25Jun

Gambling Commission Consultation on Regulatory Panel Reforms – Our Response

25th June 2020 Bahar Alaeddini 7

On 18 May 2020, the Gambling Commission announced planned changes to its Regulatory Panel, which included: (1) the recruitment and appointment of legally-qualified Adjudicators, solely for the purpose of sitting on the Regulatory Panel with the “presumption” they will also provide legal advice; and (2) reconstituting quorum as follows: (a) operating licences: one Commissioner and one Adjudicator; and (b) personal licences: one Adjudicator.

In our blog on 28 May 2020 we expressed our serious concerns on the proposed reforms, which do not offer a practical vision for adjudication that is consistent with good regulatory and legal practice. The only consideration appears to be about saving cost, time for the Gambling Commission and Commissioners, and speeding up the process. In doing so, the duty to act fairly has been sacrificed.

We have, today, submitted our response to the Gambling Commission in advance of the deadline tomorrow.

We strongly encourage other industry stakeholders to respond to the consultation. If you would find it helpful, please feel free to download and use our consultation response.

Harris Hagan Consultation Response Download

24Jun

Preserving the Value of Regulatory Assets in a Restructure

24th June 2020 Hilary Stewart-Jones 6

Covid-19 has not been all bad news for the beleaguered gambling industry – both anecdotally and from the statistics released in the public domain the online gambling industry is having a booming trading period (a current growth rate of 13.2%). However, as the retail industry braces itself for a cautious re-opening, and the ensuing expected second wave, it is inevitable that a number of companies, with a large retail footprint will need to think about restructuring and possible sale of assets.

However, there are key regulatory issues in Great Britain that cannot be neglected at this critical time despite the wider trading challenges. Compliance adds value, which may be key to assessing the business proposition in any due diligence required by a lender in a rescue situation – it also would be ironic if the rescue package itself caused operational non-compliance. Administration or receivership (as well as creditor schemes) of any company is a priority key event needing to be disclosed to the Gambling Commission (as a licence condition requirement ) under the Licence conditions and codes of practice (“LCCP”). Disclosure needs to be made as soon as reasonably practicable, and, in any event within five working days and any failure to do so (whether intentional or not) will be treated seriously, all the more so where the story may be picked up in media in advance of disclosure. Likewise, the making of any loan by an entity not regulated by the FCA or the non-UK equivalent and any investment not by way of shares (see licence condition 15.1.2(1), (5) and (6) of the LCCP) needs disclosure. It is also not entirely clear how the Gambling Commission may regard the various governmental loans/cash bailouts to UK businesses, but it is probably best to err on the side of caution.

Restructuring falling short of an insolvency (where it impacts a key position is also notifiable) as are the breaches of banking covenants (see LCCP 15.1.2 (9) and (11)). (Any re-organisation is also a code disclosure requirement). Whilst only liquidation will cause a licence to lapse (see section 114 of the Gambling Act 2005), any large scale operational changes will undoubtedly lead to regulatory scrutiny, and may even prompt a licence review, despite the operator being able to avoid any formal creditor arrangements. Furthermore, insolvency practitioners are not necessarily or likely to be well versed in the wider regulatory constraints in selling or extracting value from regulated assets.

Operating licences are not assignable, which adds to the complexity of an asset sale, and changes of corporate control after a sale can be time consuming without any certainty of outcome, especially where there is a desire to take key functions away from the old management (prompting PML or Annex A applications). The peculiarity of the provisions under section 102 of the Gambling Act 2005 allowing for the sale to complete before Gambling Commission approval has proven endlessly perplexing for corporate advisors. Corporate restructures short of an administrative sale commonly require a financial advisor to take a Board seat, and even if this does not require the individual (likely to be from an audit firm) to hold a PML , he or she may have to undergo suitability , personal probity checks not commonly sought for other industries. In short, this would require some navigation and clever strategizing, to create value for the operational business and creditors where the regulatory issues should not be (but could very well be) inhibitors to a third-party financier’s involvement.

Also, few operators are solely based in the UK; many of the online and retail operators hold a multiplicity of licences in a number of different jurisdictions so the impact of any reporting of a restructuring event or the event itself will vary as well as the likely outcome. Worse than that there may be a jurisdictional tug of war to establish which court and legal system should lead on any administration or insolvency, and strategies around timing may be critical. The location and value of the underlying businesses may be hard to determine where, for example, IP may be used across several business verticals. The new Corporate Insolvency and Governance Bill may assist in the UK (if passed) for a moratorium on some debts but may not trump the entire insolvency process in a complex multi-national business restructure.

Key supply contracts may also be imperilled; provisions which may have created a breathing space with a properly drafted force majeure clause will in most cases still enable the non-breaching party to terminate in the event of an administration event, ceasing to trade or changes of control. Certainly, in a number of gambling supply contracts there is a catch all provision for any wider regulatory taints, and depending on the circumstances may also prompt key suppliers to consider their options prompted by, for example a distressed operator undergoing a regulatory review because of an administration event.

However, the industry has always been resilient even with the constant media and regulator criticisms and challenges it currently faces as well as the economic uncertainties. If the various financial downturns in Las Vegas have taught us anything, then banks operating regulated assets is far from ideal, albeit the various stakeholders may have little choice in the short term. What is clear is that the myriad parties involved cannot lose sight of the importance of maintaining the licences, without which there is no viable business to trade out of the crisis or to sell. Some early checks with regulatory lawyers will at least eradicate or pre-empt the predictable snags, when the energies and focus of management and third-party advisors may be elsewhere.

With thanks to my colleague David Stevens for his invaluable co-authorship

01Jun

Gambling updates from the Advertising Standards Authority; lockdown, eSports and children’s exposure to gambling adverts

1st June 2020 Jessica Wilson 12

The Advertising Standards Authority (“ASA”) has recently published guidance on advertising gambling amid lockdown, the marketing of eSports on social media, and a report on children’s exposure to gambling TV ads in 2019.

Gambling advertising during lockdown

As noted in our previous blog posts, the gambling industry is under a microscope during the current COVID-19 pandemic and has been subject to new expectations and guidance. Consideration must also be given to gambling advertising, and the ASA has published a “warning” to gambling operators to “pay even more attention to their responsibility under the [CAP and BCAP] Codes during these uncertain times”.

The CAP and BCAP advertising codes make it clear that marketing of gambling products must not be:

irresponsible in its use of content or themes that might exploit vulnerabilities; or
targeted through its content or placement at under-18s.

The global pandemic has created a new context of vulnerabilities and potentially heightened consumer risk to gambling-related harms. The ASA is therefore encouraging people to report gambling ads that:

refer to the COVID-19 crisis or related matters, such as the Government’s lockdown policy; and/or
include claims or themes that are of particular concern in the current climate (for example, ads that refer to relieving boredom, repeated play or personal problems like family difficulties).

The ASA appreciates that these are not new concerns but that they are exacerbated during the current circumstances. The ASA has further noted that it will “take swift action against ads that, in context of the present crisis, are likely to exploit people’s vulnerabilities or encourage irresponsible behaviour”.

Marketing eSports on social media

On 23 April 2020, the ASA published an advice note on the marketing of gambling on eSports on social media. The advice to licensed operators follows the ASA’s study on eSports betting marketing on social media and is to close any potential gaps between the relatively new concept of eSports and the existing CAP and BCAP codes. The advice applies to gambling marketing on all social media platforms, including Facebook, Instagram, Twitter, Snapchat, Twitch and TikTok.

The advice confirms that the CAP code rules that apply to the marketing of gambling on eSports:

are the same as those of traditional marketing on gambling; and
cover social media in the same way as they do all other non-broadcast media.

Whilst the rules are the same for eSports as for traditional marketing on gambling, the advice highlights CAP Code rules that are relevant to marketing eSports on social media, including:

Recognition of marketing: marketing communications must be obviously identifiable and must not falsely claim that the marketer is acting as a consumer, requiring social media marketing posts to be clearly labelled as such. For example, by using “#ad”.
Targeting: operators should take all reasonable steps to ensure advertising is not targeted at under-18s through the selection of media, or platform, or the ad’s content. For example, if gambling marketing can be searched for on a social media platform using terms that are likely to have particular appeal to children and there are no measures in place to protect children from seeing that marketing, then it is likely they will be breaking the CAP code targeting rules.
Appeal to under-18s: marketing must not be likely to be of particular appeal to children or young persons. For example, by using cartoons or by using a social media influencer who is associated with youth culture to promote eSports betting.
Terms and conditions: similar to the traditional marketing of gambling, the terms and conditions of offers of free bets should be made clear in gambling marketing on social media.
Affiliates and influencers: the advice provides a reminder that affiliates of gambling operators must also abide by the targeting and content rule and that gambling operators are responsible for the content produced for them on social media by influencers.

Children’s exposure to gambling adverts

On 22 May 2020, the ASA published a report titled Children’s exposure to age-restricted TV ads: 2019 update. The findings show that children’s exposure to gambling advertising has remained at a similar level over the last six years, since a peak in 2013. Since then, children’s exposure to TV gambling ads has decreased by just under half. Most of those adverts viewed by children were in relation to lottery, scratch cards and bingo.

28May

Changes to the Gambling Commission’s Regulatory Panel Procedure Rules

28th May 2020 Bahar Alaeddini 11

On 18 May 2020, the Gambling Commission announced planned changes to its Regulatory Panels. Claiming to improve how it regulates, and to provide further clarity to applicants and licensees on how the Regulatory Panel will decide on matters of procedure, the Gambling Commission proposes various changes to its procedural rules, as detailed in this blog.

Documentary and other evidence

Bundles will be sent to the Regulatory Panel no later than 21 days (presently seven days) prior to the hearing. Further evidence after this point will require the “express permission” of the Regulatory Panel and only admitted with “good reason”. If the bundle is disputed, the applicant/licensee must share their no later than 14 days prior to the hearing.

Arranging a hearing

A choice of three hearing dates over a two-month period will be provided. Parties are expected to be “flexible” and “proposed dates will not be changed unless it can be demonstrated that there are good reasons why none of the proposed dates are workable.”

Representations and evidence

An application to admit late evidence, by any of the parties, must be made to the Regulatory Panel. The application will need to address the nature of the document, the reasons for it being produced at a late stage and whether and how its admission is necessary for the fair disposal of the hearing. Such an application which will necessitate an adjournment will require “particularly good reasons”. No details of “good” are provided; however, a reminder has been added that “an application is likely to be refused if reliance is placed on material which should have been provided with the original licence application, or which involves a material change to the application.”

Financial penalties

In determining whether a financial penalty is appropriate the Regulatory Panel will be able to ask the Gambling Commission for “any information it considers appropriate”, noting that this may include further representations from the Gambling Commission in response to any representations made by the licensees. Licensees will have 30 days, from the date of any notice confirming the financial penalty, to make payment (presently, 14 days).

Dates for decisions

Decisions will be confirmed in writing within 21 days (presently, 14 days).

These proposed changes are set out in the following track changed Gambling Commission documents:

The consultation closes on 26 June 2020.

28May

Changes to the Gambling Commission’s Regulatory Panel

28th May 2020 Bahar Alaeddini 24

On 18 May 2020, the Gambling Commission announced planned changes to its Regulatory Panels. In its introduction it explained:

“Due to changes in the gambling market and gambling regulation, the cases that are heard by Regulatory Panels are becoming increasingly complex and legalistic. [The Gambling Commission is] consulting on a number of proposals to ensure that [its] Regulatory Panels are best equipped to deal with…evolving casework.”

Proposed changes

The Gambling Commission proposes:

To employ four to six adjudicators, who are legally qualified, solely for the purposes of sitting on Regulatory Panels. The “presumption” is that they will provide legal advice to the Regulatory Panel, although the Gambling Commission will retain the option for a legal adviser to attend. This legal advice would be shared as part of the Regulatory Panel process, in the same way as at present.
Reconstitute the Regulatory Panel quorum as follows: (a) operating licences: one Commissioner and one Adjudicator; and (b) personal licences: one Adjudicator.
To use a Regulatory Panel “occasionally”, if asked by Gambling Commission staff to provide “steers” on regulatory settlement proposals (delegation of approval will remain with Executive Directors) and financial penalties.

These changes are believed to provide a “cost-effective” way of conducting hearings, with the Gambling Commission claiming the following advantages:

they provide “a broader range of combined experience and ensure such skills do not atrophy by being regularly utilised”;
Regulatory Panel members will have greater availability to hear cases;
shorter waiting times for hearings;
other regulators adopt similar models; and
cost savings “meaning that costs awarded against the losing party will be lower overall”.

The consultation provides basic details of costs (approximately £1,000 per day per Adjudicator) and potential savings. However, the likely calibre and experience of an Adjudicator is unclear.

“Increasingly complex and legalistic”

The consultation provides no evidence to demonstrate that “the cases that are heard by Regulatory Panels are becoming increasingly complex and legalistic”. Other than published decisions, and procedural rules, no information is publicly available on the work of the Regulatory Panel, including the number of cases heard or matters referred, the number of hearings and the waiting times.

In our experience and in general, it is a misconception to say cases have become “increasingly complex and legalistic”. Any case that reaches the Regulatory Panel will be substantial and complex, and often, legalistic. Revocation, suspension and a hefty fine are on the table, so what is wrong with that?

There is no denying that the firm’s work has become more complex, but this boils down to a noticeably changed approach to gambling regulation in Great Britain, influenced by various factors. Factors include a new Chief Executive, high turnover of Gambling Commission staff, not providing reasonable periods of time to licensees (but giving itself months on end) and – regrettably – procedural issues and failings by the Gambling Commission, which jeopardise the right to a fair and proper hearing.

Erosion of independence

Regulatory Panels provide an important opportunity for applicants and licensees to attend an oral hearing to challenge decisions made by Gambling Commission staff.

The independence of employed Adjudicators, recruited and appraised by the Gambling Commission, is questionable, encroaching on its supposed “values” (as set out in its Corporate Strategy 2018-2021) to be:

fair
accountable
professional; and
consistent.

The very purpose of the Regulatory Panel is to give the applicant/licensee the opportunity to challenge a “minded to” decision reached by Gambling Commission staff. This is a critical control and protection, which is being weakened – by the Gambling Commission – in this consultation. The Regulatory Panel is the only quasi-independent option available to an applicant/licensee. Although it is still the Gambling Commission making the decision it is invaluable and must be protected.

The consultation does not include an adjudication governance framework, which could go some way in addressing independence concerns by ensuring decisions are fair, with clear separation of the Regulatory Panel from the Gambling Commission’s Licensing, Enforcement and Legal departments. It also does not specify which regulatory models and regulators were examined. As I mentioned in my earlier blog on 1 May 2020, many other regulators use registrant or industry panel members – not employees – who bring with them a wealth of knowledge and independence, assuming potential conflicts are managed.

By way of example, approximately half of the Financial Conduct Authority’s Regulatory Decisions Committee’s 18 members come from finance or financial services backgrounds. The other half have esteemed legal, governance, policy or academic backgrounds. Independence is further emphasised by the FCA handbook stipulation that:

none of the members are employees; and
the committee has its own legal advisers and support staff.

Independence is likely to be further eroded by changes to quorum. Presently, a Regulatory Panel must be made up of at least two Commissioners, although normally it will comprise three Commissioners. Under the proposed arrangements there will, at most, be one Commissioner, with no Commissioners sitting on hearings relating to personal licences. The latter will be considered by a single Adjudicator, who will receive one day of training annually, presumably from the Gambling Commission. It is unimaginable that the Gambling Commission would consider one day of training annually to be sufficient education for anyone working in the gambling industry!

Taking a cynical view, Adjudicators may be guided by the Gambling Commission’s recommendations, further eroding independence of the Regulatory Panel.

Unfairness

The loss is not simply one of independence. The proposed reduction to a maximum of one or two panel members is unjust. A Regulatory Panel of one Commissioner, as opposed to the standard three, particularly for operating licence hearings, will undoubtedly impact on the fairness of the hearing and regulatory decision. Surely, particularly in complex matters, there is a strong argument for retaining that number, not reducing to one Commissioner? What happens if a Regulatory Panel of two is spilt on the decision? Who has the binding vote? Is it the Adjudicator because they will “ordinarily” provide the legal advice to the Regulatory Panel? Presently, one Commissioner presides over the proceedings, but all three have equal decision-making powers.

How will the Adjudicator manage the role of legal adviser to the Regulatory Panel whilst also being a member? By way of comparison, the Solicitors Regulation Authority uses an Adjudication Panel; however, it has a minimum of two members and will normally comprise three, excluding the independent legal adviser.

“Me, myself and I”

A Regulatory Panel of one member is not a panel. The Cambridge Dictionary defines a panel to mean “a small group of people chosen to give advice, make a decision or publicly discuss their opinions”. It is therefore misleading to suggest a single Adjudicator considering personal licence hearings would establish a Regulatory Panel.

In such hearings there may be an argument that a decision made by a new-style Regulatory Panel fails to be “independent and impartial”, in accordance with the Human Rights Act 1998.

The future

Disappointingly, the consultation, which closes on 26 June 2020, signals another marked change in regulation. If introduced, there will be an unescapable loss of diversity, given the Commissioners’ varied backgrounds, and the principles of fairness and natural justice will be compromised.

Ultimately, the Regulatory Panel should be about making good decisions in the public interest, following a fair process. A new or modernised process should not be pursued at the expense of the quality and fairness of the outcome. Poor quality decisions that are not robust or consistent will result in more cases being appealed.

It seems to us that the Regulatory Panel has been functioning well providing independence, fairness and much needed separation from the executive arm of the Gambling Commission, which is embroiled in the day to day business of the investigatory and review work and, quite understandably, can lack perspective. A legitimate failing is the length of time taken to constitute Regulatory Panels, but surely there are better ways to address this, for example, with more Commissioners? Instead, the cynic might be tempted to conclude that the Gambling Commission does not like the decisions the Regulatory Panel is reaching.

In conclusion, the proposed changes do not offer a practical vision for adjudication that is consistent with good regulatory and legal practice. There is nothing to suggest that fairness has been a consideration. The only consideration appears to be about saving cost, time for the Gambling Commission and Commissioners, and speeding up the process. In doing so, the duty to act fairly has been sacrificed.

18May

New Gambling Commission Guidance for Online Operators: Changing the Basis of Regulation?

18th May 2020 Julian Harris 8

Introduction

The Gambling Commission’s recently published purported “guidance” for online operators (“New Guidance”), issued under social responsibility code provision 3.4.1 (“SRCP 3.4.1”) of the LCCP, highlights how carefully it is focusing on a perceived risk presented by the current COVID-19 crisis. If this risk does exist – and the evidence on which the Gambling Commission (the “Commission”) relies is questionable at best – it is unlikely that anybody would dispute the need to recognise and address it: operators do not want to benefit from problem gamblers, consumers must be protected, and the depreciating reputation of the industry in the wider public eye must be addressed.

However, the manner by which the Commission has implemented the New Guidance and the strength of its content, is suggestive of the Commission taking a novel approach that facilitates prescriptive changes to its regulatory framework without consultation or notice.

The data is, we have said, questionable, which is an issue for separate discussion. However, even if accepted at face value, it does not support emergency measures introduced at little notice without consultation. In their press statement, the Commission notes that “during lockdown gambling participation is down overall” and concludes that “there is no evidence to suggest an increase in problem gambling.”

The law

The Commission issued SRCP 3.4.1 under section 24(2) of the Gambling Act 2005. Section 24(10) which requires that before issuing or revising a code of practice, the Commission shall consult (inter alia): the Secretary of State; Her Majesty’s Commissioners of Customs and Excise; one or more persons who appear to the Commission to represent the interests of persons who carry on gambling businesses and are likely to be affected by the code or revision; and one or more persons who appear to the Commission to have knowledge about social problems relating to gambling.

SRCP 3.4.1 is not a licence condition; it is a code provision that, by virtue of section 82 and as a consequence of it being a SRCP, is subject to the licence condition that it is complied with. This is an important distinction as, were it to be a general licence condition under section 76 the requirements for general licence conditions under that section would apply. These prescribe that, before specifying the licence condition the Commission must consult and that at least three months’ notice be provided to the holders of affected operating licences. Section 76(5) permits the Commission to specify a licence condition without providing this required notice “if it thinks it necessary by reason of urgency”, but requires it to “give as much notice as it thinks possible in the circumstances”.

By combining its reference to SRCP 3.4.1 and the New Guidance in the same paragraphs when publishing it on its website, the Commission has caused confusion and led some operators and commentators to conclude that it has amended this SRCP. This misapprehension is then compounded by the fact that when the Commission first introduced its guidance on customer interaction in July 2019 (the “2019 Guidance”), it consulted on that change.

The Commission cannot properly have amended SRCP 3.4.1; had it done so, it would have acted in breach of the requirements of the Gambling Act 2005 by failing to consult in line with section 24. In this case, the Commission has introduced additional formal guidance under the SRCP.

2019 guidance

SRCP 3.4.1 requires that licensees “take into account the Commission’s guidance on customer interaction”. The 2019 Guidance sets out why customer interaction is a requirement and provides operators with suggestions as to how the Commission’s expectations can be met. The Commission states in this guidance:

“For compliance and enforcement purposes, we will expect licensees to demonstrate how their policies, procedures and practices meet the required outcomes. This can be through implementing relevant parts of the guidance or demonstrating how and why implementing alternative solutions equally meet the outcomes.”

Introducing guidance under SCRP 3.4.1 was an arguably sensible approach. It enables the Commission to outline to operators in more detail how they can meet its expectations in applying the SRCP.

The New Guidance: not what it seems

The New Guidance issued by the Commission is not as broad as the 2019 Guidance. It uses very different wording and is less outcome focused. It requires licensees to undertake specific measures. This is clear from the requirement that operators “prevent reverse withdrawal options for customers until further notice”, an issue that has justifiably been on the Commission’s radar for some time, now brought into effect and, given the Commission’s reference to a consultation on this issue following later this month, that is unlikely to change. By including such specific directions, this is guidance in name only; the consequence being that whether intentional or not, the Commission has amended the SRCP by the back door, avoiding the need to adhere to the requirements of the legislation

The New Guidance is made all the more difficult for operators to understand, given the mismatch between the press statement accompanying the New Guidance, and the New Guidance itself. An example of this is the statement included that “operators must take account of the Commission’s guidance, which makes it clear they should: … interact with customers who have been playing for an hour in a single session of play”. This is inconsistent with the New Guidance, which requires operators to “specifically, review [their] time indicators to capture play in excess of one hour as this is a proxy for potential harm”. Should all customers be interacted with after an hour, or is this just an indicator to be considered?

Operators therefore find themselves in an unenviable position. Despite their ongoing efforts to protect consumers during the COVID-19 crisis, they are forced, with little notice and no consultation, to make immediate changes to their policies, procedures, terms and conditions and processes, in order to take into account prescriptive guidance. In the absence of any consultation, this guidance is difficult to interpret, it is based on limited and questionable data, and may be inconsistent with their own experience and observations: all at potential detriment to other valuable projects in the consumer protection field that may have to be side-lined.

Nobody would challenge efforts by the Commission to protect consumers throughout this crisis. However, a demonstrable understanding of the industry it regulates, sympathy for the time it takes to implement change, and adherence to the outcomes based flexibility that allows operators to focus on the consumer risks identified in their business, may ultimately produce better results. Arguably, a consultation, however short, would have enhanced the impact of the New Guidance, avoided confusion, and provided at least some notice.

A sign of things to come?

By taking the course of action that it has, the Commission has perhaps signalled a questionable new approach. Its introduction of guidance under SRCP 3.4.1 has, whether intentionally or not, made indirect, prescriptive changes to code provisions carrying the weight of licence conditions, without it having to consult, or provide notice. Operators should be aware of this and be ready to take prompt action the next time the Commission introduces further guidance at short notice. Whatever the merits of changes introduced by the Commission, it is vitally important that it acts transparently, proportionately and fairly in accordance with its own Statement of principles for licensing and regulation, if high standards are to be achieved and the industry’s trust in its regulator is to be maintained.

With thanks to my colleague David Whyte for his invaluable co-authorship

14May

New Gambling Commission Guidance for Online Operators

14th May 2020 Jessica Wilson 15

On 12 May 2020, the Gambling Commission issued new “additional formal guidance” for online operators in response to “evidence that shows some gamblers may be at greater risk of harm during lockdown”.

Online operators must now take this new guidance into account and they are “expected to make changes to act on this guidance as soon as possible”.

The new guidance is issued under social responsibility code provision 3.4.1 of the LCCP which requires licensees to interact with customers in a way which minimises the risk of customers experiencing harms associated with gambling. This includes identifying customers, interacting with customers, understanding the impact of the interaction, and taking into account the Gambling Commission’s guidance on customer interaction, which now includes the new guidance of 12 May 2020.

The new measures, to be “implemented into customer interaction frameworks” by licensees, are as follows:

Reviews of all thresholds and triggers used to track vulnerability to ensure that they reflect changed financial circumstances that many consumers will be experiencing. An emphasis should be placed on those thresholds and triggers being proactively reset on a precautionary basis to ensure customers with emerging vulnerability, such as increased time spent at play or increased spend can be identified
Specifically, reviewing time indicators to capture play in excess of one hour as the Gambling Commission believes this is a proxy for potential harm.
Set additional or modify existing thresholds and triggers which are specific to new customers reflecting the operator’s lack of knowledge of that individual’s play and spend patterns.
Implement processes that ensure the continual monitoring of the operator’s customer base, identifying customers whose patterns of play, spend or behaviours have changed in the last few weeks.
Conduct affordability assessments for customers identified by existing or new thresholds and triggers which indicate customers experiencing harm. Consider limiting or blocking further play until the checks have been concluded and supporting evidence obtained.
Prevent reverse withdrawal options for customers until further notice.
Stop bonus offers or promotions to customers displaying indicators of harm.

Guidance or requirement

Whilst guidance may be appropriate to ensure vulnerable customers are protected, particularly during the current Covid-19 pandemic, it is questionable whether the measures can be considered to be “guidance” and whether they are wholly proportionate and necessary in the light of the data on which the Gambling Commission has based these measures. The wording of the measures appears to create an obligation on the part of licensees to “stop bonus offers” and “prevent reverse withdrawals” which give the impression of requirements, rather than guidance.

Data

The Gambling Commission published two sets of data. A first set collected through a YouGov survey and a second from “the biggest operators, covering approximately 80% of the online gambling market”.

YouGov data

The YouGov data was collected from just over 2,000 people, some of whom may have taken the survey multiple times. The data is based on gambling habits of customers within four weeks from “mid-March 2020”. Whilst the data does show increased spend on online gambling, for example a 2% increase on online slot games and 1.7% on sports betting, the biggest increase of 16.4% was on National Lottery products which are regulated separately and to whom the new guidance does not apply. The data analysis also fails to consider the potential adjustment of gambling habits due to the closure of land-based venues as an explanation for the increase of spend and time on certain products, as opposed to an increase in gambling habits.

Gambling Commission data

The second set of data was collected over the period 31 March 2019 to 31 March 2020. This period only covers one week in which the country was in lockdown. It follows that this data cannot be reliable evidence that customers are at a greater risk of harm during lockdown. Further, the data shows a decrease in reverse withdrawals. The new guidance at point 6 above includes the prevention of withdrawal options until further notice. It is clear that this measure was not based on the data published by the Gambling Commission, which questions whether it was necessary and proportionate to be included within this particular guidance. The Gambling Commission, supported by research, already considered reverse withdrawals to be a flag for potential gambling harms; however, action to tackle this through an industry consultation would have been more appropriate than a strict measure introduced under the guise of guidance.

Absence of consultation

The absence of an industry consultation on the guidance is particularly disappointing. When a code of practice is amended, the industry would usually be offered the opportunity to respond to a consultation on the proposed new amendments. This was the case when the Gambling Commission last issued guidance under social responsibility code 3.4.1 in July 2019. However, it seems that the Gambling Commission has decided to omit this stage due to lockdown being a present and continuing issue. The press statement notes that the Gambling Commission will bring forward plans to consult on whether further targeted protection measures are required on a permanent basis.

The Gambling Commission’s Statement of principles for licensing and regulation begins by stating that the Gambling Commission regulates in a “straight-forward, risk-based and transparent manner”. The lack of industry consultation here is plainly neither transparent, nor based on sufficient evidence of risk.

The new requirements are significant and will no doubt be burdensome for licensees to implement “as soon as possible”. However, they are likely to be welcomed by Culture Minister Nigel Huddleston (see our blog of 24 April 2020) and the Public Accounts Committee following Neil McArthur’s appearance at the session Gambling regulation: problem gambling and protecting vulnerable people on 27 April 2020.

To comply with the new measures significant updates are likely to be required to systems, customer terms and conditions and policies, each requiring input from different people, perhaps even third-parties, which will no doubt be a challenge given the current crisis. If, as the press release suggests, operators are expected to “interact with customers who have been playing for an hour in a single session of play” the impact will be significant, particularly for large operators who may have several thousand active customers at any one time. The threat of interim licence suspension, or licence review, increases this burden, which was thrown upon licensees without consultation, warning or a timeframe to implement the required changes.

As Julian Harris wrote in our previous blog, “for regulation to be effective it requires a healthy and collaborative working relationship between regulator and whom it regulates”. This statement is echoed here and whilst both the Gambling Commission and the industry as a whole are in agreement that new measures should be introduced to protect the most vulnerable during this novel and rare situation, any changes should be proportionate, necessary and founded upon strong and clear evidence.

A further blog post on the implementation of the new guidance will follow.

07May

Remain Vigilant to Ensure AML Compliance

7th May 2020 David Whyte 15

The Gambling Commission published the fifth edition of The prevention of money laundering and combating the financing of terrorism – Guidance for remote and non-remote casinos (the “Guidance”) in January 2020. The Guidance incorporates the amendments made by the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

In its 2018/2019 Enforcement Report, the Gambling Commission said:

“Compliance activity and enforcement cases revealed again and again that operators’ AML policies, procedures and controls are not fit for purpose. There has been the incorrect perception that all gambling regulators’ expectations are identical in addition to a failure to digest our guidance and implement the legislative requirements applicable to Great Britain. This must change, for these are not just regulatory matters but breaches of UK law. Those failing to learn these lessons will face further draconian action.”

Despite repeated messages and enforcement cases of a similar nature, due to ongoing failings by the industry, the Gambling Commission has “continued to imposed increasingly tough financial penalties (or payments in lieu of financial penalties) in cases where there have been major AML failings in order to send a clear message to the industry.”

Operators must take heed because the Gambling Commission will continue to hold you to account for failing to adhere to the Guidance.

As we noted in our blog on 31 March 2020, the current COVID-19 crisis presents some operators with an opportunity to ease regulatory and commercial burdens.

Operators should ensure that they have implemented all changes required following the update to the Guidance and take note of the Gambling Commission’s statement that:

“…the publication of this updated guidance must result in casino businesses reviewing, and accordingly amending, their money laundering and terrorist financing risk assessments as well as the associated policies, procedures and controls…”

Customer due diligence

Paragraphs 6.16 and 6.17 of the Guidance specify that, for the purposes of CDD (as required by Regulation 28), verify means verifying on the basis of documents or information which, in either case, have been obtained from a reliable source which is independent of the person whose identity is being verified. In addition to documents issued or made available by an official body made available by a customer themselves, information may be regarded as meeting this requirement if:

it is obtained by means of an electronic identification process (by using electronic identification means or by using a trust service); and
that process is secure from fraud and misuse and capable of providing an appropriate level of assurance that the person claiming a particular identity is, in fact, the person with that identity.

Enhanced customer due diligence and enhanced ongoing monitoring

There are now further requirements for EDD measures and/or an assessment of whether there is a high risk of money laundering or terrorist financing (which, if identified, would require EDD measures) where:

in relation to any transaction where there is a requirement apply CDD measures, either of the parties to the transaction are established in a high-risk third country;
a transaction is complex or unusually large, there are unusual patterns of transactions, or the transactions have no apparent economic or legal purpose;
the customer is the beneficiary of a life insurance policy; or
the customer is a third country national who is applying for residence rights in or citizenship of an EEA state in exchange for transfers of capital, purchase of a property, government bonds or investment in corporate entities in that EEA state.

Other changes

Other changes to the Guidance include changes to the risk-based approach, risk assessments, risk-based CDD and new flow diagrams showing the Architecture for the risk-based process (figure 2) and The risk framework and risk-based customer due diligence (figure 3). These highlight the requirement that licensed casino operators:

take appropriate measures in preparation for, and during, the adoption of new products or business practices, and assess and mitigate any money laundering risks arising from such adoption, in addition to the existing and similar requirement for new technology, including cryptocurrencies (Regulation 19(4));
have specific policies, procedures and controls for the measures described above (Regulation 19(1) and (2)); and
take appropriate measures to ensure that any agents used by operators, for the purposes of their business, are given appropriate training in AML and CTF (Regulation 24).

Factors to consider

The new requirements can be addressed by:

reviewing money laundering and terrorist financing risk assessments now, and each time a new product or business practice is introduced;
reviewing AML/CTF policies, procedures and controls to ensure that the Guidance has been considered;
ensuring that all employees are appropriately trained and understand the changes; and
amending contractual clauses and training procedures to ensure that agents are appropriately trained.

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

06May

Gambling Commission Response on Remote Key Equipment Changes

6th May 2020 Bahar Alaeddini 16

In our blog on 3 February 2020 we outlined the Gambling Commission’s proposed changes to the variation application and notification requirements in relation to key equipment, removing the requirements in licence conditions 2.1.1 and 15.2(17).

In response to the consultation, which closed on 26 March 2020, the Gambling Commission received 35 responses, including 30 operators and one law firm (Harris Hagan!). Unsurprisingly, for the reasons previously explained, there was significant support for the Gambling Commission’s proposals.

Outcome of the consultation:

Licence condition 2.1.1 will be removed, meaning licensees will no longer need to complete an application to vary their licence when adding new or moving key equipment. As set out in our earlier blog, licence condition 2.1.2 will remain in place.

Licensees will no longer be required to submit a key event, under licence condition 15.2.1(7), where changes are made to the location of key equipment within a jurisdiction. The key event will be retained as there are other matters that need to be reported under this requirement.

The changes take effect at the end of July 2020.

We very much welcome these changes and the Gambling Commission’s long overdue pragmatic approach to the present burdensome and clunky requirements.

05May

Keeping Affiliates in Line: “No Fudging”

5th May 2020 Lucy Paterson 10

Ensuring that operators have adequate oversight of their marketing affiliates has been on the Gambling Commission’s agenda for some time, but now appears to be under the spotlight once again. Historically, the Advertising Standards Agency (the “ASA”) and the Gambling Commission have not been shy to take action against operators who they consider have had inadequate oversight of their affiliates, and the current global crisis has again brought the issue to the fore, with concerns that affiliates have sought to exploit the situation for marketing purposes. Whilst the Gambling Commission has no jurisdiction over affiliates, the ASA (which does) has repeatedly ruled that:

both the operator and the affiliate are responsible and accountable for non-compliant advertising, even where the advertisement was the sole creation of the affiliate; and
operators cannot absolve themselves of responsibility for marketing communications where they ultimately reap the benefits.

In a recent message to the gambling industry in the light of the COVID-19 crisis, Neil McArthur emphasised the need for licensees to ensure that their affiliates are “conducting themselves properly” – or the Gambling Commission will not hesitate to take action. A similar message was delivered by his predecessor, Sarah Harrison, at WrB in February 2017, in which she said:

“…my message to [affiliates] is that they need to get their house in order. But far more importantly, my message to operators is there is no ‘fudge’ around this, no equivocation – the affiliates who promote your brand and who drive business to your websites are your responsibility, and it is you who are accountable.”

If you get a mention by the CEO of the Gambling Commission in a keynote address to the gambling industry, it is rarely good; it sets alarm bells ringing. Unfortunately, whilst some operators have improved practices, it seems those bells were not heard by many in 2017.

Unlicensed Third Parties

Affiliates are not licensed by the Gambling Commission although, arguably, they could be licensed under the existing legislation. Our view remains that it has no appetite for licensing affiliates, and it is much easier to hold a relatively small number of operators responsible.

As they are not licensed, affiliates are not bound by the Licence Conditions and Codes of Practice (“LCCP”), though they must comply with both the Code of Non-broadcast Advertising and Direct & Promotional Marketing (known as the CAP Code) and the Code of Broadcast Advertising (known as the BCAP Code) (the “Advertising Codes”).

Despite not being bound by the LCCP, in accordance with social responsibility code provision 1.1.2, licensees must:

ensure that the terms on which they contract with affiliates require affiliates to conduct themselves as though they were bound by the same licence conditions and codes of practice;
oblige affiliates to provide them with the information they need to comply with any reporting requirements; and
have the right to terminate in the event of breach or behaviour inconsistent with the licensing objectives.

There is no doubt that licensees are considered responsible for the actions of third parties with whom they contract, which includes affiliates. The buck very much stops with them. In response to the need for greater oversight and control over affiliates, practical challenges and regulatory risks, many affiliate marketing programmes have been drastically reduced and, in some cases, radically disbanded.

Industry Code for Affiliates

Following Neil McArthur’s CEO Breakfast Briefing on 2 October 2019, three Gambling Commission industry working groups were created, which included the Safer Advertising Online Working Group. We reported on recent updates on 2 April 2020, which included the adoption and implementation – by all affiliates – of a code of conduct. This will be updated and amended on a regular basis to ensure all measures undertaken by the industry will be implemented equally by affiliates. It is expected that this code of conduct will be in place by July 2020 and the Gambling Commission has made very clear that licensees will be “held to account for these commitments” from this date.

The industry code has not been published yet. Affiliates are strongly encouraged to engage with their licensed partners and the Responsible Affiliates in Gambling group, which is an independent body established in May 2019 and chaired by Clive Hawkswood (former CEO of the Remote Gambling Association), set up to help raise standards in the sector, particularly in respect of responsible gambling. Equally, licensees should engage with the Betting and Gaming Council and conduct a comprehensive review of its affiliate programme.

Considerations for Affiliates

Act as if you are licensed yourselves, only without the licence fees. If you do not, you do not have a future in the gambling industry.
Educate yourselves on the legal and regulatory requirements relating to gambling advertising.
The requirements are all readily available online with operators, regulators and, of course, lawyers eager to provide guidance.
Review your training requirements and deliver any additional training.
Make sure your advertisements are legal and not misleading (particularly regarding free bets and bonuses, by stating significant terms and conditions) and socially responsible.
Consider what safer gambling information you should provide.
Ensure you comply with any advertising codes in other countries that you may be advertising in.
Ask your licensed partners for assistance and how they are preparing to implement the new industry code. Some operators have existing marketing guides for their affiliates on the rules and regulations governing marketing in the jurisdictions in which they operate.

Considerations for Licensees

Ensure marketing carried out by affiliates is socially responsible and in compliance with the Advertising Codes.
Encourage affiliates to use the free and paid for copy advice service provided by CAP and the ASA.
Educate affiliates by providing detailed guidelines, including worked examples of compliance and non-compliance.
Review your marketing guidelines and rules, including your marketing approval process and the role of your marketing PML holder.
Review your policy, procedures and controls relating to affiliates, ensuring you have a comprehensive and robust audit approach. This should be led by your marketing PML.
Review your training requirements and deliver any additional training. This may include both employees and affiliates.
Review your affiliate agreements to ensure compliance with social responsibility code provision 1.1.2 (as detailed above), the LCCP, the Advertising Codes and your marketing guidelines and rules, and strengthen where required. By way of example:
- if affiliates can only use material that you have produced in-house, include a term that such material may not be amended; and
- if affiliates can modify or develop content, specify that approval is required before material is published.
Ensure you have adequate remedy in the event of breach such as inclusion of a term allowing you to withhold any revenue share.
Ensure you have the right to terminate easily and promptly in the event of breach or behaviour inconsistent with the licensing objectives.

Affiliates play a critical role for operators, generating traffic and revenues. In addition to recognising the value of affiliates, operators must acknowledge (if they have not already) that those same affiliates now also represent a genuine risk to their business and reputation. Ultimately, licences are a privilege not a right so ensure you have adequate measures in place to protect your licence!

If you would like to discuss any of these issues, including provision of training, please do get in touch with us.