02Feb

Gambling Commission source of funding guidance: Two steps forward and one step back?

2nd February 2024 Jessica Wilson 323

In July 2023, we discussed the trials and tribulations of source of funding disclosure and the lack of clarity provided by the Gambling Commission as to what is expected from applicants, licensees and their investors. At that time, our understanding was that the Gambling Commission would publish guidance on its website by the end of July 2023, although no guidance was published until the end of November 2023. Now that we have the Gambling Commission’s guidance, do we have a clearer understanding of what the Gambling Commission requires?

What we were expecting

By way of recap, source of funding involves establishing the legitimacy of the source of the capital and revenue finance used in the licensee’s operation. It is a complex area and the lack of formal or detailed guidance from the Gambling Commission has resulted in applicants and licensees playing a guessing game as to what they should be disclosing to the Gambling Commission and when. Over the years, the Gambling Commission’s expectations have grown to be burdensome and novel, following an unpublished approach.

We were hopeful that the Gambling Commission’s guidance, once published, would provide that much needed clarity for the industry, along with an explanation of the basis for the Gambling Commission’s requirements.

Our understanding was that the guidance would be non-exhaustive and include example source of funding scenarios. We also expected the guidance to explain how the Gambling Commission divides investors into two groups when determining its source of funding requirements – unregulated and regulated – and that set thresholds would be put in place to trigger source of funding requirements.

What we were given

The Gambling Commission’s source of funding guidance has been included as sections within its Change of corporate control web page and What you need to send us when you apply for an operating licence web page.

The guidance is defined as a “general overview of when and what source of funds evidence is required”, caveated with confirmation that the Gambling Commission will “assess each application on a case-by-case basis according to risk”. Whilst the guidance is clear on when source of funding evidence is required, there are still murky waters on what source of funding evidence is required.

The Gambling Commission has indeed divided investor types into buckets, but instead of two, there are three different buckets; (1) unregulated, (2) regulated banks or investment companies investing their own money, and (3) regulated banks or investment companies acting as intermediary for an investor or pool of investors i.e. investment funds / financial institutions.

Each bucket has multiple sub-categories, resulting in 12 different categories of investor.

Two steps forward and one step back

We are pleased the Gambling Commission has recognised (and listened!) that clarity was needed and decided to publish its source of funding guidance, giving the industry a basis for its source of funding requests. It is also positive that the Gambling Commission appears to be applying a risk-based approach as evidenced by the thresholds that trigger detailed source of funding requirements.

However, whilst helpful in some ways, the Gambling Commission’s source of funding guidance now raises new question marks:

We had hoped the guidance would be separate formal guidance specific to source of funding. However, the guidance is buried within the Gambling Commission’s existing web pages that relate to change of corporate control and operating licence applications. Does the guidance and its investor categories apply in other source of funding situations such as capital raises and share issues that do not trigger a change of corporate control? We would expect the Gambling Commission to follow the same approach, but the position is unclear.

We now have clarity on when the Gambling Commission expects detailed source of funding evidence, but what the Gambling Commission expects to be disclosed is still vague. For example, for unregulated entities the guidance states: “Typically for established entities the latest set of filed financial statements can be sufficient evidence…For recently established entities, evidence of how the entity has been funded is required”. In respect of unregulated individuals, the guidance states: “Evidence of the individual’s source of funds will depend on what the source of funds is but examples include bank statements, investment portfolio statements and P60s”. Importantly, the guidance lacks example source of funding scenarios, which we had expected. Unfortunately, the position of what must be disclosed is no clearer than it was before, and we can only rely upon our previous experience with the Gambling Commission.

The Gambling Commission has used a combination of fixed figure and percentage thresholds to trigger source of funding disclosure. We understand the Gambling Commission’s intention is to take a risk-based approach, but it is questionable how this can be achieved if fixed figure thresholds are used, as there is the possibility that it could capture all investors, or none. For example, if a licensee received a £40,000 investment from 25 investors, totalling £1m, those individuals would not trip the £50,000 threshold and no detailed source of funding information would need to be disclosed. Conversely, if a licensee received a £1m investment from 20 individuals amounting to £50,000 each, detailed source of funding evidence is required for 100% of the investment. Testing every £ would be a risk-free approach, and not a risk-based approach.

It is a step in the right direction that investment funds are considered by the Gambling Commission separately from other investors, with investment funds being placed in their own investor group. This is an acknowledgement from the Gambling Commission of the complexities of investments made through an intermediary. However, the Gambling Commission requires a “schedule of underlying investors” from the intermediaries but gives no detail as to what such schedule should include. In our view, it would be unnecessary to provide full details of underlying investors that do not meet the source of funding thresholds set out by the Gambling Commission, and that an anonymised schedule would be sufficient (and this has been sufficient in the past based on our experience). However, if the Gambling Commission does require personal details of all underlying investors, this will continue to be problematic for investment funds who often have complex confidentiality agreements in place with their underlying investors.

FCA regulated entities that are underlying investors behind an investment fund are not treated the same as regulated entities that have made a direct investment. FCA regulated entities that have made a direct investment only need to disclose source of funding evidence if their investment is 10% or more of the total investment amount. However, if the FCA regulated entity is investing through an investment fund, that threshold percentage is reduced to 5%. It is not clear to us why there is a difference, particularly as FCA regulated entities should carry a lower risk, and our view is that there should be consistency.

On 15 December 2023 the Commission launched a consultation in respect of proposed changes related to financial penalties and financial key event reporting. One of the proposals is to introduce a new requirement for gambling licensees to submit a key event to report details of (a) individuals who acquire the equivalent of £50,000 or more worth of new shares in a rolling 12-month period, or (b) entities that acquire the equivalent of £1m or more worth of new shares in a rolling 12-month period. This proposal intersects with the source of funding guidance as it follows the thresholds for unregulated individuals and entities. The consultation states that if the financial key event creates a new controller, no key event notification is required as long as all of the information that would be included in the key event is included in the CoCC application. However, should a CoCC take place whereby the licensee issued £11m of new shares, with £1m of which being acquired by an FCA-regulated entity (equating to 9% of the investment, so they are not a controller), that entity would not be required to disclose its funds under the guidance (as it is less than 10% of the investment), but would be required to disclose under the proposed key event, as it is £1m or more. The proposal is subject to consultation, but we believe it is important that the Commission takes a consistent approach to the thresholds at which source of funding evidence must be disclosed.

We are pleased that the Gambling Commission has finally published some source of funding guidance and it is certainly a step in the right direction. However, there are still areas of uncertainty and new questions that have been raised. We wait to see how the Gambling Commission puts the guidance into practice.

How we can help

Harris Hagan can navigate you through your engagement with the Gambling Commission on source of funding, minimising disclosure for you and your investors wherever possible, as well as offer source of funding training, tailored to the specific needs of your business. If you would like to discuss further, please do get in touch.

21Dec

Treatment of Domestic Politically Exposed Persons under the Money Laundering Regulations

21st December 2023 Chris Biggs 328

On 14 December 2023, the UK Government laid The Money Laundering and Terrorist Financing (Amendment) Regulations 2023 (SI 2023/1371) (“Amendment Regulations”) before Parliament. The Amendment Regulations will amend The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“MLRs”), to address the treatment of Politically Exposed Persons (“PEPs”) who are entrusted with prominent public functions by the UK (“Domestic PEPs”).

Amendments to the MLRs

The Amendment Regulations will introduce a requirement in the new paragraph 3A of Regulation 35 of the MLRs, stating:

“For the purpose of the relevant person’s assessment under paragraph (3), where a customer or potential customer is a domestic PEP, or a family member or a known close associate of a domestic PEP—

a) the starting point for the assessment is that the customer or potential customer presents a lower level of risk than a non-domestic PEP, and

b) if no enhanced risk factors are present, the extent of enhanced customer due diligence measures to be applied in relation to that customer or potential customer is less than the extent to be applied in the case of a non-domestic PEP.”

Regulation 35 will also be amended to include definitions for ‘domestic PEP’, ‘non-domestic PEP’ and ‘enhanced risk factors’, the latter of which means “risk factors other than the customer’s or potential customer’s position as a domestic PEP or as a family member or a known close associate of that domestic PEP.”

In a statement to the House of Lords, Baroness Vere of Norbiton, the Treasury Lords Minister, reiterated that domestic PEPs, or a family member or known close associate of a domestic PEP, must be treated as “inherently lower risk” than non-domestic PEPs by banks and other regulated firms. Baroness Vere further specified that the Government is making this change “to ensure that banks and other regulated firms take a proportionate and risk-based approach to the treatment of domestic PEPs”, which aligns with the Government’s approach to combating money laundering (“ML”) and terrorist financing (“TF”).

The Amendment Regulations will come into force on 10 January 2024.

Takeaway points for Casino Licensees

As a class of ‘relevant person’ listed under the MLRs, holders of a casino operating licence issued by the Gambling Commission (“Casino Licensees”) must comply with the MLRs.

Casino Licensees must therefore review and update their policies, procedures and ML/TF risk assessments to ensure they take into account the Amendment Regulations.

Please get in contact with us if you require assistance with reviewing your ML/TF risk assessment and/or your AML policies, procedures and controls.

12Dec

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

12th December 2023 Chris Biggs 322

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

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

“…is to:

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

Key points of note are:

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

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

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

Licensee requirements

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

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

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

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

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

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

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

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

11Jul

HM Treasury consultation: Reform of the anti-money laundering and counter-terrorism financing supervisory regime

11th July 2023 Chris Biggs 313

On 30 June 2023, HM Treasury published its consultation on reform of the anti-money laundering and counter-terrorism financing supervisory system (the “Consultation”). Released as part of the Government’s commitments within its Economic Crime Plan 2023-2026, the Consultation offers stakeholders the opportunity to provide their views on four possible models for improving the UK’s anti-money laundering and counter-terrorism financing (“AML/CTF”) supervisory regime. The Consultation also seeks responses in order to determine whether there is a need for a more formalised system of sanctions supervision, noting that most AML/CTF supervisors do not have explicit powers to supervise sanctions compliance and controls.

In the Consultation’s preamble, the Treasury Lords Minister Baroness Penn emphasised the Government’s motivations for its proposals:

“Money laundering is the lifeblood of organised crime… Terrorism financing threatens national security and facilitates atrocities we have suffered here in the UK and across the rest of the world. To protect the integrity of the UK’s financial and professional services sectors, we must also do more to address illicit finance linked to corrupt elites…”

The current situation

Presently AML/CTF is regulated by various supervising authorities which oversee businesses that conduct activities classified under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the “MLRs”). Three statutory supervisors regulate various sectors under the MLRs, specifically: the Gambling Commission for the casino industry; the Financial Conduct Authority for financial institutions; and HMRC for a number of business sectors, including real estate agency businesses and accountancy, trust or company service providers not supervised by another authority or professional body. In addition, Professional Body Supervisors (“PBSs”) are responsible for supervising legal and accountancy firms.

However, in HM Treasury’s 2022 Review of the UK’s AML/CTF Regulatory and Supervisory Regime the Government concluded that, whilst there had been continued improvement to the regime, some weaknesses in supervision may need to be addressed through structural reform. The 2022 review set out four possible models for a future AML/CTF supervisory system and the Consultation further develops these four models, assessing them against three consultation objectives: (a) supervisory effectiveness; (b) improved system coordination; and (c) feasibility.

The proposed models

1. OPBAS+

In 2017, the Government created the Office for Professional Body Anti-Money Laundering Supervision (“OPBAS”). OPBAS was designed to ensure robust and consistent supervision of AML/CTF across the nation’s 22 PBSs. The Consultation proposes that OPBAS be given enhanced powers to increase the effectiveness of supervision by the PBSs.

The Consultation states this proposal would be most immediately feasible, as no structural changes would be required to the current regime. Evidently, this proposal would have little to no impact on the Gambling Commission’s regulation of AML/CTF, however it is possible that the Gambling Commission may seek to mirror any additional accountability mechanisms that this model would introduce.

2. PBS Consolidation

The Consultation proposes that instead of enhancing OPBAS, the number of PBSs be reduced. Specifically, either two or six PBSs would retain responsibility for AML/CTF supervision, whereby two oversee the legal and accountancy sectors respectively across the UK, or two PBSs oversee the legal and accountancy sectors respectively in England and Wales, Scotland and Northern Ireland. Two further variants proposed under this model relate to HMRC’s supervisory role for accountancy and trust or company service providers being removed or reduced.

Again, this model would retain the current system of supervision by PBSs but would reduce the inconsistency and complexity of the current system due to the number of PBSs. It is unlikely that this model would significantly impact the Gambling Commission’s regulation of AML/CTF.

3. Single Professional Services Supervisor

The Single Professional Services Supervisor (“SPSS”) model, as the name suggests, proposes that one single public body (existing or new) supervise all legal and accountancy sector firms for AML/CTF, and possibly some or all of the wider sectors currently supervised by HMRC. The Consultation suggests that the SPSS would be independent of any ministerial department, but accountable to HM Treasury. Its nature as a public body, accountable to Parliament, may be considered more appropriate: (a) because of the broad set of intervention powers it will hold; (b) because its policy remit can be set out in legislation; (c) to facilitate better information sharing; and (d) because it will be more flexible.

Again, it is unlikely that this model would significantly impact the Gambling Commission’s regulation of AML/CTF.

4. Single Anti-Money Laundering Supervisor

The Consultation’s proposal for a Single Anti-Money Laundering Supervisor (“SAS”) represents the most significant proposed change to the AML/CTF supervisory regime in the UK, and one that would change how Licensees are regulated in respect of AML/CTF.

The SAS, which would be a public body, would undertake all AML/CTF supervision in the UK, with the Gambling Commission and the other existing statutory supervisors and PBSs relinquishing their AML/CTF supervisory duties entirely. Similar to the SPSS model above, the SAS would benefit from being an operationally independent public body ultimately accountable to Parliament and HM Treasury.

The Consultation acknowledges that supervisors should take a risk-based and data-led approach to their AML/CTF supervision and it goes without saying that unless seamless communication and data-sharing between supervisors exists, there will be inconsistencies. One overarching supervisory body, such as the SAS, may therefore be best placed to consider data from all sectors and apply a consistent standard of AML/CTF regulation.

From Licensees’ perspective, there has been confusion about the Gambling Commission’s approach to AML/CTF for some time, particularly in relation to the inevitable cross over between AML/CTF and safer gambling, affordability and vulnerability. Licensees may therefore consider that the SAS model will introduce consistency to the AML/CTF supervision of casinos that operate in the UK and introduce a more proportionate and coherent regime. However, Licensees should note that were the SAS model to be introduced, they would be faced with: (a) dual regulation which will inevitably introduce an additional burden; and (b) supervision by the SAS, a newly created regulatory body that will almost certainly have less industry expertise than the Gambling Commission.

Responding to the Consultation

Whether or not the SAS is the favoured model will be influenced by the responses and evidence submitted to the Consultation. The Consultation is open until 30 September 2023. HM Treasury encourages responses to be submitted through its secure online survey, but responses can also be emailed to [email protected]. We recommend that all Licensees review and respond to the Consultation.

Please get in touch with us if you would like assistance with preparing a response or with any AML/CTF compliance or enforcement matters.

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

03Jul

White Paper Series: Cashless payments – finally bringing the land-based sector into the digital age?

3rd July 2023 Bahar Alaeddini 346

In the year ending March 2021, nearly £910 million was generated from gaming machines in Great Britain (excluding those located in pubs). In total, there were nearly 170,000 gaming machines located in bingo premises (41%), adult gaming centres (35%), betting premises (15%), family entertainment centres (8%) and casinos (4%). In the period April 2020 to March 2021 (during the pandemic), the largest revenues, by a country mile, were generated by gaming machines located in bingo premises (41%) and adult gaming centres (35%), with revenues slowly declining in most sectors. There is no reliable data on the number located in pubs, or associated revenues, but the figure is likely to be in the region of 70,000.

A lifeline in the White Paper is the proposed review of cashless payments on gaming machines with the plan to remove the current legislative prohibition, set out in the Gaming Machine (Circumstances of Use) Regulations 2007 (the “2007 Regulations”), banning cashless payments directly on gaming machines.

The original purpose of the prohibition was to protect players from over-spending as it was assumed players would have more control over their play if they were playing with cash, providing natural interruptions in play by stopping their gambling to obtain more cash. The lack of a break in play is viewed as a lost opportunity for the player to consider whether they wish to continue to play and spend more.

The lifeline offered in the White Paper is hugely positive and could result in the long-overdue modernisation of the land-based sector, bringing it into the digital age.

Cash is dead

Since the 2007 Regulations, especially with the advent of contactless payments and global pandemic, non-cash payments have grown exponentially. Use of cash has declined across society with the expectation that it will not be used by 2035. In 2011, 72% payments in pubs were made by cash and, in 2020, this reduced to only 13%. In 2021, almost a third of all payments in the UK were made using contactless. This societal change has negatively impacted the land-based sector beyond belief, and it has been compounded by pubs no longer giving cashback and ATMs being removed. We now live in a world where hardly anybody uses cash. I – almost exclusively – use Apple Pay and regularly leave the house without cash or a bank card!

The restriction on using debit cards directly on gaming machines (credit cards are banned) has meant the land-based sector has been left behind. Whilst industry has been creative and found ways to make indirect debit card payments and protect players (in collaboration with DCMS and the Gambling Commission), take up has been slow and these are “not a fix-all solution”.

2018 Gambling Commission cashless advice

In March 2018, and in response to significant payment innovations in the retail economy, the Gambling Commission published advice on cashless payments in gambling premises (which remains in force), crystallising its position and key considerations for operators, as follows:

tracking play and collecting better data on player behaviour to make an informed assessment of those at risk of gambling-related harm;
providing tailored safer gambling information to players including transactional information on money spent/withdrawn;
player-led controls to enable better self-management such as a player’s own spend or withdrawal limits; and
the importance of gathering data both before and after the implementation of any measure to demonstrate the impact of control measures.

The guidance places responsibility squarely on operators to consider what measures are most effective and appropriate to their businesses. Further, it acknowledges the lack of evidence to suggest the optimum duration of a break, but sets out the expectation that, wherever possible, players should at least cease gambling and physically leave the gaming machine. Where players can access new gambling funds with only a limited or no physical break from the gaming machine, operators must nevertheless ensure players are otherwise provided a break from, or an interruption in, gambling before those funds can be used. The guidance also states the Gambling Commission “may consider taking regulatory action in individual cases if, for example, an operator was to increase the risk of harm to its customers without providing appropriate mitigations.”

DCMS will work with the Gambling Commission to develop “specific consultation options for cashless payments” (expected Summer 2023). DCMS is clear that any new or additional player protection measures will need to be in place before the legislative prohibition is lifted.

The Gambling Commission’s view is that the onus is on industry to demonstrate cashless payments can be offered without increasing gambling harm or crime. So, what does this mean for industry?

The White Paper has created a staggering volume of work for both DCMS and the Gambling Commission. As such, all proposals will not be treated equally, and a sceptical view is that cashless will not be a priority. As an important lifeline, it will require great effort by industry to keep it high on the agenda for DCMS and the Gambling Commission. One way to achieve this would be through an industry code, backed by evidence wherever possible, and promoting the associated benefits of cashless payments given, for example, low test-purchasing scores for gaming machines in alcohol-licensed premises. The greater the industry support, the more likely it is the proposed reform will be delivered in a timely, sensible and workable way.

Cashless industry code

Two of the challenges of developing an industry code are, firstly, gaming machines are in different types of gambling premises (each with their own unique “person, product, place” considerations), highlighting the difficulty of agreeing standards or codes of practice. By way of example, pubs are not regulated premises by the Gambling Commission. They are automatically entitled to offer gaming machines as part of their alcohol licence granted by the local licensing authority. Pubs and gambling premises will very likely have different baselines and priorities, and industry must inevitably set higher standards. The industry is better placed to do so and both DCMS and the Gambling Commission will expect them rise to the challenge. It is unclear what this means for pubs, particularly given their unsupervised nature, but given the 84% test purchasing fail rate (in 2019), they would be best placed to embrace a cashless industry code through amendment of the Social Responsibility Charter for Gaming Machines in Pubs issued by the British Beer and Pub Association.

Secondly, there are several types of cashless payment technologies each with different functionality. Unless banks facilitate player protection tools (for example, through online banking), physically or virtually presenting a debit card is very different from using a cashless gaming app or eWallet which connects to a gaming machine.

A practical solution would be to develop a cross-sector industry cashless code to reflect best practice and aim to install a minimum set of standards to address issues of risk. The central commitment would be to allow cashless payments whilst minimising the risks of gambling-related harm and protecting players. Standards may include the following:

a meaningful forced delay before the funds can be used (for example, 2 minutes, although in a cross-sector industry code it might be sensible to steer away from prescribing a timeframe);
personalised financial limits (deposit/spend) with clear messaging and calls to action;
personalised time limits with clear messaging and calls to action;
time and money spent totals with clear alerts;
prescribed maximum deposit in a single transaction or day etc.;
time-outs;
transaction history (ideally, searchable by last 24 hours, last week, last month etc.);
self-exclusion;
safer gambling messaging;
tracking player data to provide targeted messaging and/or interventions;
automatic disconnection from the gaming machine after inactivity with credit returned;
digital age verification to prevent underage gambling;
withdrawals must only be made to registered / the same card; and
restricted to one debit card.

Once agreed with DCMS and the Gambling Commission, compliance with the industry code could be incorporated as a licence condition in the Licence conditions and code of practice and/or gaming machine technical standards.

At the appropriate juncture, we will of course be happy to assist clients with their responses to the consultation where that would be helpful.

With credit and sincere thanks to Jessica Wilson for her invaluable co-authorship.

30Jun

Judgement by the company you keep: Licensees’ responsibilities for third parties

30th June 2023 Chris Biggs 373

On 19 June 2023, the Gambling Commission released its new hub addressing licensees’ responsibilities for third parties (the “Hub”). In its announcement, the Gambling Commission explained that the Hub sets out its expectations and requirements for licensees which enter into business relationships with third parties. This includes white label and other unlicensed partners.

The announcement comes as a warning to licensees who contract with third parties. There is a strong undertone of compliance in the announcement, reminding the industry that the Gambling Commission’s release of the Hub follows its recent “enforcement action against operators for failures related to due diligence checks on third parties.”

What is included in the Hub?

Primarily, the Hub sets out the Licence Conditions and Codes of Practice (“LCCP”) including social responsibility code provisions (“SRCP”) that impose obligations on licensees relating to their business with third parties.

SRCPs

The Hub sets out the following relevant SRCPs:

SRCP 1.1.2 Responsibility for third parties – all licences

This SRCP applies to all licensees who contract with third parties for the provision of any aspect of their business related to their licensed activities, and makes clear that they are responsible for third parties. It also requires licensees to ensure any contracted third parties conduct themselves, in so far as they carry out activities on behalf of the licensees, as if they were bound by the same licence conditions and subject to the same codes of practice.

SRCP 1.1.3 Responsibility for third parties – remote

This SRCP applies to all remote licensees.

The Gambling Commission further explains the requirements imposed on licensees by SRCP 1.1.2. It reiterates that it expects licensees will: (1) conduct adequate due diligence on third parties to “ensure (amongst other things) that they are competent and reliable”; and (2) have sufficient oversight and controls in place to ensure all activities are carried out in accordance with the LCCP.

The Gambling Commission warns that a failure to maintain adequate control of third parties can result in regulatory action against licensees, including suspension or revocation of an operating licence.

White label partnerships

There is limited detail included within the Hub specific to white label partnerships. However, the Gambling Commission importantly reminds licensees that the responsibility for compliance of all B2C gambling websites, including white labels, sits with the licensee and cannot be transferred to any other party. Licensees must know their customers and implement their controls to minimise any risk to the licensing objectives. A failure to do so may bring into question the licensee’s suitability to hold a licence.

The Gambling Commission directs licensees to section 7 of its Compliance and Enforcement report 2019 to 2020 for guidance on how it expects licensees to conduct their white label partnerships.

Early action after the White Paper

Echoing the Gambling Commission’s commitment in its Advice to Government, the White Paper sets out that:

“To ensure all licensees fully understand their responsibilities when entering into such arrangement, the Gambling Commission will consolidate existing information and good practice for operators on contracting with third parties, including white labels.”

Given the Hub was released less than two months after the White Paper, the Gambling Commission will consider this announcement as a box ticked, despite the relatively basic information provided.

Additional requirements or new guidance has not been published. This is, as expected, following the Gambling Commission’s view (as stated in its Advice to Government) that it considers the existing legislative and regulatory framework provides sufficient controls to address the current risks.

The release of the Hub is a timely reminder to all licensees contracting with white labels or other unlicensed third parties for any aspect of their business in Great Britain, that they, as the licensees, are ultimately responsible for the third parties with whom they contract.

Key takeaway

We recommend that all licensees review their policies, procedures and controls relating to third parties, including due diligence processes and contractual agreements to ensure they are fit for purpose and mitigate the risk of regulatory enforcement action, as the Gambling Commission will judge licensees based on the company they keep.

Please get in touch with us if you would like assistance with any due diligence, compliance or enforcement matters, or any aspect of your business and its arrangements with third parties.

12Jun

Gambling Commission updates AML guidance

12th June 2023 Adam Russell 267

On 7 June 2023, the Gambling Commission published a further revision of the fifth edition of the prevention of money laundering and combating the financing of terrorism guidance (the “AML Guidance”), applicable to both remote and non-remote casino licensees (“Licensees”).

The purpose of the updates to the AML Guidance is to incorporate and address proliferation financing which is defined by the Gambling Commission in the Glossary of terms section (Annex) of the AML Guidance as:

“The act of providing funds or financial services for use (in whole or in part) in the manufacture, acquisition, development, export, trans-shipment, brokering, transport, transfer, stockpiling of, or otherwise in connection with the possession or use of chemical, biological, radiological or nuclear weapons, including the provision of funds or financial services in connection with the means of delivery of such weapons and other Chemical, Biological, Radiological and Nuclear (CBRN)-related goods and technology, in contravention of a relevant financial sanctions obligation.”

The Gambling Commission directs Licensees to review the latest version of the AML Guidance and “to ensure that these changes are incorporated in their risk assessments, policies, procedures and controls, their processes and in their training.”

Updates in the AML Guidance

The updates in the AML Guidance include that Licensees:

conduct a risk assessment to identify and assess the risks of proliferation financing associated with their business, and implement and maintain policies, procedures and controls to mitigate and manage those risks. Licensees will therefore need to review and update their money laundering (“ML”) and terrorist financing (“TF”) risk assessment and their policies, procedures and controls immediately;
implement staff training in relation to proliferation financing, in addition to ML and TF training. Licensees must therefore ensure staff training is updated and implemented accordingly;
ensure their nominated officer is involved in establishing the basis on which a risk-based approach to the prevention of ML, TF and proliferation financing is put into practice;
ensure that anyone working for them to whom information or other matter comes in the course of business as a result of which they know or suspect, or have reasonable grounds for knowing or suspecting, that a person is engaged in ML, TF or proliferation financing, makes an internal report to their nominated officer; and
manage and mitigate the risks in any business relationship with a customer situated in a high-risk third country or, where Licensees are required to apply customer due diligence measures, where either of the parties to the transaction is a resident in a high-risk third country. This should form part of Licensees’ review of their ML and TF risk assessment and their policies and procedures.

Next steps

Licensees should review and make the required changes immediately. Please get in touch with us if you would like assistance with the required changes, or with any other compliance matters.

31May

White Paper Series: “Hurry up and wait”

31st May 2023 John Hagan 374

As the dust settles (at least temporarily) following the publication of the White Paper, we have “take time to think” so that we may share our insights in a series of blogs and vlogs on the many and varied aspects of the proposed gambling reforms. With the Gambling Commission already seeking to manage expectations by saying that the implementation of the White Paper “will likely take a number of years to fully complete” and urging “more haste, less speed”, this may be a long running series… We will focus on what we consider is important or interesting, ideally both, and our content will be concise and hopefully thought provoking.

Speaking about the White Paper recently in the House of Lords, Lord Grade referred to a saying in the film industry – “hurry up and wait” (also a song by Stereophonics and a military motto) – describing where you get to the location after being forced to spend a lot of time waiting, everybody is standing around, ready, but nothing happens. Having waited nearly 30 months for the publication of the White Paper, coupled with the latest (estimated) indication from the Gambling Commission that the first wave of consultations will not be seen until mid-July, this saying seems apt.

1. Spirit and intention of the White Paper

Throughout our White Paper Series, we will have as our touchstone the aim of the Gambling Review when it was published on 8 December 2020:

“The Government wants all those who choose to gamble in Great Britain to be able to do so in a safe way. The sector should have up to date legislation and protections, with a strong regulator with the powers and resources needed to oversee a responsible industry that offers customer choice, protects players, provides employment, and contributes to the economy.”

The White Paper is true to that laudable aim. As the Secretary of State says in her Ministerial Foreword, at the heart of the Government’s Review is making sure it has the balance right between consumer freedoms and choice on the one hand, and protection from harm on the other. The Government seeks to achieve this balance through an extensive package of measures across all facets of gambling regulation. If it is to be successful, the Government – and Gambling Commission – will need to retain an unerring focus on this balance, essentially the spirit and intention of the White Paper, as it is inevitably buffeted by vested interests through consultation, regulation, and legislation.

2. All things to all people

The first thing to say about the White Paper is that it has been broadly well received; when it was delivered in Parliament, within all sectors of industry, by the NHS, in the third sector and at the Gambling Commission. This was equally broadly unexpected, given the acrimony and divergence of views between stakeholders during the “hurry up” phase, so why has the White Paper been such a resounding success? At the risk of oversimplifying, but not wishing to overlook the obvious (including the lack of detail and long grass kicking), it is precisely because the Government has achieved a healthy balance in its proposed reforms, for which it deserves enormous credit, and it is because there is something valuable in the White Paper for everyone.

Responding to its publication, and demonstrating some of the “wins” for the respective stakeholders, comments on the White Paper included:

“Given the correct powers and resources, the Gambling Commission can continue to make gambling safer, fairer and crime free. This White Paper is a coherent package of proposals which we believe can significantly support and protect consumers, and improve overall standards in the industry.” Gambling Commission CEO, Andrew Rhodes.
“BGC members will now work with Government and the Gambling Commission to deliver targeted and genuinely ‘frictionless’ enhanced spending checks to further protect the vulnerable, a new Ombudsman to improve consumer redress, and overdue plans to modernise the regulation of UK casinos.” Betting & Gaming Council CEO, Michael Dugher.
“..it should not be left to the health service to pick up the pieces left behind by a billion-pound industry profiting on vulnerable people, so I fully endorse the statutory levy set out in today’s White Paper and look forward to reading the proposals in detail.” NHS Mental Health Director, Claire Murdoch.
“At GamCare, our priority is making sure that people who need help receive it as quickly as possible. We therefore welcome the clarity the Government has provided on how research, education and treatment will be funded.” Gamcare CEO, Anna Hemmings.
“As chair of the all-party parliamentary group on gambling related harm, I welcome this long overdue White Paper. In the APPG’s 2019 interim report, we asked for affordability checks, parity between land-based and online stakes, an independent ombudsman, a curb on advertising and, most importantly, a statutory levy. Job done.” Carolyn Harris MP.

The introduction of a statutory levy paid by licensees and collected and distributed by the Gambling Commission under the direction and approval of the Treasury and DCMS ministers, is a flagship reform. The long debate as to whether there should be a statutory levy is at an end, there will be a DCMS consultation on the details of its design and, critically, the total amount to be raised. The statutory levy will fund research, education and treatment of gambling harms and is a load-bearing pillar of the reforms for those advocating the “polluter pays” principle.

Financial risk checks, maximum stakes for online slots and the creation of an independent gambling ombudsman have also been very warmly received by key stakeholders and will all be consulted upon by DCMS. The new non-statutory ombudsman will be the subject of our next blog in this White Paper Series.

The Gambling Commission most certainly did not get everything its own way, with Government not religiously following the advice from the regulator, but the Gambling Commission will be the recipient of powers and resources intended to make sure that all gambling is overseen by a “beefed up, better funded and more proactive” regulator. Licence fees will be reviewed (upwards of course) to ensure it has the resources to deliver the commitments across the White Paper. When Parliamentary time allows, it will even get greater power to set its own fees. Detailed analysis of the Gambling Commission’s additional enforcement powers will be the subject of one of our early blogs in this White Paper Series, including some which may have passed below the radar in all the excitement.

The industry positives from the White Paper are more nuanced. The land-based industry can certainly look forward to the long overdue modernisation of casinos and bingo clubs – including greater machine entitlements, credit in casinos for non-UK resident customers, sports betting in all casinos, and additional opportunities for customers to win on the main stage bingo game – and cashless payments across all land-based gambling sectors (following consultation by the Gambling Commission on the player protections which would be required).

From an online industry perspective, the White Paper is arguably as good as could reasonably have been expected in the present political, media and regulatory environment. The Government has resisted calls for bans on advertising, rejected demands for blanket and intrusive low-level affordability checks, and will consult on maximum stakes for online slots at higher levels than leaked previously. However, in outlining the Government’s vision for the future of gambling in moderately business-friendly terms, the White Paper does provide policy direction to which to hold the Gambling Commission accountable, the beginnings of some certainty and a glimpse of what political and regulatory stability might look like, not to mention the hope that the next gambling review might be a generation away.

3. The upcoming consultations

Yes of course everyone wishes the White Paper had gone further (in their direction, naturally). Yes of course there is a lot of work to be done to implement the reforms, once we are no longer “waiting”. Yes of course the devil will be in the detail. But as even the Gambling Commission and the Betting and Gaming Council (the “BGC”) agree in their welcoming press releases, the White Paper is a “once in a generation” opportunity for change. All the key stakeholders will now be seeking to secure their respective prize and imploring Government to prioritise their interests and deliver on its promises at the earliest opportunity, not least through Government and Gambling Commission consultations.

If the risk of the reform process descending into warring factions and reaching a standstill is to be mitigated, and this would not be in anybody’s interests, it is imperative that the process itself remains balanced and that all the key stakeholders see comparable progress in relation to their interests. From an industry perspective, this means engaging positively, constructively, and wholeheartedly with the upcoming consultations, proposing pragmatic and sensible solutions to the difficult challenges the Government and the Gambling Commission face, not least in relation to cashless solutions and frictionless checks, substantiated by evidence wherever possible. It also means holding the Gambling Commission to account on what is expected of it by the Government in the White Paper, with fair prioritisation of its (no doubt stretched) resources and no reforms being left far behind, even when the Gambling Commission is not in favour of them. It means focusing on its prize and not seeking to “re-litigate” settled issues or actively seeking to frustrate other stakeholders, or indeed otherwise antagonising Government which has delivered upon a balanced vision.

The proposed reforms are going to take longer than any of the stakeholders want as they seek to claim their prizes, but they are worth waiting for, the consultation phase will be critical, with both Government and the Gambling Commission under immense pressure to listen, and we will of course be happy to assist clients with their responses where that would be helpful, as we did in the last once in a generation opportunity in 2005!

19May

Summary of first-ever inquiry into crime linked to gambling

19th May 2023 Adam Russell 302

Background

The Howard League for Penal Reform (“Howard League”), which is the oldest penal reform charity in the UK, launched a Commission on Crime and Gambling Related Harms (the “Howard League Commission”) in June 2019. The primary objective of the Howard League, which extends beyond gambling, is “less crime, safer communities and fewer people in prison”.

The Howard League Commission, chaired by Lord Goldsmith KC with a team of 12 Commissioners, was the UK’s first-ever inquiry into the relationship between crime and gambling, and focused on understanding/determining:

the links between gambling related harms and crime;
the impact these links have on communities and society; and
what steps could be taken to reduce crime and make people safer.

A call for evidence was issued, attracting submissions from a range of stakeholders including the gambling industry, academics, practitioners, policy makers and people with lived experience. Evidence sessions took place with Ministers and senior stakeholders; minutes from these sessions can be found here.

The Howard League Commission published its final report in April 2023. It has also published its submission to Government’s call for evidence as part of the review of the Gambling Act 2005, and related research projects, for example, on sentencers’ understanding and treatment of problem gamblers and prison culture and gambling.

The Commission found that there is “an urgent need for ownership to be taken to reduce gambling harms related to crime both at political and strategic level and at operational policy and professional stakeholder level” and that there is “appetite for reform” within the police, courts, prisons and probation, but found an “apparent absence of scrutiny” within Government.

Key findings

The Howard League Commission found that:

The impact of gambling-related harm and crime touches all aspects of life, for example, finances, employment, relationships, health.
There are a high number of people committing a wide range of crimes as means to fund their gambling. These include white-collar/acquisitive crimes, as well as street robbery, domestic abuse and neglect, criminal damage and drugs offences.
Victims of gambling-related crime include employers, as well as social/familial networks.
There is scope to improve understanding of gambling-related harm among criminal justice agencies including in relation to sentencing, rehabilitation, recovery and support.
Certain criminal justice responses, such as Proceeds of Crime Act (POCA) orders, are counterproductive.
The impact of gambling-related harms and crime on affected others, women and individuals from ethnic minority communities is disproportionate and poorly understood.

Key recommendations

A strategic approach should be developed. The report calls on the Government, health bodies and criminal justice agencies to take a strategic approach to tackling the issue of gambling-related crime. It also recommends the creation of a national board to address crime linked to gambling – including senior representatives from the police, police and crime commissioners, prosecution, courts, probation, prisons, public health, victims’ advocates, and representation from those with lived experience of gambling-related harms related to crime.
Further funding. More funding needs to be provided locally and regionally, to develop a treatment and support infrastructure through the police, courts and prisons, which would help to reduce crime and enable more people to access services. For example, Gambling Commission revenues could be channelled into funding criminal justice and health infrastructure around treatment and support.
The role of criminal justice agencies should be enhanced. Examples include further development of the screening and assessment processes for problem gambling, integrating the voice of individuals with lived experience and improving sentencing guidelines in relation to gambling disorder. The Equal Treatment Benchbook should also be reviewed and gambling disorder considered alongside drug and alcohol use.
Gambling-related crime should be integrated into cross-government action. This could include the development of a Parliamentary select committee inquiry and cross-departmental oversight body. The report also recommends an external review regarding regulator/operator steps to address criminal activity, gambling-related harms, and provision of support.
Areas for further research should be explored. Examples of topics include the prevalence and drivers of the relationship between gambling and crime, the nature and efficacy of support/treatment (what constitutes effective support/interventions; upstream prevention; affected others; appropriate outcome measures) and the wider societal and system impact (the financial costs to society of gambling-related harms in the criminal justice system; impact on prosecution practices e.g. culpability, mitigation).

Concluding thoughts

The report comes as the Government announces planned reforms in its long-awaited White Paper, High stakes: gambling reform for the digital age. Although the niche areas of development/focus arising from the final report of the Howard League Commission will be a helpful ancillary to the proposals in the Government’s White Paper, its timing is not fortuitous given that the attention of the UK Government and the Gambling Commission will be on implementing the numerous reforms set out in the ambitious White Paper. We therefore suspect that the most likely avenue for change will be via the criminal justice agencies. They may be best placed to use the evidence presented in the Howard League Commission’s report to promote positive change in relation to the identification of gambling-related harm during the sentencing process, and provide appropriate support to affected offenders during their prison sentences and subsequent rehabilitation into society.

Download the Howard League Commission final report

28Apr

Gambling Commission Advice to Government

28th April 2023 Harris Hagan 322

The Gambling Commission has published its advice to Government (the “Advice”), as part of the review of the Gambling Act 2005 terms of reference and call for evidence, providing advice on each of the following topics:

effectiveness of the regulatory system;
online protections, players and products;
safer gambling and public health messaging;
advertising, marketing and sponsorship;
the Commission’s powers and resources;
wider funding for research, prevention and treatment;
consumer redress;
age limits and verification;
protections for young adults; and
land-based gambling.

In the Introduction, the Gambling Commission explains:

“In forming our advice, we have considered the widest range of evidence and applied a rigorous, consistent, and transparent evidence assurance process. The evidence assurance process enabled us to determine the strength of the evidence base and the weight that could be applied to the formulation of our recommendations. Where there was a lack of conclusive evidence, we took the position that this did not automatically mean that conclusions could not be reached or that action should not be taken. In some of our recommendations we have applied the precautionary principle where the potential for harm existed. We have, however, been transparent in our advice where we are advocating a precautionary approach.”

Andrew Rhodes, Gambling Commission CEO, said:

“The gambling industry has changed significantly since 2005 and our advice sets out changes that will ensure Britain is the safest and fairest place to gamble in the world. The review is a once-in-a-generation opportunity to deliver positive change for gambling in Great Britain and for all people impacted by it. Everyone at the Commission welcomes today’s publication of the White Paper and is determined to work with Government and partners to make these changes a reality. Given the correct powers and resources, the Gambling Commission can continue to make gambling safer, fairer and crime free. This White Paper is a coherent package of proposals which we believe can significantly support and protect consumers, and improve overall standards in the industry. As the detailed implementation of the review now begins, we will also be reiterating to all operators that the Commission will strongly maintain its focus on consumer protection and compliance.”

The Advice was published very shortly after the long-awaited publication of the Gambling White Paper on 27 April 2023.

We will review the Advice in detail and will be publishing our insights over the coming weeks and months.

Download the Advice to Government