31Mar

Gambling Commission Consultation Response on Online Slots Game Design and Reverse Withdrawals

31st March 2021 Lucy Paterson 556

In July 2020, we blogged about the Gambling Commission’s consultation on online slots game design and reverse withdrawals, which proposed several changes aimed at reducing gambling-related harm caused by online slots games by reducing the intensity of slots play. The consultation proposed amending the Gambling Commission’s Remote gambling and software technical standards (“RTS”) to introduce new controls on online slots and to remove operators’ ability to reverse customer withdrawal requests.

The consultation closed on 3 September 2020, and on 2 February 2021 the Gambling Commission published its consultation response, announcing the new measures to be introduced in the updated RTS. The new provisions, which come into force on 31 October 2021, are clearly marked in red within the updated RTS, which are now available online.

Neil McArthur, now former Chief Executive of the Gambling Commission, said:

“This is another important step in making gambling safer and where the evidence shows that there are other opportunities to do that, we are determined to take them.”

The Gambling Commission, as expected, has proceeded with almost all of the proposed changes set out in the consultation document. We set out below the changes to the RTS and the Gambling Commission’s rationale for their introduction.

Display of elapsed time and net position

Expenditure and time spent gambling have been identified as the most relevant data points in minimising the risk of gambling related harm for consumers. From 31 October 2021, licensees providing slots will be required to permanently display consumers’ net position and time spent during slots gaming sessions on the screen. For the purposes of this new RTS, a “gaming session” begins when the game is opened or once play commences.

Display of elapsed time:

RTS requirement 13C

The elapsed time should be displayed for the duration of the gaming session.

RTS implementation guidance 13C

Time displayed should begin either when the game is opened or once play commences
Elapsed time should be displayed in seconds, minutes and hours

In relation to display of net position:

RTS requirement 2E:

All gaming sessions must clearly display the net position, in the currency of their account or product (e.g. pounds sterling, dollar, Euro) since the session started.

RTS implementation guidance 2E:

Net position is defined as the total of all winnings minus the sum of all losses since the start of the session.

Prohibiting auto-play functionality for online slots

The Gambling Commission’s proposal to prohibit auto-play functionality received low rates of support from all consultation respondent categories. Concerns raised ranged from the evidential basis for banning auto-play, to suggestions that auto-play could be used as a way to control gambling expenditure, and that removing it may negatively affect access to play for those with disabilities or other physical conditions. Given the views expressed, the Gambling Commission carried out further research (set out in Annex 2 of its consultation response), which, it states, supported its concerns regarding the potential intensity impact of auto-play. In our view, the Gambling Commission’s further research was very limited in scope. The sample size, which the Gambling Commission considered to be a “sizeable base”, was a mere 190 adults (from 358 online slots players) who had indicated they had used auto-play.

The Gambling Commission is therefore introducing a new RTS provision which will prohibit auto-play for slots from 31 October 2021.

RTS requirement 8C:

The gambling system must require a customer to commit to each game cycle individually. Providing auto-play for slots is not permitted.

Prohibiting reverse withdrawals

Reverse withdrawals allow customers to change their mind about withdrawing funds from their account by cancelling a withdrawal before the transfer to their bank or wallet is completed. In its guidance to remote operators issued on 12 May 2020 in the height of the Covid-19 pandemic, the Gambling Commission advised that remote operators should “prevent reverse withdrawal options for customers until further notice”. The changes to the RTS mean that this temporary ban on reverse withdrawals will be permanent from 31 October 2020. Importantly, the prohibition on reverse withdrawals will apply to all remote operators, and not just remote operators offering slots games.

RTS requirement 14B:

Consumers must not be given the option to cancel their withdrawal request.

RTS implementation guidance 14B:

a. Once a customer has made a request to withdraw funds, they should not be given the option to deposit using these funds. Operators should make the process to withdraw funds as frictionless as possible.

Prohibiting multiple slot games

The Gambling Commission consulted on this proposal due to concerns regarding the introduction of functionality deliberately designed to encourage play on multiple slots simultaneously via a split screen. The new RTS requirement will prohibit operator-led functionality specifically designed to facilitate such play, but will not go as far as proposed in the consultation in requiring licensees to ensure that customers can only play one slot game at a time across multiple tabs, browsers, applications or devices, on the basis that this would be very complex to implement (though the Gambling Commission is continuing to explore this as part of its Single Customer View project).

RTS requirement 14C:

The gambling system must prevent multiple slots games from being played by a single account at the same time.

RTS implementation guidance 14C:

a. Operators are not permitted to offer functionality designed to allow players to play multiple slots at the same time. This includes, but is not limited to, split screen or multi-screen functionality.

b. Combining multiple slots titles in a way which facilitates simultaneous play is not permitted.

Introducing speed of play limits

The Gambling Commission is introducing a minimum game cycle of 2.5 seconds for online slots. The new provision also applies to any game played with funds made available to a customer in lieu of a stake, such as bonus funds.

RTS requirement 14D:

It must be a minimum of 2.5 seconds from the time a game is started until a player can commence the next game cycle. It must always be necessary to release and then depress the ‘start button’ or take equivalent action to commence a game cycle.

RTS implementation guidance 14D:

a. A game cycle starts when a player depresses the ‘start button’ or takes equivalent action to initiate the game and ends when all money or money’s worth staked or won during the game has been either lost or delivered to, or made available for collection by the player and the start button or equivalent becomes available to initiate the next game.

b. A game cycle starts when a player depresses the ‘start button’ or takes equivalent action to initiate the game and ends when all money or money’s worth staked or won during the game has been either lost or delivered to, or made available for collection by the player and the start button or equivalent becomes available to initiate the next game.

Prohibiting player-led ‘spin stop’ features

The Gambling Commission is introducing the proposed requirement to prohibit features that speed up play or give the illusion of control such as turbo mode, quick spin and slam stop. Features that allow customers to skip the animation that plays after the result is communicated are still permissible, as are “genuine” choice elements of play such as picking which box to open, or the number of steps to progress in a feature and/or bonus round.

RTS requirement 14E:

The gambling system must not permit a customer to reduce the time until the result is presented.

RTS implementation guidance 14E:

a. Features such as turbo, quick spin, slam stop are not permitted. This is not intended to be an exhaustive list but to illustrate the types of features the requirement is referring to.

b. This applies to all remote slots, regardless of game cycle speed.

c. This requirement does not apply to bonus/feature games where an additional stake is not wagered.

Prohibiting effects that give the illusion of “false wins”

The Gambling Commission’s consultation set out its concerns about the fairness of celebratory effects and the psychological impact that this could have by inducing a “hot state” in a customer, and proposed prohibiting such effects where the return is less than or equal to the amount staked. Despite concerns from many licensees that this would require redesign, redevelopment, internal and independent testing, the new RTS provisions will prohibit such effects in the circumstances set out in the consultation.

RTS requirement 14F:

The gambling system must not celebrate a return which is less than or equal to the total amount staked.

RTS implementation guidance 14F:

a. By ‘celebrate’ we mean the use of auditory or visual effects that are associated with a win are not permitted for returns which are less than or equal to last total amount staked.

b. The following items provide guidelines for reasonable steps to inform the customer of the result of their game cycle:

Display of total amount awarded.

Winning lines displayed for a short period of time that will be considered sufficient to inform the customer of the result. This implementation should not override any of the display requirements (as set out in RTS 7E).

Brief sound to indicate the result of the game and transfer to player balance. The sound should be distinguishable to that utilised with a win above total stake.

The suite of measures set out above must be implemented by licensees by 31 October 2020, although members of the Betting and Gaming Council (“BGC”), or supplying BGC members, will find that implementing the BGC’s Code of Conduct, they are one step ahead and will already have introduced some of the Gambling Commission’s new measures, including slowing down spin speeds and banning certain gaming features such as turbo play and multi-slot play.

Importantly, those licensees required to implement the new measures should bear in mind that they must satisfy themselves that they are offering games that are compliant. Where they are not sure, any existing game will require independent retesting by a Gambling Commission-approved testing house. Given that demand on external testing houses is likely to be high as licensees surge to implement the new measures, we would urge that licensees review their games now with a view to ensuring that testing is complete and games are updated in time for 31 October 2021 deadline.

If you would like any advice on implementing the Gambling Commission’s new RTS, please get in touch with us.

15Mar

DCMS consults on significant increases to Gambling Commission fees

15th March 2021 Harris Hagan 307

The Department for Digital, Culture, Media and Sport (“DCMS”) has launched a consultation which proposes significant increases to Gambling Commission fees, which will affect existing licensees and new applicants. The fee hikes are based on recommendations made by the Gambling Commission to Government, and are intended to fund its costs and increase its resources to respond to emerging risks and technologies. It follows considerable concerns about the funding of the Gambling Commission raised in February 2020, by the National Audit Office, in June 2020, by the House of Commons Public Accounts Committee, and in July 2020, by the House of Lords Select Committee on the Social and Economic Impact of the Gambling Industry.

It is worth noting that the Government Call for Evidence, published on 8 December 2020, includes review of the Gambling Commission’s power and resources. To heed off any criticism that the proposed fee increase is premature, the consultation states “the proposals are aimed at ensuring the Gambling Commission is able to meet ongoing challenges while the Review progresses.” It, therefore, does not close the door on further increases!

“Key challenges”

The Gambling Commission identified the following “key challenges” in regulation which are expected to grow in significance in coming years and are used as justification for the proposed increased fees:

Challenge 1: Increased technological developments, including product and payment innovation, requiring:

more specialist staff, including a Chief Product Officer, to understand and translate the impact of technological changes, and other staff with technical and investigative expertise;
investment in tools to improve the Gambling Commission’s approach to compliance; and
development of the Gambling Commission’s approach to making better use of the wealth of data available to it.

Challenge 2: Changes in the size and shape of the market, particularly consolidation by mergers and acquisitions, and globalisation, requiring:

more staff to drive the international regulatory agenda and work with international regulatory partners and agencies;
specialist staff to interrogate and understand complex corporate structures; and
increased legal capacity to defend positions.

Challenge 3: Increasing risks associated with unlicensed operators to protect consumers and the industry from “black market” encroachment, requiring:

more staff to identify, proactively and systematically, the scale of illegal gambling; and
more resources to tackle illegal gambling more robustly, including increased legal capacity for prosecutions.

The inclusion of Challenge 3 is perhaps most surprising given that the Gambling Commission has, for some time, maintained the view that the impact of the black market has been “exaggerated”.

The Gambling Commission acknowledges its proposed responses to these key challenges “are not fixed and will need to evolve over time”.

Annex One of the consultation includes the Gambling Commission’s detailed assessment of these key challenges.

Current funding

The Gambling Commission’s funding comes from its fee income (from application and annual fees), and in recent years, it has been drawing on its reserves which are now running low and will not be able to sustain its operations in the future.

In 2020-2021 the Gambling Commission’s budgeted income was £20.4 million and the latest figures suggest that its actual income will be approximately £700k less due to the impact of Covid-19. Its operating budget is £21.39 million, broken down as follows:

43%	Operational
24%	Policy
12%	Partnerships
11%	Licensing
10%	Gathering Information

Without increased fees, the Gambling Commission expects to see a difference between its income and expenditure of approximately £3 million per year by 2023-24. This is without any additional investment in new work to deal with the challenges set out above which it estimates will cost between £2m and £3m per annum.

Proposed changes

Proposed changes from October 2021:

60% increase to all application fees (both remote and non-remote licences) regardless of the licence type or fee category;
55% increase to annual fees for all remote operating licences (except for lottery and gaming machine technical licences) and all gambling software licences (both remote and non-remote);
the removal of existing 5% discounts on annual fees for combined or multiple licences (both remote and non-remote);
100% increase to the “flat” additional annual fee paid by licensees who hold operating licences authorising multiple RNG-based activities (including “host” licensees);
additional fee bands for society lotteries (remote and non-remote) and external lottery manager licences, increasing annual fees by at least 15%; and
15% increase to annual fees for all gaming machine technical licences

Non-remote annual fees will also be increased, but not until April 2022, as the Gambling Commission and Government appreciate the overwhelming impact Covid-19 has had on the land-based gambling industry, requiring non-remote operators to have been closed for almost all of the last year. When the annual fee increase comes into effect for non-remote licensees, it will be an increase of just 15%, as the Gambling Commission has identified that it is remote B2C operators, gambling software licensees and host licensees which are driving the increased regulatory burden and are responsible for the bulk of the Gambling Commission’s workload and costs.

Application to vary and change of corporate control fees remain unchanged; however, as these fees are usually calculated based on a percentage of a standard licence fee (with the exception of flat-rate fees in specific circumstances), the knock-on effect of the above-mentioned proposed changes will mean that these fees will also significantly increase.

Annex Two of the consultation sets out the proposed new fees for each licence type and fee category.

Consultation questions

There are only five questions that DCMS request feedback on:

1: Do you agree that annual fees should be increased in line with the proposals set out here, in order to enable the Commission to meet the challenges it has identified?

2: Do you agree with the proposals to increase the additional flat fees for licences that combine remote casino, bingo and/or virtual event betting (RNG licences), and the flat fees for those that combine host licences?

3: Do you agree with the proposals to remove the 5% annual fee (and first annual fee) discounts for other types of combined licence, and the 5% annual fee discount where both non-remote and remote licences are held?

4: Do you agree with the proposals to introduce additional fee categories for society lotteries and ELMs that generate (or manage) greater than £10m proceeds per annum?

5: Do you agree with the proposal to increase application fees to better reflect the costs involved in processing applications?

Next steps

We strongly recommend:

Any new operating licence application is submitted urgently (if you are ready!) for two reasons. Firstly, to pay lower application fees. Secondly, if your new licence is granted before October 2021 – which may be tight depending on where you are in the process – to pay lower annual fees.

Existing licensees review their fee categories to ensure they are in the correct fee category before their next annual fee is payable.

The fees consultation closes on 26 March 2021 and we urge you to respond, as one thing is certain: soon you will be paying a lot more for your licence.

You can respond to the consultation by emailing [email protected] copied to [email protected]

09Mar

Changes of Corporate Control: The Basics

9th March 2021 Bahar Alaeddini 354

In our experience, there is often confusion regarding change of corporate control (“CoCC”) requirements and, in particular, what events trigger a CoCC. CoCCs are easy to miss in complex corporate structures. Further, often “the left hand does not talk to the right hand” and the relevant individuals within the business, such as the PMLs or Compliance Department, who are fully aware of the licensing implications, are not notified of an event that triggers a CoCC until after the event or, worse, after the deadline has passed.

In this blog we summarise the basics of CoCCs. This will be supplemented by further blogs on the Gambling Commission’s areas of focus and common pitfalls we have identified in our work on numerous CoCC applications.

We strongly recommend you always seek legal advice, if in any doubt, given the risk to your licence(s), as highlighted below.

What is a CoCC?

Under section 102 of the Gambling Act 2005, a CoCC takes place when a new person or other legal entity becomes a new “controller” of the licensee. The definition of a controller stems from section 422 of the Financial Services and Markets Act 2000 (“FSMA”), which is financial services legislation. This is a complex provision, which even the Gambling Commission summarises incorrectly on its website and in its application forms.

Broadly speaking, section 422 of FSMA covers a person or entity that holds:

10% of more of the shares in the licensee or in a parent company of the licensee (i.e. directly or indirectly);
10% of more of the voting power in the licensee or in a parent company of the licensee; or
less than 10%, but able to exercise significant influence over the management of the licensee.

When considering whether a person or entity holds 10%, it is critical to consider:

whether the threshold has been reached as filtered by the corporate layers (i.e. directly or indirectly in the licensee);
cumulative interests; and
equity interests and voting rights separately if they are not aligned at any point in the corporate structure.

5-week deadline

Section 102(5) of the Gambling Act 2005 requires a licensee to submit a CoCC application to the Gambling Commission when there is a new controller within 5 weeks of the change occurring, for the licence(s) to continue to have effect. This is a statutory deadline.

Why is it important?

Pursuant to section 102(5), the Gambling Commission has the power to revoke the licence(s) – without a licence review – if a CoCC application, along with the application fee, has not been submitted within 5 weeks.

In our experience, the Gambling Commission has become increasingly stricter with CoCC application deadlines and we would strongly recommend you comply with the statutory deadline. The Gambling Commission is no longer generous in giving extensions, sometimes with extension requests being refused, so their goodwill cannot be relied upon. Further, in our recent experience, the Gambling Commission no longer overlooks failures to apply in time, often issuing “advice as to conduct” for the failure to comply with section 102.

Given the potential ramifications, it is essential that someone, with detailed knowledge of the Gambling Commission’s licensing requirements, is monitoring changes in corporate structure promptly and liaising with your stakeholders, as required. You need to develop effective internal procedures, relative to the size and complexity of your business, to ensure that equity and voting interests are regularly monitored.

Please get in touch with us if you believe you have failed to comply with the statutory deadline or require assistance preparing a CoCC application.

22Feb

Chambers Global 2021 – Four Lawyers Ranked

22nd February 2021 Ting Fung 313

Harris Hagan continues to have four lawyers individually ranked for Chambers & Partners’ Global Market Leaders Rankings (Gaming & Gambling).

We are proud to have the quality of our work in the gambling industry recognised by the prestigious legal directories and will always strive for the highest standards.

Julian Harris (Band 1), recognised as one of the leading gaming specialists in the UK, was also praised for his “wealth of experience advising a broad range of operators and regulators on complex international gaming and gambling law issues.”

In turn, John Hagan (Band 1), was recognised not only for his “extensive experience advising on a wide range of international gaming and gambling matters” but for the breadth of his influence in “ a fantastic job being an advocate through the industry”, which has left market sources “impressed”.

Bahar Alaeddini (Band 2) has had her clout similarly marked by market sources who praise her “for her considerable expertise in advising major international clients on UK gambling law matters.” She moved up to Band 2 from Up and Coming in 2020.

Last but not least, Hilary Stewart-Jones occupies the esteemed position of Senior Statesperson. Commentary on her “extensive experience advising an array of land-based and online operators in the gaming and gambling sector” is further highlighted by the agreement that “everyone in the market knows her.”

02Feb

The Affordability Debate: Protection, Responsibility and the Right to Choose

2nd February 2021 Julian Harris 360

That affordability checks are a critical issue for the British gambling industry is undeniable; they place a yet further onerous burden on an already stretched gambling industry. However, without fear of exaggeration, they also raise a question about the rights of British adults to make their own free choices, both good and bad and to have responsibility for their own actions. Other industry commentators have written at length on this controversial issue, but its importance is such that it bears further examination, not least as to the way in which this line of regulation is developing.

Where’s the evidence?

In its Consultation and call for evidence – Remote customer interaction requirements (the “Consultation”), the Gambling Commission identify the problem leading to the consultation and proposed new measures as being that some operators have inadequate customer interaction processes and triggers which are set too high, as evidenced by research, casework and “lived experience” evidence. They conclude that the resolution of this will be defined affordability assessments at thresholds set by the Gambling Commission.

Ultimately, the Gambling Commission seeks to reform the way that operators are required to identify customers who may be at risk of gambling harms, by imposing mandatory triggers for activity that should flag such customers to the operator, what action must be taken by operators when such triggers are identified, and how operators must ensure that they evaluate the effectiveness of their approach to interacting with customers. A new customer interaction ‘manual’ is proposed as part of the customer interaction reforms, which will explain the new requirements of the Licence Conditions and Codes of Practice and how operators are expected to meet these requirements. This would replace the current guidance, Customer interaction – formal guidance for remote gambling operators (July 2019). The actual spending limits on which the Gambling Commission will settle, remain to be determined following the Consultation. However, the references in the Raising standards for consumers – Compliance and enforcement report 2019-20 (the “Enforcement Report”) and the Consultation suggest very low figures indeed before intervention is mandated and evidence required: the Gambling Commission have referred to “firm requirements”.

We are concerned that the Gambling Commission is not adopting a risk based and proportionate approach, combined with the fact that the evidential basis for this Consultation includes research in which customers admit to having sometimes lost more than they can afford, rather than their gambling being unaffordable. Have not we all sometimes had more to drink than is good for us, without being harmed by alcohol any more than we choose to be? Further, the Gambling Commission cite the Enforcement Report, as evidence in support of these measures, when in fact the Enforcement Report deals with “clearly unaffordable’ gambling, whilst the proposed affordability constraints go far beyond customers losing tens of thousands, extending to affordability checks after lifetime losses of as little as hundreds of pounds. The Gambling Commission seems intent on eliminating any harm at all from gambling, seemingly believing all gambling to be inherently bad.

It is unfortunately the case that, as the Gambling Commission’s casework demonstrates, some operators are having insufficient regard for the existing requirements as to intervention and triggers at appropriate levels, leading to licence reviews and sanctions. This, however, is manifestly a problem which the Gambling Commission is addressing as regulator. Operators may not all have adapted to the tsunami of changes and additional requirements as quickly as they should, but progress has been made, and the cases referred to in the Enforcement Report are not sufficient evidence for a de facto penalty against the industry as a whole. Better surely to educate, persuade and, where necessary, take action to ensure compliance with current measures.

A further cogent reason for adopting this approach is that by prescribing fixed thresholds, the Gambling Commission would be moving away from the risk based system of regulation which is the basis of the legislation and regulation.

One additional word of caution; currently the Consultation is expressed to apply only to the online gambling industry. Do not take from this. In our opinion it will inevitable be applied to the land based sector as well; indeed the signs are that it already is.

Does the end justify the means?

One of the stated objectives of the Government’s Response to the House of Lords Gambling Industry Committee Report (the “Report”) is to “ensure balance between consumer freedom and preventing harm to the vulnerable”. We share the concern of others, that these fine words, stating a noble aim, may not reflect genuine intent. As yet, there is no new legislation, the Gambling Review has only just commenced, but already draconian new measures requiring affordability checks are effectively in force. Support for this approach is to be found as early as paragraph 5 of the Report’s introduction, which states:

“The Committee is also right to say that further progress to make gambling safer does not need to wait for the outcome of the Act Review.”

We have written previously of the Gambling Commission’s worrying foray into creating what is in effect new law and regulation without due process or consultation, commenting then that the Gambling Commission was “taking a novel approach that facilitates prescriptive changes to its regulatory framework without consultation or notice” (our blog on 18 May 2020: “New Gambling Commission Guidance for Online Operators: Changing the Basis of Regulation?”). Now that approach is apparently beingsanctioned by Government. Not that the Gambling Commission even waited for that rather pale green light; in the Enforcement Report, the Gambling Commission stated that operators must interact with customers early on to set adequate affordability triggers to protect customers from gambling related harm, threatening that “failure to do so could render the operator non-compliant.” Customers wishing to spend more than the national average disposable income should, according to the Gambling Commission, be asked to provide evidence to support a higher trigger. The Enforcement Report was published on 6 November 2020, just three days after the Gambling Commission launched its consultation on further checks.

Without being unduly cynical, once again the Gambling Commission has jumped the gun. It appears, as has been previously established with such consultations, that they are little more than a box ticking exercise; at worst, with no real intention to entertain alternative opinions and suggestions, or even expertise.

In this case, the emperor truly has been shown to have no clothes; the Gambling Commission has not simply disregarded the results of the Consultation, it has pre-empted it, demonstrating that the exercise is a sham. In effect, the word of the Gambling Commission is now law. We do not need to question their motives, which may be all to the good, with a genuine desire to protect the vulnerable. However, the end cannot always justify the means. The idea that the Gambling Commission has the power, in effect, to regulate by decree, an instrument reminiscent of autocracy or totalitarianism, is abhorrent.

Where’s the balance?

Tim Miller of the Gambling Commission has expressed the intention of having “an open discussion with the gambling industry, consumers, people with lived experience and other stakeholders, to ensure we strike the right balance between allowing consumer freedom and ensuring that there are protections in place to prevent gambling harm.”

Operators will no doubt do their utmost to challenge as part of the Consultation, the levels at which these inevitable new requirements are to be set. However, the evidence on which the Gambling Commission is likely to rely, will almost certainly not include the views of the silent majority of consumers who safely enjoy gambling; they are not included in the group of “people with lived experience”, which is made up solely of those adversely affected by gambling. But the real issue of liberty here is the principle that adults should be free to make their own choices: even bad ones. Most people would regard as unacceptable, the suggestion that their spending should be questioned by any authority; for example when buying alcohol. Nor do most consider it right that anyone, and certainly not a commercial enterprise, should demand private financial information from them. The fact that this is coming to pass in this industry perhaps illustrates the strength of the anti-gambling lobby and its sympathisers, if not supporters, within the regulatory authority. This is a threat to us all.

What are the implications? It does not need a Sherlock Holmes, or even an Inspector Clouseau to understand that in the absence of operators adopting affordability checks now, their licences are at risk of review, and consequently, of suspension or revocation. Indeed, we have already seen the Gambling Commission requiring such checks of those numerous operators currently the subject of regulatory action. Inevitably this, temporarily at least, places them at a disadvantage to their competitors. The means to protect the vulnerable are already in place. We do not need to assume that all gamblers, or all drinkers or any other class of consumer, is inherently and automatically at risk of harm. We must preserve the principle of freedom of choice.

20Jan

Covid-19: Gambling Commission reminder to online operators

20th January 2021 Ting Fung 335

Gambling Commission CEO, Neil McArthur, issued a reminder on 11 January 2021 on the continued need for online operators to provide their customers with additional protection.

The latest national lockdown, which began on 5 January 2021, is one of the primary reasons for the regulator’s call for extra vigilance. Its reasoning being that:

“Most people will be spending more time at home and many people are likely to be feeling more isolated and vulnerable as a result of the length of the pandemic period, the new restrictions and further uncertainty about their personal or financial circumstances.”

The reasoning also relates fundamentally to operators’ licence requirements under the social responsibility code provisions of the Licence Conditions and Codes of Practice (“LCCP”), Part 3 – Protection of children and other vulnerable persons. This includes helping customers to gamble safely and responsibly by:

helping customers to not spend more time or money than they can reasonably afford; and
recognising behaviours which may be indicative of risk or harm.

The other reasons given for the reminder relate to Phases 1 and 2 of the Gambling Commission’s research on the impact of Covid-19 on UK gambling, the evidence of which was published in its National Strategic Assessment 2020. Both phases indicated that:

consumers, such as highly engaged gamblers who play a range of products, are likely to spend more time and money gambling;
the continuation of sports provides greater opportunities for betting customers to gamble; and that
some people may gamble for the first time as a result of the current circumstances.

The Gambling Commission will continue to assess the impact of Covid-19 on gambling and asks online operators in the meantime to:

Continue following its “additional formal guidance”, in particular, ensuring that close interest is given to data which indicates that customers are expanding their games portfolio and/or spending more time or money than before;
Interact directly with customers where triggers are reached and increase email engagement with customers more generally;
Ensure that marketing remains compliant and non-exploitative of the current situation; and proceed very cautiously when cross-selling products;
Take particular care when on-boarding new customers and carefully consider affordability information and checks, especially in light of any recent or subsequent changes to financial circumstances.

In turn, the Gambling Commission has stated that it will continue to:

Permanently strengthen regulatory requirements in respect of RTS and LCCP updates to further protect customers; and
Monitor both operator and consumer behaviour closely as well as conducting compliance assessments during the latest lockdown.

For a full reminder of the additional steps that online operators should be taking, please see our blog post from last May regarding the Gambling Commission’s “additional formal guidance”.

01Dec

Chambers Gaming Law 2020 Global Practice Guide

1st December 2020 Ting Fung 353

Harris Hagan is pleased to contribute once again to the Chambers and Partners Gaming Law Global Practice Guide.

The publication is now available as a free eGuide and covers the regulatory position in over 30 jurisdictions. The guide discusses the types, availability and duration of licences; application fees; premises licensing; affiliates; white labels; B2B and B2C licences; responsible gambling requirements; gambling management tools; AML; advertising; enforcement; and tax.

The eGuide is a transition away from the original hardcopies and provides for additional functions such as a tool comparing jurisdictions.

Partners, Julian Harris and Bahar Alaeddini both resume their roles as Contributing Editors to the publication, as well as co-authors of the UK chapter. In addition to Julian’s thought-provoking Introduction, Bahar also provides an update and overview of the gambling regulatory position in Alderney.

Please use the above links to review the new eGuide at your leisure.

24Nov

Gambling Commission – AML Guidance Update and Advice

24th November 2020 Ting Fung 375

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

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

and any subsequent appointment to either of those positions.

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

A minor typographical correction was also made to paragraph 6.120.

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

Both of the documents came into effect immediately.

24Nov

The Gambling Commission’s First National Strategic Assessment

24th November 2020 Ting Fung 371

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

What is it?

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

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

In the accompanying press release, Neil McArthur adds:

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

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

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

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

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

How will it work?

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

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

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

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

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

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

Why now?

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

What to expect next?

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

Chapter 1: the Person gambling

In response to the key issues and risks regarding:

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

The Gambling Commission proposes to act on the following:

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

Chapter 2: the Place gambling occurs

In response to the key issues and risks regarding:

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

The Gambling Commission will take action in the following ways:

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

Chapter 3: the Products available to customers

In response to the key issues and risks regarding:

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

The Gambling Commission will work on the following:

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

Chapter 4: the Provider of facilities for gambling

In response to the key issues and risks regarding:

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

The Gambling Commission will take the following action:

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

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

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

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

18Nov

Gambling Commission Compliance and Enforcement Report 2019-2020

18th November 2020 Bahar Alaeddini 397

On 6 November 2020 the Gambling Commission published its annual Raising Standards for consumers – Compliance and Enforcement report 2019 to 2020 (the “Enforcement Report”). The Enforcement Report has been expanded this year and is laid out in the following eight sections:

Chief Executive’s message;
Triggers and customer affordability;
Customer interaction and social responsibility failings;
Anti-money laundering and counter terrorist financing;
Personal management licence (“PML”) reviews;
Illegal gambling;
White label partnerships; and
Betting exchanges.

Chief Executive’s message

In the very first sentence of his message, Gambling Commission Chief Executive, Neil McArthur, reminded readers that:

“Holding an operating licence or a personal licence is a privilege, not a right, and we expect our licensees to protect consumers from harm and treat them fairly.”

He goes on to summarise the Gambling Commission’s compliance and enforcement work in the last financial year (April 2019 to March 2020), in which:

49 section 116 licence reviews were commenced against PML holders;
5 operating licences were suspended;
11 operating licences were revoked;
12 financial penalty packages or regulatory settlements, totalling over £30 million, were imposed; and
350 compliance assessments (land-based and online) were conducted.

Neil McArthur also emphasised:

“Those in boardrooms and senior positions need to live up to their responsibilities and we will continue to hold people to account for failings they knew, or ought to have known, about…Regulatory settlements are a way of resolving enforcement cases which we have used to good effect. Frankly, however, there are too many occasions where settlement proposals are made at a late stage of our investigation process or approached as if a licence review is a commercial dispute to be negotiated. That is not acceptable…Settlements are only suitable where a licensee is open and transparent, makes timely disclosures of the material facts, demonstrates insight into apparent failings and is able to suggest actions that would prevent the need for formal action by the Commission. Only licensees who meet those criteria need make settlement offers; licensees who choose to contest the facts before conceding at a later stage need not make offers of settlement…Everyone has a part to play to make gambling safer and learning the lessons from the failings identified in this report is one way of doing that.”

Summary of other key points from the Enforcement Report:

Triggers and customer affordability

“Customer protection has continued to be a priority for the Commission and consideration of affordability should be a significant driving factor in customer risk assessments.”

Affordability is a top priority and the Gambling Commission remains dissatisfied by industry progress. Open source information remains an important element of an affordability framework, because “it is a parameter to consider when setting benchmark triggers that will drive early engagement with customers”. Open source information shows:

median gross weekly earnings* for full-time employees in the UK of £585;
50% of full-time employees in the UK receive less than £30,500 gross earnings* per year;
50% of full-time managers, directors and senior officials (the highest weekly earners) in the UK receive less than £45,000 gross earnings* per year.

*These are gross earnings before expenses such as income tax, national insurance, mortgage/rent payments, travel, food etc. are deducted. The Gambling Commission expects expenses to be considered “so the starting point adequately reflects the true level of available disposable income for that individual.”

Further, the Gambling Commission is concerned that:

affordability frameworks “are not being implemented at pace despite guidance and advice”;
“complex and convoluted matrices and mappings” are being developed based on gross earnings before disposable income is factored in;
“trigger groups are set without any sort of customer interaction to influence their true affordability determination”; and
operators are not interacting early on to set “adequate, informed affordability triggers to protect customers from gambling related harm”, which it goes on to say “could render the operator non-compliant”.

Most notably, the Gambling Commission adds that:

“Customers wishing to spend more than the national average should be asked to provide information to support a higher affordability trigger such as three months’ payslips, P60s, tax returns or bank statements which will both inform the affordability level the customer may believe appropriate with objective evidence whilst enabling the licensee to have better insight into the source of *those funds and whether they are legitimate or not.”

Operators should review lessons in the Enforcement Report and re-assess affordability triggers whilst preparing for any new requirements that may emerge from the Gambling Commission’s consultation on remote customer interaction. We will publish a blog on this consultation next week.

Customer interaction and social responsibility failings

“We have set out clear expectations for operators in relation to safer gambling. We expect operators to actively work and accelerate cooperation with each other to prevent, mitigate and minimise harm, collaborating to accelerate progress and evidence impact. We want a focus on ‘what works’ and we expect operators to empower and protect consumers.”

The scope of social responsibility is broad and includes identification and engagement with those who may be at risk of or experiencing harms.

The responsible teams for social responsibility should be adequately resourced.

Operators are encouraged to consider whether they can evidence the following:

effective safer gambling policies and procedures in place which are tested and periodically reviewed and updated to reflect impact assessments and new research;
policies and procedures that are truly implemented in the business and are being acted upon;
appropriate safer gambling triggers in place that lead to meaningful customer interactions, which are regularly reviewed by management to critically assess their impact on customers and overall effectiveness;
effective challenge and oversight by senior management with clear accountability throughout the organisation; and
teams responsible for conducting social responsibly interactions are adequately resourced so that at-risk customers are not missed or identified too late.

Licensees are strongly encouraged to review the Gambling Commission’s notable enforcement cases, helpful case studies and good practice guidelines.

Anti-money laundering and counter terrorist financing

“Work to ensure gambling stays free from crime and the proceeds of criminal finance continues to be a major area of concern for the Commission. Significant and substantial assessment continued for both land-based and online gambling businesses, including money service businesses activities offered by the casino sector.”

The Gambling Commission continues to see operators falling down on the following:

insufficient depth of knowledge demonstrated by PML holders, leading to competency and integrity concerns;
deficient Risk Assessments leading to ineffective policies, procedures and controls;
operators and PML holders failing to learn lessons from the Gambling Commission’s compliance and enforcement activity; and
failure to provide regular, quality training to staff.

Licensees are strongly encouraged to review the Gambling Commission’s notable enforcement cases, helpful case studies and good practice guidelines.

PML Reviews

“The Commission has been signalling for the past few years that we will increasingly focus on the role played by Personal Management Licence holders (PML) when undertaking Compliance and Enforcement investigations.”

Common failings have emerged from:

Failures to assess if decisions being made at Executive level are being implemented within businesses.
Overly complicated lines of decision making and accountability.
Lack of technical knowledge and oversight of areas that PML holders have specific responsibility for, especially in respect of AML.
Prioritising commercial outcomes over regulatory responsibility.

This section ends with a stark reminder, which we always provide to our clients and training subjects, “businesses do not make decisions – people do.” The Gambling Commission adds that “icensees can expect us to continue to take action against accountable individuals to ensure standards are raised to the levels required, whether in relation to the business or individual capability.”

Illegal gambling

“Part of our statutory remit and a key licensing objective is to keep crime out of gambling. We are particularly focused on identifying and disrupting those illegal websites which are targeted at the young and vulnerable gamblers and which often provide little, or no, customer protection. When consumers access illegal gambling sites, they expose themselves to many risks and are not afforded the protections in place in the regulated sector.”

The Gambling Commission’s focus has been on investigating unlicensed gambling facilities and unlicensed advertising, with 59 instances of remote unlicensed operators and 245 illegal lotteries referred by Facebook for closure. Its investigations have shown:

consumers identified as users of the websites have in the main been vulnerable with some having previously self-excluded via GamStop;
consumers often contact the Gambling Commission because they have been unable to withdraw funds;
when consumers have complaints with unlicensed operators these are often not dealt with, and consumers have no right to appeal;
the protection of consumers’ personal information cannot be relied upon; and
such websites may be linked to organised crime.

The Gambling Commission urges licensees to remain vigilant as to the risk of illegal sites using their software without authorisation and to report any such instances immediately

White label partnerships

“The white label operating model continues to be popular within the GB market with there being over 700 white label partners within the industry at present. One of the reasons this model is becoming increasingly popular is that this type of arrangement can bring global exposure to an operator’s products, via the arrangements their white label partners have in place with sports teams for example. However, there is a concern that unlicensed operators who would potentially not pass the Commissions’ initial licensing suitability checks, are looking to use the white label model to provide gambling services in Great Britain.”

White labels have been a key area of focus for the Gambling Commission in the last year. It showed that licensees were failing to appropriately mitigate the risks to the licensing objectives, including:

a failure to properly scrutinise the ownership of white label partners;
ineffective AML controls with individual white label partners or across the customers’ activity; and
poor oversight of activities performed by white label partners, particularly in relation to customer interactions.

Responsibility for compliance always sits with the licensee. In accordance with social responsibility code provision 1.1.20 (responsibilities for third parties) safeguards should always be implemented before committing to contractual obligations to ensure compliance with the LCCP. Failure to do so is likely to bring into question the suitability of the licensee.

Operators are encouraged to:

Conduct risk-based due diligence with a view to mitigating risk to the licensing objectives before entering a relationship with a white label partner;
continually manage and evaluate its white label partner relationships;
ensure service agreements between the licensee and white label partner explicitly articulate where overall responsibly for regulatory functions lie;
ensure white label partnership contracts contain a clause permitting the licensed operator to terminate the business relationship promptly where the partner is suspected of placing the licensing objectives at risk or fails to comply with the requirements contained in the LCCP;
provide training to their partners and conduct ongoing oversight of the activities which should be clearly documented and retained for the life of the business relationship;
ensure that any system the licence holder has in place to manage or detect multiple accounts for individual customers, works across all white label partners so they will have a holistic view of customer activity; and
ensure that source of funds, affordability or markers of harm triggers are based upon this holistic view and not solely on an individual domain basis.

Licensees are strongly encouraged to review the Gambling Commission’s notable enforcement cases, helpful case studies and guidance on white labels.

Betting exchanges

“This year has seen increased regulatory activity related to betting exchanges; an area of growing complexity as operators expand the breadth of markets available and the jurisdictions from which they draw their customers.”

The Gambling Commission reminds betting exchanges that they must apply “critical risk-based thinking” and must not assume that something good enough for one regulator will be acceptable to another. Due diligence should be undertaken for each individual customer. In particular, source of funds and source of wealth must be monitored by adequate checks and controls, particularly where these may be obscure, unconventional and/or especially large – for instance, in relation to account to account transfers or syndicates.

Licensees are strongly encouraged to review the Gambling Commission’s notable enforcement cases.

We strongly encourage all Gambling Commission licensees and applicants to read the Enforcement Report carefully.