22Jun

Consultation response: Gambling Commission fees to increase from 1 October 2021

22nd June 2021 Jemma Newton 21

On 14 June 2021 the UK Government issued its response to a consultation by the Department for Digital, Culture, Media and Sport (“DCMS”) in relation to proposals to increase the fees which are payable by gambling operators in Great Britain to the Gambling Commission (the “Commission”).

The Government’s response set out that the consultation had proposed an increase in fees in order to enable the Commission to continue to “recover its costs and address regulatory challenges”.

The Government confirmed it intends to proceed with implementing the proposals outlined in the consultation, which were to:

increase annual fees for remote operating licences by 55% from 1 October 2021;
increase all application fees by 60% from 1 October 2021;
make other changes to simplify the fees system, including removing annual fee discounts for combined and multiple licences, from 1 October 2021; and
increase annual fees for non-remote operating licences by 15%, with implementation of these increases delayed until 1 April 2022.

The Government also confirmed that two minor amendments will be made to fees regulations:

to “ensure fees regulations are consistent with the provisions of UK GDPR and the Information Commissioner’s Office’s guidance”, no variation fee will be charged where individuals exercise their right to have inaccurate personal data rectified; and
the fee for an application for a Single Machine Permit will be increased, from £25 to £40, “to ensure that the Commission recovers its costs in processing these applications”.

The Government’s full response can be viewed here.

The Commission released a response to the Government’s confirmation of an increase in fees, stating that it “welcomes publication of [the] consultation response on the funding of gambling regulation”, and clarifying that the much needed changes to its fees income “will enable [us] to continue to regulate effectively”. The Commission’s response can be viewed here.

What does this mean for licensees?

As set out above, in addition to a significant increase to licence application fees, remote licensees will be required to pay considerably higher annual fees to the Commission from 1 October 2021. Notably, the increase in annual fees for non-remote licensees will be delayed until 1 April 2022, to account for the Government’s recognition of the impact COVID-19 restrictions have had on the non-remote sector. The Government’s response sets out that:

The majority of non-remote operators are required to pay their annual fees in August or September each year, meaning that the new annual fee levels for much of the non-remote industry will not be due until August 2022.

16Jun

Update on the Remote Customer Interaction Consultation

16th June 2021 Jemma Newton 16

Background

On 25 May 2021, the Gambling Commission of Great Britain (“the Commission”) provided an update regarding its Remote Customer Interaction Consultation.

The update referenced the Commission’s consultation, which took place earlier this year, which is concerned with identifying and protecting customers at risk of harm. The update also referred to the Commission’s current requirements, which place a duty on remote operators to monitor gambling, and to take action where there is a risk of harm, and the Commission’s finding that operators were not always acting swiftly enough. The Commission confirmed that it has been analysing the approximately 13,000 responses it received.

Confirming that it had considered what the respondents said, the Commission states that:

Many people think there should be protections in place for the most vulnerable and that appropriate checks should be in place to identify and prevent cases of clearly unaffordable gambling. Many respondents emphasised that measures should be proportionate and targeted at those at risk of harm. At the same time, customers were also concerned about privacy and freedom of choice. We take that seriously.

What are the Commission’s priorities and intentions?

The Commission confirms that it is aiming to achieve the correct balance, and that it has listened to concerns about what could be seen as an unnecessary assessment of time and money spent gambling. However, it goes on to state that it has seen serious failings by operators towards customers, and (somewhat surprisingly given the extensive responses it has to review) it has concluded that it needs to take action now to address the most significant risks, including excessive spending in short periods of time and harm to vulnerable customers.

The Commission states that it has concluded that stronger requirements are needed for operators to identify a range of indicators of harm, and to take action earlier and more often.

The Commission states that it has identified three key risks that it is prioritising for action:

Significant losses in a very short time

Cases where customers have been able to spend many thousands of pounds in short periods, including minutes, without any checks. These cases are relatively rare but have very significant impacts on the consumers affected. For example, in a recent case a customer lost four thousand pounds in six minutes following sign-up.

Significant losses over time

Where customers have significant losses over a period of time without sufficient assessment of whether they are being harmed. Significant losses over time are experienced by a relatively small proportion of customers and it is appropriate to require checks for these customers. An example of this in our casework was where a customer lost thirty-five thousand pounds over two months, without sufficient checks being carried out.

Financial vulnerability

Where information is available that shows when customers are particularly financially vulnerable and likely to be harmed by their level of gambling.

The Commission then sets out its next steps, which will be to:

- Publish its full response this summer, which will set out the detailed actions on the areas on which it has previously put forward proposals for consultation. Such areas include the requirement to take action where customers are known to be in a vulnerable situation, to take action in a timely manner, and, where appropriate, for that action to be automated. The Commission clarified that it will also proceed as planned with a consultation on thresholds for operators to take action and guidance as to what those actions should be.
- Continue to work closely with the Department for Digital, Culture, Media and Sport (“DCMS”) by providing advice and evidence for the Government’s Gambling Act Review (the “Review”) and recognising broader public policy questions about how to protect people from harm which will be considered as part of the Review.
- Continue to engage with consumers, the financial sector and the gambling industry about information on customers that should be available to gambling businesses.
- Continue its work to support the prevention of harm, including working to ensure that existing tools for setting deposit limits are used more widely and effectively.

Points of note for licensees and what should they do in the meantime?

1. The Commission’s update clarified that remote licensees should continue to meet the Commission’s current customer interaction requirements. The Commission’s requirements and current expectations are set out in the Licence Conditions and Codes of Practice, customer interaction guidance issued under SR Code 3.4.1 and in the Commission’s Compliance and Enforcement Report 2019-20. We discuss these requirements further in our blog.

1. Operators should note the three ‘key risks’ flagged by the Commission that are being prioritised for action. Monitoring “significant losses in a very short time” and “significant losses over time” should not be an overly burdensome task for licensees and they should consider taking steps now to introduce monitoring of these risks if they do not already do so. The third key risk, “financial vulnerability” is somewhat more nuanced; until such time as the Commission makes its position clear, licensees should note the increasing focus by the Commission on the risks presented by customers who are financially vulnerable.

1. Despite the apparent step backwards, which the Commission’s update indicates it has taken in relation to its future plans for affordability, licensees should note that in practice, the Commission continues to expect them to consider affordability in both their approach to safer gambling and in their approach to anti-money laundering and combating the financing of terrorism.

13May

The Personal Management Licence regime: An impossible tightrope?

13th May 2021 David Whyte 23

This article was co-authored by Tom Orpin-Massey from QEB Hollis Whiteman Chambers.

Introduction

Personal management licences (“PMLs”) issued by the Gambling Commission of Great Britain (“GBGC”) are held by those occupying specified management roles at licensed gambling operators. They are the key individuals at operators responsible for overall strategy, finance, marketing, information technology, oversight of day-to-day management of certain premises, regulatory compliance, and anti-money laundering.

The PML licensing regime for these senior managers creates a personal responsibility for regulatory compliance, both in the way that they conduct themselves in their role, and the way in which they have management responsibility for the behaviour of the operator for whom they work.

Their jobs are rarely easy. On top of the stresses and pressures of working for licensed gambling operators in a fiendishly competitive market, they must also navigate an ever-evolving regulatory landscape. In addition, the GBGC has been signalling for the past few years that it will increasingly focus on the role played by PML holders when undertaking compliance and enforcement investigations into operators.

The statistics reflect this; in the period April 2019 – March 2020, 49 separate licence reviews were undertaken into PMLs, primarily due to safer gambling or anti-money laundering (“AML”) failures identified at the operator at which they were employed. We expect that figure to increase by the time of the publication of the GBGC’s next annual Enforcement Report for 2020-21 later this year. Recently published GBGC action taken includes:

The CEO of an operator receiving a warning and an additional licence condition due to safer gambling and AML failures identified at the operator.
12 PML holders at an operator receiving warnings, advice to conduct letters, or surrendering their licence following notification that their licence was under review, due to safer gambling and AML failures identified at the operator.
A further 19 PML holders at that same operator surrendering their licence or receiving advice to conduct letters outside of the licence review process due to safer gambling and AML failures identified at the operator.

Prefacing the GBGC’s last Enforcement Report, then CEO Neil McArthur wrote that “holding an operating or a personal licence is a privilege, not a right”. He went on to say that the GBGC had indicated in the summer of 2017 that its focus was shifting towards PML holders and that “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”.

Is personal regulatory liability within a management framework straightforward?

The GBGC’s position seems, on the face of it, a reasonable one. Who else, other than their senior management and PML holders, are responsible for the behaviour of operators? It therefore follows that where PML holders have failed to meet the GBGC’s standards and/or to adhere to their responsibilities, they should be held to account.

However, as is frequently the case when seeking to apportion blame for a mistake, matters are often more complicated than they may seem. Factors of note include:

The GBGC’s regulatory framework evolves constantly.

The GBGC’s regulatory framework and guidance is often said to be difficult to follow and poorly communicated.

Employees who are not PMLs may be responsible for mistakes and oversights. Whilst these mistakes may expose the operator and its PMLs to criticism, it does not always follow that they are due to a PML’s ignorance or incompetence, and thus holding them responsible for shortcomings on a strict liability basis may not be fair or reasonable.

PML holders are subject to a licence condition that they take “all reasonable steps to ensure the way in which they carry out their responsibilities in relation to licensed activities does not place the holder of the operating licence … in breach of their licence conditions.” It does not always follow that, because an operator is in breach of licence conditions, a PML holder will also be in breach personally. In many cases, a PML holder may have taken “all reasonable steps”.

Inevitably, operators and PML holders’ views will not always be aligned. PML holders, who in our experience are generally trying to do the right thing, often find themselves facing complex challenges and caught between the GBGC’s requirements and the operator’s commercial interests, with their personal livelihood and reputation at risk. This should be borne in mind by the GBGC, particularly in the current economic climate.

PML licence reviews are not always carried out by the GBGC in a consistent manner. In some cases they are commenced at the same time as, or during, an operating licence review, but more often than not they are commenced once an operating licence review has concluded. Licence reviews can take years rather than months to reach a conclusion. PML holders are therefore left in the unenviable position of having to recall events that have taken place years ago when trying to defend themselves. This is if they are lucky enough to have access to the information required in order to aid their recall. If, for any reason, they have left the business, this may not be possible.

The GBGC does not set out clearly its approach to PML reviews when they are linked to operating licence reviews. PML holders are often expected by the GBGC to disclose information or answer questions about matters relating to an operating licence review that may have an impact on their PML, without having been clearly informed of the risks or consequences of doing so. The fact that in some cases a PML holder may be accused of breaching a licence condition, which is a criminal offence under the Gambling Act 2005, increases further the exposure to personal risk. This is despite the GBGC’s policy position that, as a general rule, it will not pursue a criminal investigation into a licensee, as in most cases the matter is likely to be capable of being dealt with by exercise of its regulatory powers.

In an age where mental health is at the forefront, all would benefit from giving thought to the impact regulatory action may have on the mental health of PMLs, the vast majority of whom are well-intentioned and want to do right by both their operator and their regulator. Competing interests, reputational harm, the unintentional consequences of their actions and future employability are all factors that will weigh heavily on the shoulders of a PML holder subjected to regulatory action. Expedited investigations should be prioritised, processes and procedures clearly outlined, and legal rights clearly communicated.

PML reviews that take years to resolve, often following prolonged operating licence reviews, are of no benefit to the GBGC, nor to the individual concerned. Swift reviews and clear processes will not only serve to limit the impact on the individual concerned but may also improve the efficacy of regulation.

A PML under review: some things to think about

GBGC investigations and licence reviews of operators often expose PML holders to the risk of similar action in a personal capacity. This puts PML holders in the invidious position of not only responding for and on behalf of the operator, but also having to consider their own professional interests and reputation.

We suggest five things a PML should consider in this situation.

First and foremost, when a PML holder learns that the GBGC is investigating a matter relating to either their own or their operator’s licence, they should seek appropriate legal advice and support immediately.

Before commencing a licence review the GBGC is obliged to put an operator or PML on notice, but a PML may become aware of GBGC interest from an early stage, for example through enforcement enquiries. If so, advice should be obtained at this point. This is important because often the interests of the PML do not necessarily align with those of the operator, even if they act very much as part of the “controlling mind” of the operator, and interests seem at the time to be indivisible.

Secondly, PML holders should be mindful of their own position when saying anything on the record to the GBGC. This is not to say that they should be anything other than honest, open and transparent: it is merely about ensuring that the process is fair to them too.

A typical step in the review of an operator’s licence will be a preliminary meeting with senior management. In some cases, this may be followed or replaced by a regulatory interview (sometimes under caution). These meetings and interviews are usually recorded and transcribed by the GBGC. Anything that is said in them may be used in both the investigation into the operator, and also in any subsequent review of the PML holder.

In practice, PMLs themselves should be warned, or in some cases cautioned, in an individual capacity if they themselves might be investigated. Appropriate advice can help PMLs navigate the difficult situation in which they have to respond on the record on behalf of an operator, whilst ensuring their own position is also protected.

Thirdly, if unsure of timescales and/or the review process, PMLs should ask the GBGC to clarify its position. Whilst the GBGC may not always be able to provide a definitive answer, the fact that the request has been made is an important point of record.

Fourthly, if, after an operating licence review has concluded, perhaps with a number of failings identified and regulatory action taken, the PML is unfortunate enough to be notified that their PML is being reviewed as a consequence of their role in the identified concerns, it is vitally important that they are given fair and proper disclosure. Without it they will find it very difficult to understand the case against them, and properly defend themselves. This can become more complicated if the PML no longer works at the operator concerned.

We recommend that the PML do all they can to seek disclosure from the GBGC and the operator in relation to the matter concerned. What material is the GBGC relying upon? What representations did the operator make? Should the GBGC or the operator be reluctant to hand over material relevant to them, there are options open to them to challenge this.

And finally, a PML should always be open and honest with the GBGC, and remember that they also have a personal duty to uphold the licensing objectives and act with integrity in the review process. Any obfuscation will do them no favours in the long term.

Conclusion

PML holders who make genuine mistakes when trying to do the right thing, particularly those in compliance roles, should in appropriate cases be supported by the GBGC and viewed as people who can assist in raising standards. Prioritising support and guidance over targeted regulatory action when such mistakes occur may be more productive and is less likely to deter highly competent individuals from holding PMLs because of the risks associated with doing so.

Whilst competing commercial and regulatory interests mean that being a PML is becoming tougher, there are things that PML holders can do to help themselves, and to protect their interests when the GBGC become involved. Legal advice should be sought at an early stage.

Tom Orpin-Massey is a barrister at QEB Hollis Whiteman specialising in crime and regulatory law. He was seconded to the GBGC in 2016 for seven months and continues to be instructed in a broad range of gambling work, both for the Commission and for operators and PMLs.

11May

The Affordability Debate (3): Regulating beyond its means?

11th May 2021 Julian Harris 32

This is the third in a series of articles considering different aspects of the affordability debate. We have already considered the right to protection, personal responsibility and freedom of choice (in article 1), and recently (in article 2), what the Gambling Commission (“the Commission”) has sought to require of operators at present, with an analysis of the manner in which it has done so. In this article, we turn to the wider powers of the Commission and consider whether they have been exceeded, or at least stretched, in relation to its approach to affordability.

The Customer Interaction Consultation

The Commission launched its ‘Remote customer interaction – Consultation and Call for Evidence’ (the “Consultation”) on 3 November 2020 and the Consultation closed on 9 February 2021. Further to our criticism in our 18 May 2020 article (‘New Gambling Commission Guidance for Online Operators: Changing the Basis of Regulation?’) of the Commission’s introduction of its ‘Customer interaction – Additional formal guidance for remote operators during COVID-19 outbreak’ (the “Covid-19 Guidance”) without consultation, and more generally its use of formal guidance as a means of expanding its Licence Conditions and Codes of Practice (“LCCP”), it was encouraging that on this occasion, the Commission did consult.

Whilst there is no impropriety in the Commission having a review on customer interaction, to include the consideration and gathering of evidence in relation to affordability, we remain concerned about the Commission’s increased use of guidance as a means of adding layers to existing formal requirements, and also about the nature and content of the Consultation. Firstly, whilst there may be cogent arguments in favour of guidance being used to explain and set out reasonable and proportionate expectations of requirements contained in the LCCP, it should not exceed this purpose to the extent that it is difficult to distinguish between requirements outlined in the LCCP and those contained within purported guidance. Secondly, when consulting, it is important that the Commission analyses all information available to it, rather than seemingly interpreting the information in its possession as a means to its ends.

The core proposal in the Consultation in relation to affordability is for the introduction of mandatory financial thresholds for affordability assessments. The evidence on which the need for such assessments is based is flimsy and unconvincing when properly analysed, which the Consultation does not attempt. In addition, the Commission relies on the 2018 Health Survey for England. This the Commission prays in aid of the proposition that “there is evidence to indicate that there is a large-scale issue with remote gamblers betting more than they can afford to lose and experiencing issues with their gambling”. The basis for this sweeping statement is a finding that 21% of respondents stated that they had bet more than they could afford “sometimes” when asked to choose between four options, the other three of which were “never”, “most of the time” and “almost always”. Without further questioning and analysis, this is hardly a basis for swingeing new regulations restricting the liberty of adults to make their own choices without having to prove their financial wellbeing; indeed, it could be that many of those who ticked that box occasionally bet more than they felt was wise, a position that most people would experience with many different kinds of spending: it is certainly not a guaranteed indicator of vulnerability or harm.

Of even greater concern is the scant regard which the Commission appears to have had for the 2018 Consultation Principles. These require, inter alia, that consultations by government authorities:-

1. Include “validated impact assessments of the costs and benefits of the options being considered….where proposals have an impact on business…”;
2. Consider whether “informal iterative consultation is appropriate using….open, collaborative approaches”;
3. “Publish responses with 12 weeks of the consultation or provide an explanation why this is not possible.”

It is disappointing that the Commission has in recent times shied away from informal engagement with the industry on matters of interest and importance to it and to its licensees. Whilst there has been some collaboration with the Betting and Gaming Council, this has on occasion been preceded by the threat of action and then followed by negative comments by the Commission. Moreover, collaboration underpinned by threat is not informal engagement. This, and the Commission’s apparent failure to consider the impact of its proposals on the industry and other stakeholders, such as the sports organisations, could once again lead an observer to question its motives, and ask if the consultation is really intended to open a debate and answer certain questions about safer gambling, social responsibility and affordability, or whether the Commission is simply going through the motions to tick the consultation box, with the intention, whatever the evidence produced, of imposing its own agenda. Perhaps it is for this reason that the Commission relies on questionable evidence from the 2018 Health Survey without mentioning that it also found that the incidence of problem gambling had fallen from 0.7% in the 2016 Survey to 0.5%.

As licensees are only too aware, and as we set out in our previous article on this subject, whilst the Commission has not formally imposed the proposals in the Consultation, it has sought to require operators to abide by them, or variants of them, outlined in its Enforcement Reports, by exerting pressure, threatening regulatory action and generally creating a climate of fear. That fear has been exacerbated by the uncertainty as to what the Commission actually requires.

This is the unfortunate consequence when a regulatory authority fails to have proper or sufficient regard for the statutory framework within which it is required to operate. We have already analysed the difficulties faced by the industry in trying to ascertain what is actually and properly required of it by law and regulation. The Commission has the power, and indeed the duty, to prepare codes of practice and impose appropriate licence conditions to regulate the way in which licensees operate. It is required to undertake consultation on such codes of practice. But in the case of affordability, the Commission expects licensees to abide by a series of “requirements” described, not in the LCCP, but in their Enforcement Reports and their existing Customer Interaction Guidance. Breach of a Code under section 24 of the Gambling Act, 2005 may properly be taken into account by the Commission in the exercise of its statutory function, but acting contrary to whatever opinions it expresses in its Enforcement Reports, or in speeches, may not. There can therefore be no basis for the Commission, when raising safer gambling concerns, to refer to those Enforcement Reports in its compliance assessment findings, licence review threats or regulatory actions, as it is increasingly doing.

It follows that similarly there can be no basis for the Commission to claim that affordability assessments are somehow already a requirement of the LCCP. Were that to be true, there would have been no need to write in different terms in the 2020 Enforcement Report from what was said in the 2019 Report, or in its current Customer Interaction Guidance (see article 2 for details), or indeed for the Consultation itself. Yet in reality, at present this is the only way the Commission could argue it properly makes these requirements of licensees.

Statement of Principles

The Commission publishes a ‘Statement of Principles for licensing and regulation’ (the “Statement of Principles”), as is required by section 23 of the Gambling Act 2005 (the “2005 Act”). This is expressed to have had regard to various documents, including the ‘Regulators’ Code (July, 2013: in force from 2014)’ (the “2013 Code”). Whilst the Commission makes reference to the principles included in the 2013 Code in the Statement of Principles, these are more clearly expressed in the 2013 Code, which requires, inter alia, that:-

“1.1 Regulators should avoid imposing unnecessary regulatory burdens through their regulatory activities and should assess whether similar social, environmental and economic outcomes could be achieved by less burdensome means. Regulators should choose proportionate approaches to those they regulate, based on relevant factors including, for example, business size and capacity.

1.2 When designing and reviewing policies, operational procedures and practices, regulators should consider how they might support or enable economic growth for compliant businesses and other regulated entities, for example, by considering how they can best:

- understand and minimise negative economic impacts of their regulatory activities;
- minimising the costs of compliance for those they regulate;
- improve confidence in compliance for those they regulate, by providing greater certainty; and
- encourage and promote compliance.

5.1 Regulators should provide advice and guidance that is focused on assisting those they regulate to understand and meet their responsibilities. When providing advice and guidance, legal requirements should be distinguished from suggested good practice and the impact of the advice or guidance should be considered so that it does not impose unnecessary burdens in itself”.

We do not know and cannot speculate as to whether the Commission has given careful thought to these obligations when preparing the Consultation. However, we cannot be satisfied that the level of burdensome proposals included in the Consultation and their probable economic impact, are demonstrably considered in the Consultation and this calls into question whether the Commission has had adequate regard to the requirements of the 2013 Code.

The vulnerable

When considering the Commission’s powers, the starting point is the licensing objectives, set out in section 1 of the Gambling Act, 2005 (“the 2005 Act”). These are:

“(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 persons from being harmed or exploited by gambling.”

The Commission is required, by virtue of section 22 of the Act:

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

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

The licensing objectives were not entirely new inclusions in the 2005 Act, having been carried forward from the Gaming Act, 1968, albeit somewhat reworded. The third licensing objective – “protecting children and other vulnerable persons from being harmed or exploited by gambling” is relevant, as the basis for affordability checks. In the Statement of Principles, the Commission at 5.26 states that:

“With regard to ‘vulnerable persons’, whilst the following list is not exhaustive, the Commission considers that this group will include:

- people who spend more money and/or time gambling than they want to;
- people who gamble beyond their means;
- people who may not be able to make informed or balanced decisions about gambling, for example because of health problems, learning disability, or substance misuse relating to alcohol or drugs.”

The wording of the third licensing objective refers firstly to children, and then to other vulnerable persons. The use of that word “other”, and the position in which it appears in the wording of this licensing objective is significant: it is there for a reason. Children are, by law, incapable of making adult informed decisions. Gambling is an adult activity, again by law, as is the consumption of alcohol or the use of tobacco products. In our view the use of other is to indicate that this is the standard by which vulnerability is to be judged; i.e, that it means people who are unable to make a properly informed, or ‘adult’, decision. Plainly, that would include those referred to in the Commission’s third bullet point above. It might include some in the second, though this is too widely expressed. The same point applies to the first. But both of these would depend upon fact and degree: who amongst us has not at some time spent more than we set out to do, carried away by the moment, in a pub, restaurant, or shop? It does not necessarily follow that we are vulnerable people.

In recent years the Commission has interpreted “vulnerable persons” increasingly broadly in its publications and speeches, to include not just those who demonstrate a problem with gambling, or even those who are at risk of being problem gamblers, but to include those “who may be at risk of harms associated with gambling”. In reality, this could include everyone who indulges in gambling at any level. Despite the fall in the percentage of problem gamblers in recent years, or perhaps because of it, the Commission has expanded the class of people whom it considers to be vulnerable. This is not what the legislation intended. Moreover, it is the exercise of arbitrary power with no Parliamentary oversight. The absence of this oversight is all the more concerning when the progress of the 2005 Act through Parliament is considered.

Volume I of the Joint Committee Report on the Draft Gambling Bill (Session 2003-04) was produced by the Joint Committee on the Draft Gambling Bill, appointed by the House of Commons and the House of Lords to consider and report on any clauses of the draft Gambling Bill. It includes, at Annex 1, a schedule of detailed comments on the draft Bill. It is of note that, in response to a comment made by the Gordon House Association, that “the concept of protecting children and the vulnerable must be extended to include those whose lives are detrimentally affected by problem gambling”, the Department of Culture, Media and Sport (“DCMS”), indicated that it did not expect “vulnerable persons” to be interpreted so broadly when it stated:

“DCMS does not consider that the protection afforded by the Bill needs to extend to this wider group or persons who may be affected by the gambling of others.”

As a result of this ambiguity, the proposal in the Consultation on affordability to amend the Social Responsibility Code to require that licensees “must take account of the Commission’s definition of vulnerability”, amounts to an inappropriate suggestion that the Commission should make legislation, thereby assuming for itself that which is the prerogative of Parliament. The duty of the Commission is to uphold the licensing objectives, not to rewrite them, particularly when this rewriting appears to extend the ambit further than Parliament intended.

It follows that those who are not in fact vulnerable should be free to enjoy their gambling without interference, intrusive interrogation, or, worse still, demands for the provision of highly sensitive private financial information. For the Commission to seek to introduce measures to require such an invasion into the rights of individuals appears to be contrary to their duty to permit gambling where it is consistent with the licensing objectives.

The Gambling Review

Early in December the Government announced the Gambling Review. At the same time, DCMS published its Response to the House of Lords Committee recommendations (the “Response”). In relation to affordability, DCMS commented:

“However, we are not waiting for the Gambling Act Review to take action in this area. The Gambling Commission is, as recommended by the Committee, already consulting and calling for evidence on proposals to strengthen requirements on licensees to identify and interact with customers who may be at risk of harm. Alongside clear expectations on affordability checks, this consultation includes questions for discussion around markers of harm, how to identify and respond to vulnerability and how best to respond to risks for customers in particular situations.”

As we and other commentators, notably Regulus Partners have said, affordability affects every aspect of gambling structure and licensing objectives and potentially profoundly impacts them. In addition, it has massive implications for the cost of compliance and the economic health of the industry, as well as worrying implication for the liberty of consumers. There is therefore a very strong case for the type of affordability measures being proposed by the Commission to be considered as part of the Gambling Review. That affordability requirements were being introduced before the conclusion of the Consultation and before the Gambling Review, potentially renders much of the discussion and evidence irrelevant. By the time that Government and Parliament come to consider new legislation, the Commission will have pre-empted the process, with the consequence that the industry may already have been transformed beyond recognition, and not for the better.

In the Response, the Government – rightly in our view – said that addressing the risk of gamblers spending more than they can afford would involve a number of considerations, “including the need to strike an appropriate balance between player protection and the freedom of individuals to choose how they spend their money”. These are matters which embrace constitutional and human rights questions, which fall outside the statutory remit of the Commission. It is for the Review, and subsequently Parliament, to determine the future course of gambling legislation and regulation, not the Commission. Whilst the duty of the Commission is to regulate, it cannot be within its power to determine the level of regulation.

It seems to us that the Commission, by its commendable but unrealistic desire to abolish all gambling related harm, is at the root of the problem; it has lost sight of what the then Government recognised in developing the Bill which became the 2005 Act, when it stated in paragraph 7.3 of “A Safe Bet for Success”: “It is impossible to do away with problem gambling; and excessive controls could make matters worse by encouraging the growth of illegal gambling.” The Commission is dubious about the second part of that statement, but it certainly needs to accept the first part.

In the light of recent rumours, it is to be hoped that the process will now be halted, pending the Gambling Review. The issues raised are, in our opinion, too fundamental to fall within the purview or power of the Commission. This is not to say that the exercise was wasted; the evidence gathered can form part of the material for consideration as part of the Review.

The first stage on the road to recovery from any addiction, be it gambling, alcohol or drugs, is recognising and admitting the problem. This is a lesson which the Commission, which might be said to be at risk of developing a problem with regulation, would be wise to learn, or it may have to be taught by others: Government, Parliament or the courts.

With thanks to David Whyte for his invaluable co-authorship.

22Apr

The Affordability Debate (2): Ambiguous Regulatory Requirements

22nd April 2021 David Whyte 38

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 “[intervening] 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 [its] 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 [it] 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 [the Commission’s] 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.

24Nov

Gambling Commission – AML Guidance Update and Advice

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Updates have been made to The prevention of money laundering and combating the financing of terrorism Guidance for remote and non-remote casinos: fifth edition. The revised edition was published on the 13 November 2020 and includes amendments to paragraph 1.55 to incorporate the new licence conditions 15.2.3(2) and (3). The new licence conditions came into effect under the updated Licence Conditions and Codes of Practice (“LCCP”) on 31 October 2020 and introduced the following reporting requirements:

Licensees must, within 14 days of the appointment, notify the Commission of the identity of the individual appointed as:
the officer responsible for the licensee’s compliance with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on Payer) Regulations 2017 (regulation 21(1)(a)),
the nominated officer (regulation 21(3)),

and any subsequent appointment to either of those positions.

Licensees must, within 14 days of the departure or removal of any individual appointed to the positions mentioned in 2 above, notify the Commission of such departure or removal.

A minor typographical correction was also made to paragraph 6.120.

In addition, the Duties and responsibilities under the Proceeds of Crime Act 2002: fourth edition was also revised at paragraph 5.2 to highlight new reporting requirements in the latest LCCP, and correct a typographical error at paragraph 20.54.

Both of the documents came into effect immediately.

24Nov

The Gambling Commission’s First National Strategic Assessment

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On 6 November 2020 the Gambling Commission published its first National Strategic Assessment (“NSA”) alongside its annual, Raising Standards for consumers – Compliance and Enforcement report 2019 to 2020.

What is it?

The NSA is a document comprised of the latest available evidence with the aim of assessing the issues and risks associated with gambling related harm. Gambling Commission Chief Executive, Neil McArthur has stated:

“We will use our National Strategic Assessment as the foundation for prioritising our work over the coming months and years.”

In the accompanying press release, Neil McArthur adds:

“We look forward to working with the government on the forthcoming review of the Gambling Act and alongside that work we will be working hard to address the issues that we have identiﬁed in our Strategic Assessment.
We have demonstrated that we are willing and able to respond quickly to emerging issues and risks and that we will use the full range of our powers to protect consumers. We and have made considerable progress in many areas to make gambling safer – but we want to go further and faster.”

The report outlines the Gambling Commission’s assessment of the key issues faced in making gambling fairer, safer and crime free, and sets out the priority actions and an overview of progress that has been made since 2019.

The Gambling Commission acknowledges that whilst neither gambling participation nor problem gambling rates are increasing, the continually evolving landscape of gambling presents new risks and ongoing challenges. In the Executive Summary the Gambling Commission states:

“We must see the industry doing more to proactively identify and address the risks within their businesses. An approach to raising standards for consumers which is heavily dependent on the Commission using its formal regulatory powers will continue to damage the industry’s reputation, restrict activities and result in escalating penalties.”

The regulator maintains that the best and most sustainable way forward is for operators to allow the distinction between regulatory and commercial considerations to diminish if not disappear altogether.

How will it work?

The Gambling Commission will use “priority actions” to target relevant risks and issues whilst highlighting areas where significant progress has been made. Assessment is built on four “pillars” relating to:

the Person gambling (Chapter 1);
the Place gambling occurs (Chapter 2);
the Products available to customers (Chapter 3); and
the Provider of facilities for gambling (Chapter 4).

The NSA is structured around these pillars, which are coupled with sections on measuring the effectiveness of gambling regulation (Chapter 5), Covid-19 and its impact on gambling consumers (Chapter 6) and the timeline for action (Annex 1).

The NSA is essential reading for any Gambling Commission licensee. Unsurprisingly, the content is closely aligned to the Compliance and Enforcement Report (see our blog on 18 November 2020), published on the same day, and there is a strong emphasis on affordability (Chapter 1, pages 14-18). We strongly encourage B2Cs to review this section carefully, particularly figure 7 and the “clearly unaffordable gambling” case studies.

The NSA’s scope of evidence aims to be wide ranging, drawing on:

the Gambling Commission’s own compliance and enforcement work;
its advisory bodies, the Advisory Board for Safer Gambling as well as the Digital Advisory Panel;
the Interim Experts by Experience Group (involving those with direct experience of gambling related harm);
industry colleagues and representatives; and
the findings of recent Parliamentary reports (see here).

Why now?

Such a document is no doubt in line with the Gambling Commission’s licensing objectives and follows on from regulatory action and research that the Gambling Commission has already performed (see Annex 1 of the NSA for a timeline of action). However, it is also arguable that the speed and depth of their action is partially motivated by the House of Commons’ Public Accounts Committee assessment in June this year that more and faster action was needed by the Gambling Commission to protect vulnerable customers and consumers’ rights to redress. Neil McArthur seems to echo this in his above statement that “[the Gambling Commission” want[s] to go further and faster” with its progress.

What to expect next?

The NSA includes numerous “GC actions” throughout. We have summarised these, by chapter, as follows:

Chapter 1: the Person gambling

In response to the key issues and risks regarding:

ineffective KYC approaches including affordability checks;
delayed and ineffective responses to at-risk behaviours;
inadequate controls for more engaged gamblers;
underage gambling; and
gaps in evidence and understanding of gambling-related harms.

The Gambling Commission proposes to act on the following:

Consultations regarding more effective KYC and early identification and effective responses to at-risk behaviour, to include: responding to and implementing the Gambling Commission’s customer interaction consultation on themes of affordability, vulnerability and identifying and acting on harm indicators, including the management of high value customers. In addition, the Gambling Commission will issue a consultation on streamlining the approach to tracking of gambling participation and prevalence of at-risk and problem gambling, with the aim of implementing consultation outcomes in 2021. The Gambling Commission also intends to publish a statement setting out the principles and key areas of work in its approach to vulnerability.
Developing first-rate evidence to inform regulation and legislation, including but not limited to: added questions to the Gambling Commission’s quarterly online omnibus survey to understand the public’s experience of gambling-related harms; longitudinal study of gambling behaviours and problem gambling to inform future improvements to gambling research; a permanent advisory body (Experts by Experience) to build on the Gambling Commission’s interim arrangements.
Developing risk-based approach to harm minimisation in response to more engaged gamblers, such as, developing solutions to provide a ‘single customer view’, and including an updated approach to and use of technology.
Regulatory powers: continued regular investigation of operators’ adherence to social responsibility code provisions and review of its commitment to Annual Assurance Statements; ensuring compliance with strengthened age verification controls and supporting industry bodies generally in their legal and regulatory oversight.

Chapter 2: the Place gambling occurs

In response to the key issues and risks regarding:

the accessibility of online gambling;
the anonymity associated with premised-based gambling; and
socially responsible advertising.

The Gambling Commission will take action in the following ways:

Partnership and industry engagement, to include: partnership with key regulators to ensure gambling is fair, safe and crime free; working with product design groups to challenge the industry to implement better consumer protections; engaging the non-remote sector and promoting initiatives that reflect the Gambling Commission’s compliance and enforcement activity elsewhere.
Research and knowledge, to include: increasing knowledge on digital industries and emerging technologies to ensure regulation remains fit for purpose and responsive to emerging risks; gathering evidence on the most effective ways to prevent bonuses being offered to consumers displaying indicators of harm; building on its interim guidance issued during the first Covid-19 lockdown; monitoring progress on the use of ad-tech to proactively target online marketing for gambling away from children, young people and those who are vulnerable to harms.
Regulatory powers: targeted actions using the Gambling Commission’s regulatory powers to continue to raise standards; monitoring the effectiveness of the Gambling Industry Code for Socially Responsible Advertising which came into effect on 1 October 2020.

Chapter 3: the Products available to customers

In response to the key issues and risks regarding:

potential harms associated with online game and platform design
regulatory risks presented by gaming machine product characteristics and environments
matching controls to the risks presented by product characteristics such as speed of play, accessibility and return to player; and
making consumer and regulatory outcomes equivalent to commercial outcomes.

The Gambling Commission will work on the following:

Consultations and responses, to include: publishing a response to the Gambling Commission’s consultation on safer game design; publishing a response to its proposal to ban reverse withdrawals.
Research and knowledge, to include: publishing the findings of the randomised controlled trials with three large operators into anchoring and commitment devices; active engagement in research programmes including the GambleAware-funded project on online patterns of play, led by NatCen.
Testing: implementing the enhanced test house framework and ensuring that the United Kingdom Accreditation Service assessments of test houses are robust and effective.

Chapter 4: the Provider of facilities for gambling

In response to the key issues and risks regarding:

transparent cooperation regarding ownership and governance;
the evolving risks presented by illegal gambling; and
upholding the licensing objective of keeping crime out of gambling.

The Gambling Commission will take the following action:

Consultations and responses, to include: publishing the response to the consultation on the Gambling Commission’s corporate governance including its approach to regulatory panels.
Research and knowledge, to include: publishing clear metrics to measure the effectiveness of regulatory interventions; increasing understanding of the scale of illegal gambling and exploring disruption techniques.
Daily operations, to include: improving data systems and capacity to ensure quicker identification of and response to consumer issues; expanding capacity and availability of accredited online investigators and necessary software tools respectively, in order to tackle illegal gambling.
Regulatory powers, to include: upholding stringent processes to assess the suitability of prospective licensees and taking swift enforcement action against non-compliant licensees; updating the Gambling Commission’s money laundering risk assessment; and continuing to support the sport and sports betting integrity action plan.

With regards to the impact of Covid-19 on gambling consumers (Chapter 6), the Gambling Commission has stated that it will continue to collect and publish data to inform on the ongoing impact and associated risks.

As stated in relation to the providers of facilities for gambling (Chapter 4), the Gambling Commission is preparing key metrics on the impact of its regulation and where it is making progress in changing the behaviours of operators. It will use these metrics along with the four pillars of assessment to help prioritise its responses to harm minimisation in the short and long term. With its evidentiary emphasis, the NSA is a foundational document for the Gambling Commission to continue to develop its regulatory approach and impact and help inform stakeholders. The Gambling Commission itself states:

“Good regulation is informed by good evidence. We continually seek to improve the evidence base; to have access to better data, to move away from just counting problem gamblers to understand more about specific gambling-related harms.”

18Nov

Gambling Commission Compliance and Enforcement Report 2019-2020

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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 [its] 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 “[l]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.

17Aug

Consultation Response on Changes to Information Requirements

17th August 2020 David Whyte 89

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.

17Aug

Consultation Response on Changes to Information Requirements – AML/CTF

17th August 2020 David Whyte 87

Some of the stated proposals of the consultation were “to make data requirements more efficient for licensees, and for [the Commission]”, to “streamline [the Commission’s] existing requirements” and to “reduce regulatory burden”. The stated aim of the consultation being “to ensure the information requirements placed on licence holders are proportionate and effective to inform [the Commission’s] regulation of the industry”. Whilst many of the changes serve to support the Gambling Commission’s aims and proposals, some of the proposed changes relating to anti-money laundering (“AML”) and counter terrorist financing (“CTF”) may serve to confuse licensees’ understanding and increase the regulatory burden.

We recommend that all licensees read the Consultation Response and new/amended provisions in the Licence Conditions and Codes of Practice (“LCCP”). We highlight some of the Gambling Commission’s significant changes relating to AML/CTF:

New licence condition 15.1.3 – Reporting of systematic or organised money lending

All non-remote casino, non-remote bingo, general betting, adult gaming centre, family entertainment centre and remote betting intermediary (trading rooms only) licences

Licensees must as soon as reasonably practicable, in such form or manner as the Commission may from time to time specify, provide the Commission with any information relating to cases where they encounter systematic, organised or substantial money lending between customers on their premises, in accordance with the ordinary code provisions on money lending between customers.

Presently, ordinary code provisions 3.8.1 and 3.8.2, which apply only to non-remote casinos, provide that licensees take steps to prevent systematic or organised money lending between customers on their premises, and provide that the Gambling Commission should be notified where licensees encounter the same. This new licence condition is self-explanatory: it elevates the reporting requirement to a licence condition.

New licence condition 15.2.2(1)(d) – Other reportable events

All operating licences:

1. Licensees must also notify the Commission in such form or manner as the Commission may from time to time specify, as soon as reasonably practicable of the occurrence of any of the following events:

…

d. 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 UK law by which those statutes are amended or superseded.

The Gambling Commission re-emphasises in the Consultation Response that the primary purpose of the introduction of this reportable event is to encourage self-reporting by licensees of breaches of the relevant provisions of the Proceeds of Crime Act 2002 (“POCA”) or Part III of the Terrorism Act 2000 (the “Terrorism Act”).

A number of concerns were raised about the Gambling Commission’s proposal, with respondents considering it to be too broad. This was likely founded on a concern that licensees would be obliged to notify the Gambling Commission each time they submit a suspicious activity report (“SAR”) to the National Crime Agency (“NCA”), because such submission may constitute “a potential breach”. However, the Gambling Commission has made it clear in its Consultation Response that it does not consider the introduction of this licence condition to be too broad, as it covers actual or potential breaches by the licensee and does not extend to breaches by customers of the licensee. It stated:

The only relevant provisions therefore are the reporting requirements in relation to known or suspected money laundering or terrorist financing activity, breaches of the tipping off or prejudicing an investigation requirements, or committing one or more of the principle money laundering or terrorist financing offences...We agree that it is for the courts to decide whether a breach has occurred, and we do not intend to adjudicate in place of this. We do expect a licensee to be capable of identifying whether a breach has or potentially has occurred, and this should be reported to us as it may have an impact on the continued suitability of an operator to hold a licence. The reportable event is a simple process of notifying the Commission of either proven or potential breaches. We encourage self-reporting by licensees which allows us to better manage potential money laundering and terrorist financing risks, and thus keep crime out of gambling.

We therefore suggest that licensees who are concerned about the impact of this new licence condition consider the following when determining whether or not they (and not their customers) have actually or potentially committed any offence under the relevant parts of POCA or the Terrorism Act:

Did knowledge or suspicion exist when the licensee entered into or became concerned in an arrangement? The continuance or termination of a business relationship may be a relevant consideration here.

Under certain provisions of the legislation, the submission of a SAR or the receipt of consent from the NCA serves to ensure that there is no offence committed by the licensee.

Any failure to submit a SAR where knowledge or suspicion of money laundering or terrorist financing exists, or there are reasonable grounds for knowing or suspecting the same, may be caught as a potential breach (failure to disclose) and therefore may be notifiable. To mitigate the risk of licensees committing (or potentially committing) disclosure offences, care should be taken to ensure that policies, procedures and training are clear and up to date in relation to licensees’ SAR procedures.

Have any tipping off, or prejudicing an investigation, offences been committed? The Gambling Commission also made it clear in its Consultation Response that it does not consider that licensees will be at risk of committing the offences of tipping off or prejudicing an investigation when notifying the Gambling Commission under licence condition 15.2.2(1)(d). This seems logical; the notification is not required unless these offences have been committed by the licensee, if they have been, the licensee’s disclosure to the Gambling Commission would likely amount to a confession rather than tipping off or prejudicing an investigation.

New licence condition 15.2.3 – Other reportable events – money laundering, terrorist financing, etc

All non-remote and remote casino operating licences

1. Licensees must notify the Commission in such form or manner as the Commission may from time to time specify, 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”)], or any UK Statutory Instrument by which those regulations are amended or superseded.

2. Licensees must, within 14 days of the appointment, notify the Commission of the identity of the individual appointed as:

a. the officer responsible for the licensee’s compliance with the [Regulations] (regulation 21(1)(a)),

b. the nominated officer (regulation 21(3))

c. and any subsequent appointment to either of those positions.

3. Licensees must, within 14 days of the departure or removal of any individual appointed to the positions mentioned in 2 above, notify the Commission of such departure or removal.

A number of concerns were raised about the Gambling Commission’s proposal, with respondents requesting further guidance on the types of breaches that should be reported under licence condition 15.2.3(1) if the Gambling Commission wanted reporting to be consistent, non-subjective and not overly burdensome. Concerns were also raised that the requirement to report potential breaches was significantly beyond that prescribed in the Regulations.

The Regulations are comprehensive and amongst other things contain customer and enhanced due diligence, record keeping, training and risk assessment requirements. This reporting requirement, in particular the requirement to report potential breaches, is therefore likely to cause confusion and will significantly increase the burden of compliance on licensees.

Key points to note:

Despite some of the requirements of the Regulations being explicit (for example CDD being required before establishing a business relationship or in relation to a transaction that amounts to 2,000 euros or more), others require a risk-based approach. A breach in this sense may constitute a failure to take a risk-based approach and not a certain decision that in hindsight is deemed regretful.

In some cases, it will be very difficult for licensees to determine, on a risk-based approach, whether or not they have potentially breached the Regulations. Licensees may therefore choose to take a subjective view when considering whether or not a potential breach as occurred. Other relevant factors may include:

whether a licensee’s policies and procedures have been adhered to;

given that a breach of a policy implemented on a risk-based approach may be indicative of a potential breach of the Regulations, licensees may wish to review their policies and procedures to ensure that they are not overly committal in certain areas. For example, the Regulations require the regular provision of training in how to recognise and deal with transactions and other activities which may be related to money laundering or terrorist financing. If licensees have deemed in their policy that this training will be provided annually, has there been a potential breach if this training is late and delivered after 13 months? A simpler approach to avoid this may be to specify in policy that training will be delivered regularly and at approximately 12-month intervals, this allowing for flexibility without the pressure of considering Gambling Commission notification.

Are there processes in place to ensure that the notification requirements will be adhered to? What is the procedure? Who is responsible for making the decision on notification?

Have licensees conducted a gap analysis against the Regulations to ensure that all of the requirements are covered by existing policies and procedures?

In circumstances where a decision is made not to notify the Gambling Commission, licensees may consider it sensible to document their decision making process such that this justification can be provided to the Gambling Commission in the event of challenge at a later stage.

The Gambling Commission has made it clear in the Consultation Response that it does not expect licensees to notify it about customer accounts suspended due to a lack of satisfactory source of funds documentation. It is actual or potential breaches of the Regulations – by the licensee – that the Gambling Commission expects to be notified about.

In addition, under licence conditions 15.2.3(2) and (3), licensees are required to notify the Gambling Commission within 14 days of the appointment, and/or departure, and/or removal of both:

the officer responsible for their compliance with the Regulations; and
their nominated officer.

The Gambling Commission makes it clear in the Consultation Response that the notification should include the full details of the individuals, the date of their appointment and details of their position within the business, senior management or role on the board. The Gambling Commission also points out that it intends to consult on the status of the nominated officer role later in 2020.

We strongly recommend that licensees review their AML/CTF policies, procedures, controls and training programmes now to ensure that adequate provision has been made for adherence to these changes before they come into force.

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.

Anti-Money Laundering

Additional obligations

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

Licence condition 15.2.2 (other reportable events)

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

Removed obligations

Licence conditions 13.1.1 and 13.1.2 (pool betting)

Licence condition 15.2.1 (reporting key events)

Licence condition 15.2.2 (other reportable events)

Other proposed amendments

Licence conditions 15.1.1 and 15.1.2 (reporting suspicion of offences)

Licence condition 15.2.1 (reporting key events)

Submission of key events

Ordinary code provision 8.1.1

Licence condition 15.3.1

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)

Social responsibility code provision 6.1.1 (complaints and disputes)

Changes to personal licence conditions

New licence condition 15.1.3 – Reporting of systematic or organised money lending

New licence condition 15.2.2(1)(d) – Other reportable events

New licence condition 15.2.3 – Other reportable events – money laundering, terrorist financing, etc