888 licence review and the Commission’s enforcement strategy

888 licence review and the Commission’s enforcement strategy

by Melanie Ellis, Senior Associate

The latest in a series of public statements relating to compliance failings revealed that 888 has been heavily penalised by the Gambling Commission for failing to protect vulnerable customers. The total financial penalty of £7.8m (including a payment of £4.25m in lieu of a fine and £3.5m in reimbursements to customers) represents by far the largest penalty against a licensee to date.

The issues

The Commission considered there was a breach by 888 of three social responsibility code provisions: 3.5.1.1 (self-exclusion), 3.4.1.1(e)(i) (customer interaction) and 3.9.1.2(a) (identification of individual customers). There were two key areas of failings:

Self-exclusion – 7,010 customers who had completed the self-exclusion process were excluded from the casino, poker and sports betting offerings but still able to play bingo for a period of 13 months. Bingo was operated on a separate platform to the other products and a technical fault meant that the self-exclusion request was not communicated to the other platform as it should have been. Customer identification checks should have nevertheless revealed accounts of customers who had requested to be excluded from both platforms, but these checks were inadequate. Over £3.5m was deposited by these customers during this time and they turned over a total of over £50m.

Problem gambling behaviour – One customer’s problem gambling behaviour resulted in total stakes of over £1.3m with 888 during a 15 month period, £55k of which was funded by theft from their employer. The customer was gambling for three to four hours per day on average which, combined with the amounts involved, should have been indicative of problem gambling. However, 888 failed to implement any interaction with the customer.

The Commission’s enforcement strategy

The penalty against 888 took the form of a “regulatory settlement” rather than a fine. Recent changes to the Commission’s enforcement strategy which took effect on 5 July 2017 mean that all regulatory tools are now on an equal footing and the previous bias towards voluntary settlements has been removed. In light of the clear seriousness of this case a licence review did take place, but the Commission agreed to a financial settlement with 888 in relation to the failings. It appears that this is in a large part due to the fact that 888 was “frank and cooperative” during the process and had “recognised its failings and gone to significant lengths to address the concerns raised and prevent these issues happening again”.

The new enforcement strategy also highlights that higher financial penalties will be introduced for licence breaches, and the 888 case sends a clear signal as to what that means in practice. In June 2017, the Commission published a statement of principles for determining financial penalties. This sets out that the aims of a financial penalty are to:

• change the behaviour of the licensee
• eliminate any financial gain or benefit from non-compliance with licence conditions
• be proportionate to the nature of the breach of licence condition and the harm caused
• aim to deter future non-compliance, both on the part of the licensee and other operators

The statement goes onto say that the total amount payable will be made up of two elements – an amount to reflect any detriment suffered by customers / remove financial gain and an amount that reflects the seriousness of the failure, the impact on the licensing objectives and the need for deterrence. This is demonstrated in the penalty paid by 888, which was made up of returning deposits to customers who had self-excluded, repaying the employer from whom money was stolen to fund gambling and an amount of £4m in relation to the self-exclusion issues and £0.25m in relation to the problem gambling issue, to reflect the relative seriousness and impact of those failings.

The level of this penalty represents an escalation of enforcement action by the Commission and must be viewed in the context of the “deterrent” element of the calculation. The Commission clearly wants to send a message to the industry that treating customers in a socially responsible manner is of the utmost importance and disregard for, or negligence towards, the social responsibility codes of the LCCP will not be tolerated.

Good practice guidelines

As part of the public statement, the Commission sets out four points for operators to consider to avoid making the same mistakes:

• Unless specified by the customer the self-exclusion applies at the operator level, which means all websites and brands provided by that business. Is it clear to both you and your self-excluded customers which brands they have self-excluded from?
• Are you able to prevent self-excluded customers from gambling on different websites and/or brands?
• Do you proactively use all the available information you have about a customer?
• We do not think the only focus should be on the amounts deposited or staked by a customer, and instead should include other factors such as time spent gambling, pattern of play or number of bets to identify whether they are at risk of being harmed by gambling.

We would go further than suggesting that operators consider these points, and recommend that they immediately test their self-exclusion system to ensure that customers are properly prevented from playing on all relevant websites and brands. Further, monitoring systems should be tested to ensure they identify and flag up all factors which might be indicative of problem gambling.

Implications

Failings of this magnitude and seriousness by a leading operator, and we stress 888 is far from being the only leading operator to have been subject to a regulatory settlement, are extremely damaging to the reputation of the entire gambling industry. For as long as we continue to see public statements of this nature, it will be difficult for the industry to challenge the Commission effectively on its increasingly aggressive enforcement strategy and/or for any gambling sector to win any legislative or regulatory relaxations or advances.

If we are being optimistic, the industry has already heard loud and clear the message from the Commission and Government about raising standards and what we are seeing now is the inevitable time lag as operators learn lessons and strong leadership on social responsibility, improved corporate cultures and new responsible gambling initiatives take effect. Indeed, from our personal experience alone, we know so many operators who do place social responsibility at the heart of their business and work day in, day out, to promote responsible gambling by their customers. Only time will tell, but with the continual ratcheting up of regulatory sanctions, loss of a licence by a leading operator is not the remote possibility it once was.