29Sep

“On your marks, get set…” – Fourth National Lottery Competition

29th September 2020 Ting Fung 310

The Fourth National Lottery licence has been in the spotlight since the competition (“4NLC”) was announced in November 2018, with the Gambling Commission reporting “a healthy level of interest from a range of different parties”.

A false start…

However, the 4NLC faced criticism in February this year, when delays to the competition process were announced as a result of the Covid-19 pandemic. The main concern of potential bidders was the fairness of the competition and the perceived disadvantages they faced against existing licensee, Camelot. These included, increased costs and reduced scope for delivery as a result of an uncertain timeframe and potentially shortened transition period between the third and fourth licence. In response, the Commission reiterated that:

“… focused on running a fair and open competition to find the right operator… ensuring that all potential bidders are on an equal footing is very important and we will welcome as many bidders as possible to the competition…”

Where are we now?

The Gambling Commission was also quick to reassure that its below dates are indicative and therefore, also subject to change.

August 2020 to October 2020: First stage – Selection Questionnaire
October 2020 to July 2021: Second stage – Invitation to Apply (“ITA”)
September 2021: Preferred applicant announced
October 2021 to July 2023: Transition period
August 2023: Expiry of third National Lottery licence / commencement of fourth licence

After a three-month delay and the initiation of 4NLC on 28 August 2020, the competition is still in its first stage, with the deadline being 24 days after the launch date. Therefore, potential bidders have until midnight on 1 October 2020 to complete the Selection Questionnaire before the Gambling Commission proceeds to the second stage, the ITA.

What to expect?

In Future of the National Lottery, the Gambling Commission outlines seven key changes to the Fourth National Lottery licence. The overarching themes all reflect the Gambling Commission’s statutory duties on propriety, player protection and returns to good causes, and include:

A more outcomes-based approach, which is in line with the Gambling Commission’s approach to regulating other gambling licences.
Innovation (commercial and technological) which reflects the updated context in which the fourth licence holder will operate.
Increased emphasis on the licensing objectives of fair and open and socially responsible provision of gambling.
Development of the National Lottery brand without compromising fairness or integrity.

Key changes to the licence

Increased player protection
Fixed 10-year licence
Focus on performance
Further incentivising returns to good causes
Commercial and technological innovation
Protecting the National Lottery brand
Safeguarding key features eg, guaranteeing at least one draw-based game, with life-changing prizes, every week

Commission Chief Executive, Neil McArthur reinforced this by adding:

“In line with our outcomes-focussed approach to regulation, we want the next licensee to have greater autonomy to meet the needs of players in 2023 and beyond, whilst ensuring there is clear accountability for the performance of the National Lottery.”

A marathon, not a sprint

The key changes have also impacted on the proposed financial structure of the National Lottery licence operations. This follows criticism in recent years that Camelot’s returns to good causes have not been proportional to their profits. For the period 2019/2020, ticket sales increased by nearly 10 percent to £7.9 billion, of which £1.85 billion went to good causes. Therefore, in an effort to ensure that returns to good causes remain central to National Lottery licence operations, the fourth licence holder will be required to give a fixed sum to the relevant funds for distribution to good causes, as well as a percentage of any profits made. The fixed sum will be established as part of the bidding process.

Consequently, the finish line for bidders extends beyond securing the contract to hold the licence. One industry executive quoted in the Financial Times, called the move a “radical shift”, which would result in the fourth licence holder running the risk of becoming leveraged if they failed to make the requisite sales to deliver the fixed sum. Nevertheless, as the fifth largest lottery in the world, the tender for the National Lottery licence remains one of the UK’s most lucrative public sector contracts.

Raising the bar

In line with the continued regulatory, political and public drive towards safer gambling, it is currently expected that the renewal of the National Lottery licence will coincide with raising the minimum playing age from 16 to 18. The proposed measure was raised by former Digital, Culture, Media and Sport minister, Tracey Crouch in 2018 but did not gain traction. However, Camelot CEO, Nigel Railton, has since agreed that “For 25 years, the age has been 16, so it is probably a good time to look at it.”

Additional details of the 4NLC, including scope and indicators, may be found here.

28Sep

Gambling Commission Consultation Response on Display of Licensed Status

28th September 2020 Jessica Wilson 328

On 30 July 2020, the Gambling Commission published its response to a consultation carried out between 26 February 2020 and 20 May 2020 on proposals to amend licence conditions relating to the display of licensed status on screens from which customers can access remote gambling activities such as websites and mobile apps.

The consultation response confirms that changes will be made to licence conditions 8.1.1 and 8.1.2 and a new licence condition 8.1.3 will be introduced as follows:

Licence condition 8.1.1

All remote casino, bingo and betting licences other than ancillary, host, remote betting intermediary (trading room only), remote general betting (limited) and remote general betting (standard) (remote platform) licences

Licensees providing facilities for remote gambling must display on every screen from which customers are able to access gambling facilities provided in reliance on this licence:
- a statement that they are licensed and regulated by the Gambling Commission;
- their account number; and
- a link (which will be supplied by the Commission) to their current licensed status as recorded on the Commission’s website.
Such statement, account number and link must be in the format, provided by the means, and contain the information from time to time specified by the Commission in its technical standards applicable to the kind of facilities for gambling provided in accordance with this licence or otherwise notified to licensees for the purposes of this condition.
Licensees may also display on screens accessible from Great Britain information about licences or other permissions they hold from regulators in, or by virtue of the laws of, jurisdictions outside Great Britain provided it is made plain on those screens that the licensee provides facilities for gambling to persons in Great Britain in reliance on their Gambling Commission licence(s).

Licence condition 8.1.2

All gaming machine technical, gambling software and host licences

Licensees offering the supply of gaming machines or gambling software on websites must:
- display the following information on the first page of the website which offers gaming machines or gambling software in reliance on the licence:
  - a statement that they are licensed and regulated by the Gambling Commission;
  - their account number; and
  - a link (which will be supplied by the Commission) to their current licensed status as recorded on the Commission’s website.
- display at least the information at a above on each page of the website which offers gaming machines or gambling software in reliance on the licence; and
- where they offer on pages of, or by means of a link from, their website, the supply of gaming machines or gambling software which are not provided in reliance on their licence, clearly distinguish those products which are regulated by the Commission from those which are not.
Such statement, account number and link must be in the format, provided by the means, and contain the information from time to time specified by the Commission in its technical standards applicable to the kind of facilities for gambling provided in accordance with this licence or otherwise notified to licensees for the purposes of this condition.

Licence condition 8.1.3

All lottery operating licences issued to non-commercial societies, local authorities and external lottery managers

Licensees offering the supply of lotteries on websites or mobile applications must display on every screen from which customers are able to access lottery products provided in reliance of this licence:
- a statement that they are licensed and regulated by the Gambling Commission;
- their account number; and
- a link (which will be supplied by the Commission) to their current licensed status as recorded on the Commission’s website.
Such statement, account number and link must be in the format, provided by the means, and contain the information from time to time specified by the Commission

The Gambling Commission has introduced these changes to:

standardise the type of information that must be displayed on B2C and B2B websites and mobile applications about an operator’s licensed status; and
extend the requirements to non-commercial societies, local authorities and external lottery managers offering access to lottery products online.

The changes also align with the Gambling Commission’s ongoing work to redesign its public registers of licensed operators, personal licence holders and premises.

The consultation response confirms that an up-to-date link to its public register will be provided to each licensee. Additionally, the form and manner of the display requirements “will be published before, or alongside, the issuing of new links to public register”.

The Gambling Commission has further confirmed that “when the new links are issued, will allow licensees three months to make the required changes to their websites and mobile applications. Specific dates will be in the letters by which issue the new links to the public register”.

We recommend that all remote licensees read the consultation response and become familiar with the new display requirements which are due to come into effect on 31 October 2020.

23Sep

Thomson Reuters Practical Law: Gaming Global Guide 2020

23rd September 2020 Jessica Wilson 328

Harris Hagan were delighted to contribute again to Thomson Reuters Practical Law: Gaming Global Guide.

The guide provides an overview of gaming regulation in over 40 jurisdictions. Partners Julian Harris and Bahar Alaeddini acted once again as General Editors of the guide, with this being the fifth time that Julian has carried out the role.

The guide is published both in hardback and on Thomson Reuters’ online legal know how service, Practical Law, with a comparison tool to compare information across multiple jurisdictions.

Julian and Bahar co-authored the England and Wales chapter and Bahar authored the Alderney chapter. The chapters provide a high-level overview of the legislative framework of gambling regulation and licensing, gambling products, and recent industry developments.

The guide has been published online and can be accessed on Practical Law through the links above.

17Aug

Consultation Response on Changes to Information Requirements

17th August 2020 David Whyte 351

In our blog of 7 April 2020 we summarised the Gambling Commission’s consultation, launched on 26 February 2020, in two parts, on planned changes to regulatory information and data reporting requirements. On 30 July 2020, the Gambling Commission published its consultation response document (the “Consultation Response”). The Gambling Commission received 70 written responses to its consultation, including 50 from licensees.

We recommend that all licensees read the Consultation Response and new/amended LCCP provisions. We highlight some of the Gambling Commission’s significant changes:

Additional obligations

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

This new licence condition requires licensees to provide the Gambling Commission with any information relating to cases where they encounter systematic, organised or substantial money lending between customers.

We discuss this new licence condition in a separate blog.

Licence condition 15.2.2 (other reportable events)

A new requirement that licensees notify the Gambling Commission of any actual or potential breaches by the licensee of the requirements imposed by or under Parts 7 or 8 of the Proceeds of Crime Act 2002, or Part III of the Terrorism Act 2000, or any superseding legislation has been added.

We discuss this new licence condition in a separate blog.

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

This new licence condition requires licensees to notify the Gambling Commission:

as soon as reasonably practicable, of any actual or potential breaches by the licensee of the provisions of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the “Regulations”);
within 14 days of appointment, the identity of the officer responsible for the licensee’s compliance with the Regulations
within 14 days of appointment, the identity of the nominated officer; and
within 14 days of the departure of removal of the above-mentioned positions.

We discuss this new licence condition in a separate blog.

Removed obligations

Licence conditions 13.1.1 and 13.1.2 (pool betting)

The requirement for licensees to notify the Gambling Commission about persons they have authorised to offer pool betting on a track in connection with a horserace or dog race in reliance on an occasional use notice, or to offer football pool betting have been removed.

It is of note that this change does not affect the substance of (existing) licence conditions 13.1.1(2) and 13.1.2(2). Licensees will therefore still be required to produce and retain a record relevant to each pool that they offer and make this information available to the Gambling Commission on request.

Licence condition 15.2.1 (reporting key events)

Various key event notification requirements have been removed. Pertinent removals include:

investments in the licensee other than by way of subscription by shares;
entering into arrangements with third parties for services other than for full value;
changes to the structure or organisation of the business that affect a key position or the responsibility of its holder;
court judgements against the licensee remaining unpaid for 14 days;
issues relating to auditing or the submission of audited accounts;
changes to arrangements concerning the protection of customer funds (this requirement has been moved to licence condition 15.2.2 and is therefore no longer a key event);
customer fund reconciliation deficits;
the receipt from any professional, statutory or other regulatory or government body of the outcome of a compliance assessment;
any change in the identity of the ADR entity or entities for the handling of customer disputes (this requirement has been moved to licence condition 15.2.2 and is therefore no longer a key event); and
the reference of a dispute to an ADR entity, other than one in respect of which contact details were given in accordance with the social responsibility code provision on complaints and disputes.

Licence condition 15.2.2 (other reportable events)

Requirements to notify the Gambling Commission about the conclusion of a dispute referred to an ADR entity and of any outcome adverse to the licensee of proceedings taken against the licensee by a customer in relation to a gambling transaction have been removed.

Other proposed amendments

Licence conditions 15.1.1 and 15.1.2 (reporting suspicion of offences)

These licence conditions have been amended to introduce additional text which will enable the Gambling Commission to specify the form and manner of the reporting of suspicion of offences etc. and to provide clarification on the reporting of suspected breaches of betting rules to the appropriate sport governing body.

The changes also reinforce the principle that responsibility for meeting this licence condition rests with licensees, not third parties. The Gambling Commission notes that while it is acceptable for one licensee to provide information on behalf of another within a group, that ultimate responsibility for the timing and content of the submission rests with the licence holder.

Licence condition 15.2.1 (reporting key events)

Other key event notification requirements have been amended. Amendments of note include:

key events relating to the presentation of a winding up order or petition, entering into administration or receivership, bankruptcy, sequestration, or an individual voluntary arrangement have now been merged into a single key event. This has been expanded to include any person holding a key position for a licensee, group companies and shareholders or members holding 3% or more of the issued share capital of the licensee or its holding company;
the definition of a ‘key person’ in relation to anti-money laundering has been expanded and now covers a position, the holder of which, has overall responsibility for the licensee’s anti-money laundering and/or terrorist financing compliance and/or for the reporting of known or suspected money laundering or terrorist financing activity;
notification requirements about investigations by professional, statutory, regulatory or government bodies into the licensees’ activities have been narrowed to apply to persons in ‘key positions’, rather than to ‘personal licence holders or persons occupying a qualifying position employed by them’;
notification requirements about criminal investigations have been amended and must be reported if it concerns the licensee or a person in a key position and if the Gambling Commission may have cause to question whether the licensee’s measures to keep crime out of gambling had failed;
notification requirements in the event of a breach in the licensee’s information security have been amended. Licensees are now required to notify the Gambling Commission in the event of any security breach to the licensee’s environment that adversely affects the confidentiality of customer data; or prevents the licensee’s customers, staff, or legitimate users from accessing their accounts for longer than 12 hours;
in the case of remote gambling, notification of the commencement or cessation of trading on website domains has been expanded to include domains covered by ‘white label’ arrangements.

Submission of key events

The Gambling Commission has amended the wording in licence conditions 15.2.1 (reporting key events) and 15.2.2 (other reportable events)to include wording that they “are to be reported” via eServices. Key events will therefore no longer be able to be submitted by email unless they have technical issues with eServices (as is often the case!):

If licensees do experience technical issues preventing them reporting key events to us via eServices within 5 days, they should capture evidence of the problems experienced and contact their Licensing Account Manager for assistance.

Ordinary code provision 8.1.1

The Gambling Commission decided not to proceed with its proposals to elevate elements into licence condition 15.2.2 at this stage. The code provision therefore remains in its current form.

Licence condition 15.3.1

The Gambling Commission has harmonised the reporting periods for the submission of regulatory returns, with unified reporting periods across the industry. It has retained the 42-day period for the submission of annual returns for the time being. The regulatory reporting periods are therefore as follows:

Type of return	Reporting period	Submission window
Annual	1 April to 31 March	1 April to 13 May
Quarterly	1 April to 30 June 1 July to 30 September 1 October to 31 December 1 January to 31 March	1 to 28 July 1 to 28 October 1 to 28 January 1 to 28 April

The Gambling Commission received a response about the “stability of the eServices system and a suggestion…to develop an API”, which it is exploring to enable data submission via an API.

Technical scoping work for the harmonisation of reporting periods will start in the Autumn 2020.

Social responsibility code provisions 3.2.1, 3.2.3, 3.2.5 and 3.2.7 (access to gambling by children and young persons)

These code provisions have been amended to allow the Gambling Commission to specify the form or manner of reporting test purchasing results. The Gambling Commission is yet to specify a standardised format for the submission of these results.

Social responsibility code provision 6.1.1 (complaints and disputes)

This code provision has been amended to remove the requirement for routine reporting of the outcomes of complaints and disputes referred to ADR and court proceedings that are adverse to the licensee.

Changes to personal licence conditions

The time within which personal licence holders must report key events to the Gambling Commission has been extended from up to 5 working days to up to 10 working days. Wording has been included that requires all key events to be reported via Personal eServices. Key events will therefore no longer be able to be submitted by email.

The changes come into force on 31 October 2020.

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

17Aug

Consultation Response on Changes to Information Requirements – AML/CTF

17th August 2020 David Whyte 346

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

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

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

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

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

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

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

All operating licences:

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

…

d. any actual or potential breaches by the licensee of the requirements imposed by or under Parts 7 or 8 of the Proceeds of Crime Act 2002, or Part III of the Terrorism Act 2000, or any UK law by which those statutes are amended or superseded.

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

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

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

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

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

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

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

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

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

All non-remote and remote casino operating licences

1. Licensees must notify the Commission in such form or manner as the Commission may from time to time specify, as soon as reasonably practicable of any actual or potential breaches by the licensee of the provisions of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on Payer) Regulations 2017 , or any UK Statutory Instrument by which those regulations are amended or superseded.

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

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

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

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

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

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

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

Key points to note:

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

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

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

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

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

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

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

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

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

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

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

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

The changes come into force on 31 October 2020.

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

20Jul

Gambling Commission Consultation on High Value Customers

20th July 2020 Julian Harris 323

Introduction

Following a breakfast briefing conducted by Neil McArthur in October 2019, the Gambling Commission announced the formation of three industry working groups, one of which was to focus on high value customer incentives.

The proposals from the working groups, co-ordinated by the Betting and Gaming Council (BGC), was published on 1 April 2020 with operators agreeing to implement the changes rapidly, some by as soon as 14 April. At the time of publication of the proposals the Gambling Commission stated that it “would launch formal consultations to ensure that the new measures are incorporated into its regulatory framework.” The Gambling Commission further stated that it “expects the industry to implement its code as soon as possible and considers most measures should be implemented within 3 months” and that it “will monitor and support implementation of the industry’s code as an interim measure.”

The proposals made were to:

Restrict and prevent customers under 25 years of age from being recruited to high value customer schemes.
All customers must first pass through checks relating to spend, safe gambling and enhanced due diligence before becoming eligible for high value customer incentives.
Reward programmes will also be required to have full audit trails detailing decision making with specified senior oversight and accountability.

The consultation was published on 26 June 2020 and closes on 14 August 2020.

New Licence Condition

The Gambling Commission proposes to introduce a new licence condition on rewards and bonuses. This will apply to all licences, except gaming machine technical and gambling software licences and will require that:-

any incentive or reward scheme must be designed to ensure that the circumstances and conditions are clearly set out and readily accessible to customers to whom it is offered;
neither the receipt nor the value is dependent on gambling for a pre-determined length of time or frequency, or alters or increases if the activity or spend is reached within a shorter time;
if the benefit comprises free or subsidised travel or accommodation the terms are not directly related to the level of gambling
if incentives or reward schemes are offered to customers designated “high value”, “VIP”, or equivalent, they must be offered in a manner consistent with the licensing objectives.

Most importantly, licensees are required – by use of the word “must” – take into account the Gambling Commission’s guidance on high value customer initiatives.

New Guidance

In its guidance, the Gambling Commission goes further than the three points that are outlined above. For example, in addition to those, it requires:-

Specific policies and procedures for the operation and governance of HVC schemes, to include authority levels for key decision making, and appropriate oversight arrangements.
A named individual, at senior executive level or equivalent, accountable for the programme’s compliance. Except for small scale operators this should be a PML holder.
Licensees should consider what additional steps are required to ensure staff are equipped and motivated to manage HVCs effectively, including enhanced training on safer gambling and AML risks specific to HVC management; job descriptions reflecting that protection of the licensing objectives are the basis for all activity carried out by staff involved with HVC rewards programmes; staff should not be incentivised or remunerated based on a customer’s loss, spend, or activity; the performance management of HVC staff should be consistent with the principle that commercial pressures should never override regulatory considerations or customer welfare; and ensuring staff managing multiple accounts retain their ability to assess risk on an individual basis.
HVC incentives should not be used to exploit vulnerable customers or to encourage problematic behaviour. Licensees must be able to evidence how their rewards and bonuses are compliant with the provisions in section 5.1 of the codes of practice.
Licensees will be expected to take all reasonable steps to verify the information provided to them and conduct ongoing checks, with frequency of checks to be determined by the assessment of risk from ongoing monitoring of the customer’s activity, behaviour and circumstances. In the absence of any change in the risk assessment, licensees should as a minimum undertake a review of a HVC’s account at least quarterly.

It is important to note the Gambling Commission’s statement at paragraph 1.5 of the proposed guidance: “We have used the word ‘must’ to denote a legal obligation, while the word ‘should’ is a recommendation of good practice, and is the standard that we expect licensees to adopt and evidence. We expect licensees to be able to explain the reasons for any departures from that standard.”

The Gambling Commission has consulted on these proposals, as it is required to do under section 24(10) of the Gambling Act 2005, before issuing or amending a code of practice. However, the addition of lengthy and detailed guidance bears resemblance to the approach the Gambling Commission has taken to customer interaction. The VIP guidance makes it explicitly clear from the wording above that, despite using the word “should”, it expects licensees to adopt the standards set out and maintain evidence of doing so. This is essentially a requirement. The manner by which the guidance has been issued, arguably opens the door to the Commission taking similar steps to that which it took in relation to customer interaction, this time in relation to the requirements for VIP customers. Essentially the Gambling Commission will be able to amend this guidance, perhaps substantially, and to add onerous additional requirements, without consultation. Whether they will do so remains to be seen, but we highlight the point as a warning to operators to be watchful. The guidance is detailed, and as we know, the devil lurks in the detail.

We recommend to operators that they reply to the consultation, seek clarity as to paragraph 1.5, and make it clear that they expect the Gambling Commission to consult prior to amending its guidance further.

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

10Jul

Gambling Commission Consultation on Online Slots Game Design and Reverse Withdrawals

10th July 2020 Bahar Alaeddini 378

On 9 July 2020, the Gambling Commission announced a consultation on online slots game design and reverse withdrawals. The former follows the work of the Safer Product Working Group, which we wrote about in our blog on 2 April 2020, and the draft Betting and Gaming Council industry code, which is due to be published in September 2020.

In April 2020, the industry and Safer Product Working Group agreed to:

A minimum spin speed of 2.5 seconds on all slots.
Removal of game features which may encourage intensive play such as slam stops and turbo buttons.
Removal of split-screen slots which have been associated with potential loss of control.
A more detailed work plan which will include in-game messaging and the creation of a Betting and Gaming Council Testing Lab to investigate other game features.
Publication of the final industry code in September 2020.

Reason for the consultation

In its introduction to the consultation, the Gambling Commission explains:

“Our interest in online slots is because it is the largest online gambling product by Gross Gambling Yield (GGY) – played by relatively few but with a high average spend. Structurally it has a number of features which can combine to significantly increase intensity of play. This means it poses a relatively high risk, reflected in its associated problem and moderate-risk gambling rates.”

Slots are the largest online gambling product in Great Britain by GGY. 1.2% of adults participate in online slots and GGY from online slots has grown by approximately 50% since November 2014. The Gambling Commission believes “this implies a sharp increase in average spend per consumer”.

In a section titled Why are we consulting the Gambling Commission explains the industry proposals are insufficient and the “consultation goes further to keep slots players safe in a number of other additional areas”. It goes on to add that “the strength in the proposals will come from effective compliance by operators… the industry can expect what has described as “relentless escalation” to continue when see consumers not being protected from harm.”

The Gambling Commission is particularly concerned about the accelerating intensity of slot games which aim to increase the time and spend of players. The stated aim of the consultation is to make play of online slots safer by adopting an industry-wide and consistent approach, not just an industry code for Betting and Gaming Council members, and going further by implementing additional measures above the draft industry code.

It acknowledges these are not the only ways to improve player protection and invites views on other aspects of game design to consider for future changes. It refers to its interim Experts by Experience Group, which has suggested stake levels and different product labels to help customers understand potential risk better. The Gambling Commission’s Digital Advisory Panel highlighted the need for friction to reduce the likelihood of players placing impulsive bets.

New controls aimed at reducing potential harm of online slots

The consultation proposes to amend the Remote gambling and software technical standards (RTS) as follows:

Insert a high-level definition of slots: “casino games of a reel-based type (includes games that have non-traditional reels)”.
Add a new requirement RTS 14C: “The gambling system must prevent multiple slots games from being played by a single account at the same time.”
Add a new requirement RTS 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.”
Add a new requirement RTS 14E: “The gambling system must not permit a customer to reduce the time until the result is presented.”
Add a new requirement RTS 8C: “The gambling system must require a customer to commit to each game cycle individually. Providing autoplay for slots is not permitted.”
Add a new requirement RTS 14F: “The gambling system must not celebrate a return which is less than or equal to the total amount staked.”
Add a new requirement RTS 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.”

Testing

Licensees must satisfy themselves that they are offering compliant games. Where they are not sure, any existing game will require third party retesting.

All new games published after the implementation date for these new requirements will need to be tested otherwise, they will need to be removed until retesting has been completed.

Although slots are casino games (and therefore not separately licensed), the Gambling Commission plans to stipulate testing reports to declare whether the game is identified as slots.

Reverse withdrawals

On 14 May 2020 we wrote about the Gambling Commission’s new “additional formal guidance” for online operators in response to “evidence that shows some gamblers may be at greater risk of harm during lockdown”. This included a prohibition on offering reverse withdrawals until further notice.

At the time, we questioned the reliability of the data used by the Gambling Commission because it showed a decrease in reverse withdrawals. It was clear to us that this measure was not based on the data published by the Gambling Commission, and we questioned whether it was necessary and proportionate. 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. The Gambling Commission has now issued the consultation to make the change permanent, but without the evidence to support it.

This consultation will make it a permanent prohibition by adding a new requirement RTS 14B: “Consumers must not be given the option to cancel their withdrawal request.” Operators will be required to make this withdrawal process as “frictionless as possible”.

Respond to the consultation

The consultation closes on 3 September 2020.

25Jun

Gambling Commission Consultation on Regulatory Panel Reforms – Our Response

25th June 2020 Bahar Alaeddini 337

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 350

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 340

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 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.