform policy changes in the gaming, betting and playing industry”.

Furthermore, in its Evidence gaps and priorities 2023 to 2026, published on 23 May 2023, the Gambling Commission confirmed it would be using the GSGB to:

improve its understanding of gambling participation at a national level and in sub-groups of interest;
produce robust statistics on who is experiencing gambling-relating harms, and how; and
develop its understanding of how people commit crime or are a victim of crime as a dimension of gambling-related harm.

The quarterly statistics from the GSGB will thus underpin the Gambling Commission’s future decisions about how it can better protect consumers and carry out its regulatory duties.

Of note for online B2Cs, problem gambling prevalence statistics are also referenced in the Gambling Commission’s new remote customer interaction guidance (about which we have written previously). This guidance addresses, among other things, how remote licensees can comply with the requirement under social responsibility code provision 3.4.3(14) of the Licence Conditions and Codes of Practice to “take account of problem gambling rates for the relevant gambling activity as published by the Commission, in order to check whether the number of customer interactions is, at a minimum, in line with this level”, which came into effect from 12 September 2022.

Licensees should familiarise themselves with the experimental findings, as the Gambling Commission intends. It is, in effect, a warning: Licensees should understand how to interpret the findings of the GSGB and carefully consider these results for when they become the Gambling Commission’s official statistics. Licensees should use this data to inform the minimum levels of customer interactions they are making with customers – or risk enforcement action by the Gambling Commission for not complying with a condition of their operating licence.

Summary

Following criticism of its prior methods for collecting industry statistics, the Gambling Commission appears to be building a robust research methodology to ensure the GSGB will produce its gold standard population survey for the whole of Great Britain. The latest problem gambling rates collected by the GSGB (albeit ‘experimental’) have indeed attracted further scrutiny from the industry – some may argue that the Gambling Commission anticipated such scrutiny and pre-emptively commissioned Professor Sturgis’ independent review of the GSGB. Either way, we fully expect the Gambling Commission, in its future regulatory decisions, to place significant weight on the evidence drawn from the GSGB when it becomes the Gambling Commission’s official statistics.

With new customer interaction requirements for remote operators in Great Britain in effect, we recommend all licensees (and especially online B2Cs) review the experimental findings, stay apprised of the GSGB’s further progress and closely analyse the problem gambling data that is released in light of the number of interactions they are carrying out with customers, in preparation for the GSGB becoming the Gambling Commission’s official statistics next year. After all, we know the Gambling Commission will be doing the same in future compliance assessments.

Please get in touch with us if you have any questions about the GSGB and how its results should be used to inform your remote customer interaction policies and procedures.

In “push to web” surveys, respondents are recruited offline (such as via another survey, or through the post), and then encouraged to go online and complete a web questionnaire.

09Nov

Unlicensed gambling – growing threat or exaggerated myth?

9th November 2023 Gemma Boore 148

Earlier this month, Andrew Rhodes, the Chief Executive Officer and Commissioner of the Gambling Commission, took part in a two-part podcast discussion with The Gambling Files to reflect on and discuss topical issues affecting the gambling industry. Amongst the subject matter covered, Rhodes touched in Part 2: HE REVEALS MORE! on black market activity and the steps the Gambling Commission is taking to disrupt illegal gambling in Great Britain – which Rhodes claims to have resulted in significant drops in traffic to illegal operators.

This reflected themes in Rhodes’ keynote speech at the International Association of Gambling Regulators (“IAGR”) conference in Botswana on 16 October 2023, in which he noted whilst illegal online gambling market exists in Great Britain, as it does elsewhere:

“it is not a significant concern and this position hasn’t fundamentally changed. However, that does not mean there is no illegal market or no risk”.

In other news, Lucy Frazer, the Secretary of State for Culture, Media and Sport recently digested the contents of a letter from eight UK horseracing industry leaders. In the letter, the signatories reportedly warned that affordability checks, which the Government recommended be introduced in the Gambling White Paper, will cost racing £250 million in funding over the next five years and that this would be a disaster for British horseracing as punters either walk away from the sport or turn to the black market to gamble.

Potentially to back up this claim, the Racing Post then published the results of its “The Right to Bet” survey, which found that (1) one in four of the respondents would be prepared to switch to the black market if faced with stringent affordability checks; and (2) nearly one in ten have already used black market betting sites.

A petition was then posted on the UK Government and Parliament website, calling for the Government to abandon the planned implementation of affordability checks because “more intrusive checks triggered at a higher threshold risks bettors moving to the black market where there are no consumer protection or safer gambling tools”. This petition has – as at the time of writing – accumulated 76,204 signatures, three quarters of the number needed to trigger a debate in Parliament.

So, is the black market really a growing threat, or an exaggerated distraction? What are the Gambling Commission and the Government doing to curb illegal gambling? And what can businesses do if their proprietary content (intellectual property (“IP”)) turns up on unlicensed sites?

Read on for our discussion along with a helpful checklist for licensees that receive communications from the Gambling Commission regarding black market activity.

What is black market gambling?

The term ‘black market’ gained popularity during World War II (when common household products were rationed to avoid hoarding) and generally refers to an illegitimate market in which commodities are being traded, exchanged or performed in an illegal manner.

With regard to modern gambling in Britain, section 33 of the Gambling Act 2005 (as amended) (the “2005 Act”) makes it clear that it is an offence to provide facilities for gambling to customers in Great Britain from anywhere in the world, without holding a licence from the Gambling Commission unless a relevant exemption applies. Accordingly, it is common within the industry to refer to unlicensed online operators that illegally provide facilities for gambling to customers in Great Britain, without the appropriate licence or falling under a relevant exemption, as the “black market”.

Why is unlicensed gambling bad?

As Rhodes notes in his keynote speech at the IAGR conference, every gambling jurisdiction in the world has illegal online gambling:

“Whether online gambling is prohibited or not, if you can access the internet, then you will be able to find a way to gamble. We all know this. It’s also worth pointing out at this point that what is an illegal, unlicenced operator for me in Great Britain may be a legitimate, licensed business for you and vice versa.”

From a consumer perspective, one of the fundamental problems is that black market websites are not always distinguishable from those that are locally licensed – at least to the untrained eye. This means a consumer may be gambling on an illegal gambling site without even knowing it and, in this “Wild West” of the remote sector, unlicensed operators are not constrained by regulation. It is common to see consumer reports of problems, such as the inability to withdraw funds and difficulties contacting support in the event of a complaint. Indeed, Rhodes acknowledged in The Gambling Files podcast, that recent research has shown that illegal websites actively seek to advertise to people that have self-excluded from gambling on GAMSTOP and others allow unlawful activity in itself by, for example, allowing children to gamble.

So, what is the Gambling Commission doing?

One of the Gambling Commission’s key functions is to investigate and prosecute illegal gambling and other offences committed under the 2005 Act. As Rhodes noted in his IAGR keynote speech, the Gambling Commission typically deploys an “intelligence-led approach” to combat black market operators.

This means that ordinarily, they will initially issue a cease-and-desist letter to require the unlicensed operator to suspend their operations. Failing this, the Gambling Commission will implement “disruption techniques, using its partnerships or relationships with other companies”, which can include:

asking web hosting companies to suspend or ‘block’ British consumers from accessing the websites;
contacting payment providers to remove payment services;
liaising with internet search and service providers to prevent websites appearing on search engines;
working with social media firms to take down posts which promote illegal gambling; and
engaging with international regulators, including by sharing information and raising the prominence of the issue – and Rhodes used the keynote as an opportunity to call for collaboration in this regard.

In addition, Rhodes described in his speech more novel steps that the Gambling Commission is taking to disrupt unlicensed, illegal online operators through collaboration with others:

“…this means we’ve been going further upstream, further away from where our formal powers begin and have been looking to work with others to get between those illegal operators and British consumers and generally frustrate their business and force them out of our market.”

And this has included:

working with software licensees to prevent access to popular products when their games appear to be available on illegal sites; and

engaging with licensees if we discover their affiliates have placed adverts on illegal sites – ensuring licensees remove advertising and encouraging an assessment of business relationships with these affiliates.

By taking these steps, Rhodes claimed that the Gambling Commission has “increased… enforcement actions by over 500 percent between 2021-22 and 2022-23” and “more than doubled the number of successful positive disruption outcomes” leading to a “a 46 percent reduction in traffic to the largest illegal sites coming into market”.

Notwithstanding the bountiful fruit of its recent efforts, the Gambling Commission has always acknowledged that stronger measures are required. In its Advice to Government relating to its review of the 2005 Act, the Gambling Commission explains that:

“Under our current framework, we cannot compel third party providers to take action such as to block British access to the website, remove payment services or prevent websites from appearing in search engines. Moving to criminal prosecution has had limited effect, largely because websites can immediately disappear and reappear with a different identity (a phenomenon known as ‘phoenixing’), and their ultimate owners and lines of responsibility are very difficult to fully trace. This also makes it very difficult to accurately scope the size of the black market”.

How does this play into the White Paper?

Before it was even published, the black market was the backbone of many highly politicised debates concerning the White Paper and the proposals to be made therein. Affordability (and more specifically, mandatory deposit and/or loss limits) in particular, led to outcry from the sector and various interested parties commissioned research to try to truly gauge the extent of illegal, unlicensed gambling in Great Britain.

In particular, a 2021 PwC report entitled “Review of unlicensed online gambling in the UK” commissioned by the Betting and Gaming Council, claimed that the proportion of UK online gamblers using unlicensed operators in November 2020 had increased to 4.5 per cent – or around 460,000 people – from 2.2 per cent over the previous one to two years. In addition, the study found that stakes with unlicensed operators had doubled to £2.8 billion.

Neil McArthur, the then Chief Executive of the Gambling Commission, poured cold water on the PwC report in a letter to cross-party MPs investigating the harmful effects of gambling, reportedly stating it was “not consistent with the intelligence picture” and that the impact of the black market “may be being exaggerated“.

When the White Paper was finally published in April 2023 – some 30 months after the call for evidence – it was broadly accepted to be balanced and evidence-led. Chapter 3, which considered the potential for reform in the Gambling Commission’s powers and resources, outlined the Government’s views on black market gambling and whether it presented a tangible risk. Specifically, the Government acknowledged that although estimating the size of the black market is difficult, it was clear that “excessive commercial caution risks driving customers to the black market where they can be exposed to a variety of risks”. The Government further noted that there has been a rise of illegal operators in other jurisdictions with:

“either extremely permissive regulatory regimes or no regulatory oversight, and/or are being run by individuals with suspected links to serious and organised crime.”

It then went on to acknowledge the Gambling Commission’s disruptive approach was working well to an extent (a statement with which we agree), but recommended that the Gambling Commission’s powers to action be strengthened to create a safety net, giving the Gambling Commission the versatility to “apply to court as a last resort” if required:

“When Parliamentary time allows, we will introduce legislation that will give the Gambling Commission the power to apply to the court for an order that requires ISPs , payment providers and other providers of “ancillary services” to implement measures aimed at disrupting the business of an illegal gambling operator”.

While a laudable aim, changes to legislation take time and given other legislative pressures and the impending General Election, it is not clear when these changes will take effect – there certainly was no mention of such a bill in The King’s Speech on 7 November 2023. This contrasts with affordability checks (which the White Paper recommends become mandatory for operators to carry out when consumers reach specific loss thresholds), which have already been subject to a public consultation by the Gambling Commission and may take effect much sooner.

Lessons for licensed operators

For the meantime, Rhodes emphasised in his keynote that the Gambling Commission will continue to use its existing powers (and authority) to tackle illegally, unlicensed gambling. As noted earlier, this may include the Gambling Commission contacting its own licensees to try to persuade them to take steps to disrupt illegal gambling.

If you hold a British licence and are contacted by the Gambling Commission about a black market website, we recommend that you take professional advice. You may also want to consider taking one or more of the following steps:

verify that your content is being used / your adverts are being placed on an illegal website. Involve your tech teams as they should be able to confirm whether the content is legitimate or an infringing copy of your IP;

check that games / links are accessible in Great Britain and if they are, whether you receive any British traffic from the site in question;

identify the operator of the website and/or the affiliate that is placing advertisements on the illegal site;

consider whether you have a contractual relationship with the operator / affiliate or any member of its group. If you do not have a direct contract with the operator/ affiliate or one of its group companies, consider whether there may be an indirect relationship (for example, via a content distributor or affiliate program);

if a contractual relationship exists, investigate how this arose and review all due diligence you conducted on the third party/ies during the contractual relationship;

send a cease-and-desist letter (takedown notice) to all entities that you can identify as being involved; cite restrictions in your contract (if relevant);

if the third party does not cease the activity or justify their actions:

terminate any contracts with them promptly. Note that inclusion of such a termination right is a requirement under Social Responsibility Code Provision 1.1.2 of the Licence Conditions and Codes of Practice;

consider contacting third parties such as hosting providers, domain registrars and third-party search engine such as Google who may otherwise be able to stop the website being accessible by customers in Great Britain;

engage professionals to review:

your systems and processes for identifying use of your content / placement of your ads on illegal websites; and

your standard contracts,

to mitigate the risk that your IP rights are exploited illegally in the future; and

update the Gambling Commission within the deadline they have set on the outcome of your investigation and the steps you have taken to:

address the present infringement of your IP rights; and

mitigate the risk of a similar situation occurring again.

Please get in touch with us if you would like assistance responding to a Gambling Commission request, or if would like to discuss the themes in this blog more generally.

07Nov

Personal management licensee: What do you need to know?

7th November 2023 Chris Biggs 152

Individuals who hold a personal management licence (“PML”) issued by the Gambling Commission undoubtedly play the most important role in ensuring business decisions are underpinned by the licensing objectives, building a strong foundation of compliance and raising standards. Ultimately, they are personally accountable and responsible for compliance failings. As personal licensees, PMLs can face enforcement action by the Gambling Commission. We expect to see more enforcement action taken against PMLs on the basis that people make decisions, not businesses.

The White Paper included a proposal to extend the requirement to hold a PML, set out in licence condition 1.2.1 of the Licence conditions and codes of practice (“LCCP”), with the goal to drive “personal accountability and responsibility”, allowing the Gambling Commission to “take necessary action against individual (personal) licensees when failures are found”. In our previous blog, we discussed who (currently) needs to hold a PML, how PMLs drive corporate culture, the Gambling Commission’s proposed changes to PML requirements following the White Paper and the reasons for those potential changes.

With the spotlight on PMLs, in this blog we provide an overview of PML requirements and our top pointers for staying compliant.

PML requirements

One of the key challenges for PMLs is that, unlike many other regulated professions, there are no standards of: (a) conduct, performance and ethics; or (b) competence, which set out the minimum requirements. Instead, the PML regime is based on broad principles as detailed below. It is worth noting that if the Gambling Commission commences a licence review against a PML, it will be based on the PML’s failure to comply with the following licence conditions and/or expectations:

Licence conditions

There are three licence conditions attached to PMLs, set out in Part 3 of the LCCP, summarised as follows:

Licence condition 1: PMLs “must take all reasonable steps” when carrying out their responsibilities in relation to licensed activities to ensure they do not place their employer’s operating or premises licence in breach of their licence conditions. This is evidently broadly drafted and widely interpreted by the Gambling Commission.
Licence condition 2: PMLs must keep themselves informed of “developments in gambling legislation, codes of practice and any Commission guidance … relevant to their role”.
Licence condition 3: PMLs must report key events (see below) within 10 working days of becoming aware of the event’s occurrence.

“Expectations”

Additionally, section 4.3 of the Gambling Commission’s Statement of principles for licensing and regulation sets out the expectations of individuals occupying senior positions, whether or not they hold PMLs, to (amongst other things):

uphold the licensing objectives and ensure compliance of operations with the LCCP;
organise and control their affairs responsibly and effectively;
have adequate systems and controls to keep gambling fair and safe;
conduct their business with integrity;
act with due care, skill and diligence;
manage conflicts of interest fairly;
work with the Gambling Commission in an open and cooperative way;
disclose to the Gambling Commission anything which it would reasonably expect to know; and
comply with both the letter and spirit of their licence, the licence of their operator and associated Gambling Commission regulations.

PML key events

As set out in licence condition 3, PMLs are required to notify the Gambling Commission of the occurrence of certain key events, “within 10 working days after the licensee becomes aware of the event’s occurrence”. These are:

a change in name (for example, following marriage);
a change in address;
any current or pending investigation by a professional, statutory, regulatory or government body in Great Britain or abroad, and the imposition of any sanction or penalty against them following such an investigation (this would include another gambling regulator);
being subject to (a) any criminal investigation, or (b) conviction of any offence, listed under Schedule 7 – Relevant Offences of the Gambling Act 2005;
the imposition of a disciplinary sanction against them, including dismissal, for gross misconduct;
resignation from a position for which a PML is required following commencement of disciplinary proceedings in respect of gross misconduct;
disqualification from acting as a company director; and
the presentation of a petition for their bankruptcy or sequestration or their entering into an individual voluntary agreement.

Further guidance to PMLs about personal key events can be found here.

Online service and contact details

PMLs must ensure their registered contact details are accurate. In addition to this being a licence condition, it will ensure critical correspondence is not missed, including relating to any revocation (generally, for failure to undergo PML maintenance) or licence review.

When granted, we strongly encourage PMLs to register for the Gambling Commission’s Manage your personal licence online service for PMLs. This service allows PMLs to update contact details, submit key events and submit maintenance checks (see below).

PMLs:

must – personally – keep their registered email address up to date; and
should ensure the Gambling Commission’s email domain is trusted, to avoid emails going to junk or spam folders.

PML maintenance

PMLs are indefinite in duration, meaning that the licence does not renew or lapse.

PMLs are subject to a mandatory maintenance check every five years. This is an automatic process (not an application, as the Gambling Commission incorrectly describes it), the purpose of which is solely the provision of updated information about the PML, such as current address and position, and payment of the fee. It is for the Gambling Commission simply to check and record the information. As we have written previously, the Gambling Commission is not legally empowered to delay or put on hold PML maintenance on the misconceived ground that enforcement action is ongoing or imminent.

The Gambling Commission will contact PMLs by email to advise of the upcoming PML maintenance. We recommend that PMLs and any supporting compliance/licensing teams separately diarise the five-year anniversary. A failure to submit the PML maintenance check will result in the PML being revoked.

To complete the check, PMLs need to sign into the online service. PMLs cannot submit the maintenance check before the PML anniversary date, and have only 30 days from the anniversary date to submit the check. Upon submission, a fee of £370 needs to be paid.

At the time of writing, if a check is not submitted within 30 days, the Gambling Commission will send a notice of revocation by email, providing a further 28 days from this notice to complete the maintenance check, otherwise the PML will be revoked.

Tips for PMLs

Keep contact details up to date;
Ensure the “gamblingcommission.gov.uk” email domain is whitelisted;
Register for the online service;
Understand the meaning of a key event, including changes of name or address and criminal investigations (without charges);
Understand the PML licence conditions and expectations;
Document structured and unstructured training; and
Diarise the five-year maintenance check.

Tips for employers

Remind PMLs to provide personal contact details (i.e. not a work email address) to the Gambling Commission upon or shortly before departure from the business;
Provide or arrange for annual refresher training to be provided for PMLs on PML licence conditions and expectations (we can help with this!);
Keep a record of internal and external training provided to PMLs;
Diarise each PML’s five-year maintenance check for both the business and the PML;
If a PML leaves or changes roles within the business and they held a specified management office, the business needs to notify the Gambling Commission as soon as reasonably practicable, and in any event within five working days of the PML’s departure under the operating licence condition 15.2.1(4); and
Remind the PML to notify the Gambling Commission of their departure if they leave the business and update their contact details, if required.

Please get in touch if you have any questions or would like to discuss your training needs.

Gambling Regulation