27Jul

Source of funding: A glimmer of hope on the horizon?

27th July 2023 Jessica Wilson 203

It is no secret that source of funding has been an area of uncertainty and, often intense, frustration in recent years. Whilst source of funding is a mandatory aspect of the licensing lifecycle, there continues to be a distinct lack of clarity from the Gambling Commission as to what is expected from applicants, licensees, and their investors. In our view, this breaches the Regulators’ Code which requires the Gambling Commission to have clear information, guidance and advice to help those they regulate meet their responsibilities to comply. Without such guidance, insurmountable regulatory and commercial risks are attached to the British market, potentially rendering it unviable and unattractive for new entrants and their investors, particularly where they are financial institutions. In view of the importance of this issue to our clients and the industry generally, we submitted a freedom of information request to the Gambling Commission in March 2023. Coincidentally or otherwise, there is now a glimmer of hope on the horizon as the Gambling Commission plans to publish source of funding guidance this Summer.

What is source of funding?

Source of funding involves establishing the legitimacy of the source of the capital and revenue finance used in the licensee’s operation.

Disclosure is required to ensure (1) that the first licensing objective has not been compromised (preventing gambling from being a source of crime or disorder, being associated with crime or disorder, or being used to support crime), and (2) that the licensee or applicant is suitable to hold a licence (as detailed in the Gambling Commission’s Licensing compliance and enforcement policy statement), which includes “the resources likely to be available to carry out the licensed activities and the legitimacy of the source of the capital and revenue finance of the operation.”

When is disclosure needed?

The common touchpoints for disclosure to the Gambling Commission are:

operating licence applications – where “there is a positive obligation on applicants to show that they are able to satisfy the licensing objectives” and the Gambling Commission “will also wish to be satisfied as to the sources of the applicant’s finance to satisfy itself that such funds are not associated with crime or disorder.”
key event notifications following the taking of new loans / funding, or the disclosure of new shareholders; and
changes of corporate control.

Under section 122 of the Gambling Act 2005, the Gambling Commission may also request source of funding disclosure for the purpose of determining the suitability of a licensee to carry on the licensed activities.

The current requirements

Currently, there is no formal or detailed source of funding guidance setting out the Gambling Commission’s requirements and each case is considered on its merits.

From our extensive experience, we know that applicants and licensees are required, using a risk-based approach based on their knowledge of the investor and the size of the investment, to:

Follow the “breadcrumb trail” of money and provide documents (i.e. bank statements) to evidence the flow of funds from the original source, to the ultimate investment in the licensee / applicant.
Provide documentary evidence for the source of funding. This depends widely on the specific circumstances but, by way of example, if an investment was funded by:

a) a share sale, the SPA could be provided along with a bank statement showing receipt of the funds from the sale; or

b) personal savings, the Gambling Commission would wish to understand and see evidence as to how these savings had accrued and over what time period.

The onus is always on the gambling business, which can be challenging when the Gambling Commission rejects incomplete applications and the majority of the information can only be obtained from third parties; however, it is vital that they have used their reasonable endeavours to secure the necessary information.

Challenges and moving goalposts

Source of funding is a complex area, particularly if money has been raised through an investment fund with underlying limited partner (passive) investors, where often there are complex confidentiality agreements in place. It has also been known for gambling businesses to encounter investors who simply refuse to disclose their personal documents or are only willing to provide documents that are heavily redacted.

Ultimately, as set out in the Licensing compliance and enforcement policy statement, the Gambling Commission must “assess the likelihood of risk presented by and the potential impact that the risk if realised will have upon the licensing objectives.” In our view, this does not mean pursue a risk-free approach by testing every £.

Nowadays, the Gambling Commission’s expectations for source of funding are burdensome and follow a novel and unpublished approach (generally led by Forensics), often exceeding those of financial or other gambling regulators around the globe. In extreme circumstances, this creates tension between the gambling business and its investors, and the Gambling Commission and the gambling business (including us!). Published guidance is critical to ensure consistency and provide certainty to gambling businesses and their investors.

Glimmer of hope on the horizon

Turning to the positive, we understand that the Gambling Commission will be publishing guidance on its website regarding its source of funding requirements to “provide better information to applicants”. It is expected that the guidance will be published by the end of July 2023.

At this stage, we understand that the guidance will be non-exhaustive, but will include example scenarios, including those relating to investment funds.

We further understand that the guidance will explain how the Gambling Commission divides investors into two groups when determining its source of funding requirements:

a) Regulated – meaning entities that are regulated by any form of financial service regulator, including the Financial Conduct Authority and Securities Exchange Commission.

b) Unregulated.

For each group, the Gambling Commission will take either a percentage of the total value of the investment / transaction, or an investment amount (e.g. £50,000) and consider source of funding for investors that cross that threshold. Where investors do not fall within either category, the Gambling Commission will look to take a dip sample, which reflects our recent client work. We further understand that the Gambling Commission will want investors identified so it can carry out open source and online checks before deciding if further source of funding information is required for particular investors.

Of course, the exact detail of the guidance will not be known until it is published. We are hopeful that it will provide some clarity on the Gambling Commission’s requirements and explain the basis for such requirements.

How we can help

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

27Jul

White Paper Series: Cryptoassets

27th July 2023 Hilary Stewart-Jones 198

Adopting the term cryptoassets as opposed to cryptocurrencies, the White Paper devotes little time to the fast growing consumer demand in the online gambling sector. The Department for Culture, Media and Sport (“DCMS”) acknowledges that there are no specific laws which preclude a customer’s use of cryptoassets to fund gambling, but indicates that it has thus far relied upon the Gambling Commission taking a “rigorous stance” against their use to date where: (i) they are used by end users as a means of depositing into online gambling accounts; (ii) the operator accepting the cryptoasset payment has raised funds via the issue of cryptoassets; or (iii) the business owners’ source of funds includes ownership and trading of cryptoassets. The net result, unsurprisingly, has been that currently the Government does not feel the need to intervene further with legislative changes, because there already exists a de facto ban for gambling usage. Sadly, this was a missed opportunity to oversee and probe the Gambling Commission’s application of its discretion, all the more so given that cryptoassets will be fully financially regulated in Great Britain in the not-too-distant future, and where their burgeoning use in offshore gambling will be another deterrent for end users in Great Britain to only wager with Gambling Commission licensees.

Plainly, the discretion afforded to the Gambling Commission on licence applications can give it a multitude of reasons to decline licence grant, only one of which may be a business plan/funding which includes cryptoassets. To that point, the Gambling Commission states in its Blockchain technology and cryptoassets guidance that its approach to assessing a licence applicant’s source of funds is to be sure that the business is not being funded by proceeds of crime and it needs the same level of assurance for all licence applications. The Gambling Commission further emphasises its position in this guidance:

“If you are considering using to fund a gambling business, we recommend that unless you are able to provide a full and complete history of with your application, do not submit as we will not consider Operating Licence applications with a crypto funding element without this evidence provided in full at application stage”

For existing licensees, the Gambling Commission’s controls are set out in licence conditions (“LCs”). LC 5.1.1 requires that:

“Licensees, as part of their internal controls and financial accounting systems, must implement appropriate policies and procedures concerning the usage of cash and cash equivalents (e.g. digital currencies) by customers, designed to minimise the risk of crimes such as money laundering, …”
“Licensees must ensure that such policies and procedures are implemented effectively, kept under review, and revised appropriately to ensure that they remain effective, and take into account any applicable learning or guidelines published by the Gambling Commission from time to time”.

In addition, licensees are required by LC 15.2.1(8) to notify the Gambling Commission as soon as reasonably practicable, and in any event within five working days, in circumstances where there is: “ny change in the licensee’s arrangements as to the methods by which, and/or the payment processor through which, the licensee accepts payments from customers using their gambling facilities…”. This is a notification, and not a clearance requirement, albeit there is no doubt that the Gambling Commission would investigate notifications that relate to licensees’ acceptance of cryptoassets. The DCMS assert that on data provided by the Gambling Commission that there have been “no instances” of licensed operators making a key event filing regarding cryptoassets. This is hardly surprising when the known response would be negative.

The implication suggested by DCMS/the Gambling Commission in the White Paper that licensees may have no desire to accept cryptoassets because of inherent volatility/bet closing values and transparency issues, is unlikely to be the root cause of this reluctance. It is far more likely to be due to their concerns about the negative attention they would attract from their regulator and potential for licence review. In this regard, most licensees remain painfully aware of a fine meted out to one operator in circumstances where it did not accept cryptoassets as payment but allowed a customer with a regulated (as a financial service) digital wallet to deposit with fiat, in which wallet there was a risk that cryptoassets may have been (but not necessarily had been) deposited. The Gambling Commission justified the censure as a demonstrable lack of AML due diligence by the operator on the payment service provider, merely because it allowed deposits in fiat and cryptoassets, in circumstances where the wallet was, as stressed, regulated and there was nothing to preclude its commercial offering of the product. If that comprises a gambling regulatory benchmark, then on a broad application surely it should also preclude a relationship with any number of banks/payment service providers, many of whom offer cryptoasset trading services? One has to ask, the funding and suitability issues aside (of which more below), what is the real concern? Most gambling operators who accept cryptoassets do not do so anonymously as all require a form of KYC/CDD/EDD to open an account. The larger operators also tend to only accept stable coins, and do not allow any form of trading exchange within the gambling ecosystem i.e. USDT in, USDT out. In short, a very limited scope for anonymous money laundering.

The Gambling Commission’s antipathy seems to be primarily rooted in cryptoassets’ opaque nature, having stated “the anonymity afforded by some , along with any weaknesses in the process of obtaining them, have consistently caused problems for applicants….”. However, this suggests that the cryptoasset itself can be tainted by a previous illegal use, despite the fact that the current cryptoasset owner would be fully disclosed to the operator and by extension (if requested) the Gambling Commission. Meanwhile, back in the real world, none of us can account for prior uses of all money in our bank accounts since the creation of that currency. For proceeds of crime/AML purposes one can understand that fiat monies can taint other fiat monies in a single account (where they cannot be separately identified) but not cryptoassets where each unit is separately reported in the blockchain. In addition, as can be inferred from Europol’s December 2021 report, the early adoption by criminals for payment in non-private cryptoassets for illegal activities (e.g. human trafficking and money laundering) through such transactions is actually on the wane. The report observes that unlike private coins where the ledger is obfuscated, there is with most types of reputable cryptoassets a public blockchain ledger, so that all trades are recorded: the detail retained therefore leaves a trail that cash could not. Indeed, as Europol emphasises, that ledger was key to unlocking the source of funds in several prosecutions, demonstrating that the prior users were neither truly anonymous nor untraceable. In any event in its conclusion, it points out: “….., the use of cryptocurrencies for illicit activities seems to comprise only a small part of the overall cryptocurrency economy, and it appears to be comparatively smaller than the amount of illicit funds involved in traditional finance.”

Both the DCMS and the Gambling Commission also allude to cryptoasset volatility and that such issues would impact gambling because of the problems of establishing financial limits and affordable gambling. However, again the criticism does not seem to be well thought through. A customer who has bought cryptoassets has presumably had the wherewithal to do so, affordability issues aside. If they then gamble with an element of the cryptoasset that goes up in value after the deposit but before any wager, then any safer gambling (“SG”) limits pegged to fiat (which could be easily imposed as a LC) would still snag before the sums were wagered, as the exchange rate could take place before play. If the volatility is in the licensee’s favour on pay-out (and it could go either way) the customer has still not lost any more than the SG limit set, which is entirely in line with the current loss limit philosophy that underpins the White Paper’s approach to consumer protection. In any event, the Gambling Commission should not ignore that cryptoassets are fast becoming a real and critical part of the world’s economy, and certainly the case for continued objection to licensees accepting deposits in fiat, where the known source is cryptoassets or there had been a digital wallet intermingling cryptoassets traded via a licensed exchange, seems antiquated. Meanwhile other regulators appreciate the need to accommodate change. The Markets in Cryptoassets (“MiCA”) regulation was passed by the European Union (“EU”) in May 2023. MiCA has four objectives:

to provide a legal framework to regulate cryptoassets;
to support innovation and fair competition;
to protect consumers, investors and market integrity; and
to guard against the financial uncertainty

These regulations will sit alongside the existing cryptoasset travel rule which requires entities enabling the exchange , transfer, sale or related financial services and safeguarding (the so called “VASP” services) to let the sender and recipient of cryptoassets have personal identifiable information of the other (legal name, address and account number) for all transactions over USD 1,000, or as determined by each Financial Action Task Force (“FATF”) member state (by way of example, the current U.S. rule is USD 3,000).

Whilst Great Britain is no longer part of the European Union, it is expected that it will ultimately pass legislation which will address the high risk nature of cryptoassets, to reach parity with high risk investment services (e.g. those requiring a consumer cooling off period) and to attach criminal offences to non-compliance (currently British-based firms providing cryptoasset services are obliged to register with the Financial Conduct Authority (“FCA”) and to comply with existing money laundering regulations and obligations). It is also notable other gambling regulators already have well advanced regimes for the acceptance of cryptoassets for gambling, albeit that the majority of the operators accepting cryptoassets have tended to cluster in traditional grey-market licensing hubs.

Despite this, and the moves for financial services regulation of cryptoassets already in motion, the Treasury Committee’s report Regulating Crypto, published on 10 May 2023 (the “Fifteenth Report”), instead called for cryptoassets to be regulated as gambling, emphasising that:

“… their price volatility exposes consumers to the potential for substantial gains or losses, while serving no useful purpose. These characteristics more closely resemble gambling than a financial service…”

Whilst one can understand there being a false sense of security for a volatile, albeit financially regulated asset (the so called “halo” effect) this proposal would put Great Britain out of step with the vast majority of other jurisdictions. Moreover, it would be the ultimate irony were the Gambling Commission be called upon to regulate an industry for which it plainly has the greatest mistrust Mercifully, the proposal does not have the support of Government and on the 19 July 2023, it made its response to the recommendations contained in the Fifteenth Report clear; cryptoassets would remain financially services regulated:

“Such an approach would run completely counter to globally agreed recommendations from international organisations and standard-setting bodies… …These recommendations are grounded in the principle of ‘same activity, same risk, same regulatory outcome’, meaning that any cryptoasset activity that performs a similar function, and poses similar risks, to those in the traditional financial system (for example, operating a trading platform or providing custody services) are subject to regulation that ensures equivalent outcomes.
The Committee’s proposed approach would therefore risk creating misalignment with international standards and approaches from other major jurisdictions including the EU, and potentially create unclear and overlapping mandates between financial regulators and the Gambling Commission.”

In conclusion, the dithering over cryptoassets and gambling needs to stop. Again, time has been lost with the distraction over the Fifteenth Report. Some online casinos accepting cryptoassets have reported gross gambling revenue of USD 2.6 billion for 12 months trading alone, so the product is clearly of appeal. One cannot simply assume that all or a majority of those end users have nefarious intentions. Given the ongoing profits of fiat-only operators too, one must also assume they are reaching an as yet untapped gambling demographic. The Treasury Committee report noted that in Great Britain alone 10% of adults hold or have held cryptoassets, with the majority of those concluding that it was a “fun” asset and where the transaction costs were considerably less than with fiat transfers. Given this is no longer: (a) a niche pastime; or (b) the preserve of criminals only, the Gambling Commission would be advised to give priority to what would comprise adequate safeguarding for cryptoasset usage in gambling rather than de facto fettering its discretion and imposing an outright ban. In addition, the longer the wait the less likely it is for governments and regulators to adequately anticipate/safeguard against the next wave of technology advancements in the cryptoasset space. The sooner the dialogue and the desire to find middle ground starts, the better.

With thanks to David Whyte and Gemma Boore from Harris Hagan for their invaluable co-authorship.

See paragraph 135 on page 68 of the White Paper.

See the Gambling Commission’s Blockchain technology and cryptoassets guidance note.

In this regard DCMS is using the terminology also used by the Gambling Commission, which had in turn adopted that used by the Treasury Committee (see its Twenty-Second Report of Session 2017-19 published September 2018).

26Jul

White Paper Series: DCMS and the Gambling Commission launch public consultations

26th July 2023 Adam Russell 178

On 26 July 2023, the Gambling Commission and DCMS both launched the first three public consultations concerning proposals contained in the White Paper.

DCMS

DCMS have launched two consultations, which will focus on the following areas:

Proposals for a maximum stake limit for online slot games. This consultation will last for 8 weeks and closes at 11:55pm on 20 September 2023.
Proposals for measures to adjust outdated regulatory restrictions applying to the land-based gambling sector. This consultation will last for 10 weeks and closes at 11:55pm on 4 October 2023.

The Gambling Commission

The Gambling Commission’s consultation will consider various proposals relating to the following areas:

Improving consumer choice on direct marketing.
Strengthening age verification in premises.
Remote game design.
Remote gambling: financial vulnerability and financial risk.
Extending Personal Management Licences requirements.
Changes to Regulatory Panels.

The Gambling Commission’s consultation will last for 12 weeks and closes on 18 October 2023.

Next steps

We strongly encourage all licensees and stakeholders to review and respond to the consultations and will be publishing further articles when we have considered fully the content and proposals contained therein. Please get in touch with us if you would like to discuss this matter further or require our assistance preparing responses.

21Jun

Evidence gaps and priorities 2023 to 2026

21st June 2023 Ting Fung 184

Alongside the Government’s anticipated work on evidence gaps identified in Public Health England’s review, the Gambling Commission unveiled its Evidence Gaps and Priorities (the “Document”) last month on 23 May 2023. The publication duly follows the topic of research, education and treatment (“RET”) set out in the White Paper (Chapter 3: The Gambling Commission’s powers and resources) and the aim for the Gambling Commission to “build on the expansion of datasets it collects from operators for regulatory purposes to develop a rich resource that will strengthen the evidence base on gambling and inform data-led regulatory action”; inclusive of an exploration on how anonymised regulatory data can be shared with researchers.

Nevertheless, Tim Miller (Executive Director of Research and Policy) underlines in his introduction, that the Document is “not only about the Commission and what we need to do… about highlighting the challenges ahead and asking the questions that need answering. Answering those questions is something we can all play a part in.”

The Document sets out six existing areas or “evidence themes” that the Gambling Commission will prioritise in making a concerted effort in to strengthen the evidence base. We set out below a summary of and links to each.

1. Early gambling experiences and gateway products

About: understanding early gambling experiences and journeys of those aged 24 and under, otherwise vulnerable and generally, including engagement with and the influence of new non-gambling products that share similarities with gambling.

Gambling Commission on what is needed: increased research with “a longitudinal aspect” and linked operator data with a focus on younger gamblers for the exploration of patterns in remote, regulated gambling (although the Gambling Commission does not specify from whom).

Gambling Commission example research questions:What prompts different people to start gambling? How does gambling behaviour change over time as children become young people and young adults? What is the impact of major betting events, such as the World Cup or Grand National, on new gamblers?

Gambling Commission focus: continuing research with children and young people, with an expansion to cover 17-year-olds; building on research to explore the gambling journeys of young people to further develop understanding of how consumers are introduced to products and activities that are new to them.

2. The range and variability of gambling experiences

About: further exploration of customer journeys including, gambling habits and behavioural changes over time; the wider context of the individual customer, their life and how gambling overlaps with other behaviours and experiences.

Gambling Commission on what is needed: a mixture of data sources to explore them, with qualitative research; access to a wide range of anonymised datasets.

Gambling Commission example research questions: What do we know about the spectrum of gambling activity and what constitutes ‘safe’ gambling? How does gambling fit into a gambler’s wider online activity or life? How and why do people’s gambling habits and behaviours change over time?

Gambling Commission focus: use of the new Gambling Survey for Great Britain to improve understanding of gambling participation at a national level and in sub-groups of interest; building on the key parts of the Path to Play framework to add depth and insight; developing strong foundations for future research, for example establishing recontact samples for longitudinal research.

About: gaining a better understanding of the different ways that consumers can experience harms; an ability to identify consumers who may be more vulnerable or at risk of experiencing harms.

Gambling Commission on what is needed: “significant resources to investigate many of these sub-topics is likely to require a blend of evidence from longitudinal, co-produced research with people with lived experience of gambling-related harms, account data and in-depth qualitative sources to gain a better understanding.”

Gambling Commission example research questions: Which individual circumstances (situations or demographics) increase vulnerability to gambling-related harms? What’s the relationship between gambling-related harms and different co-morbidities? What is the impact on ‘affected others’ (adults and children) of gambling-related harms? What interventions are effective in reducing gambling-related harms?

Gambling Commission focus: using the Gambling Survey for Great Britain to produce robust statistics on who is experiencing gambling-related harms; qualitative research with consumers with experience of gambling-related harm; using Gambling Commission datasets and wider evidence to identify groups that may be at greater risk of harm.

4. The impact of operator practices

About: understanding the influence of common operator practices on consumer behaviour; assessing the effectiveness of interventions designed to detect and reduce gambling harms.

Gambling Commission on what is needed: various sources of data including operator-held account-level data suitable for detailed analysis, qualitative data, and potentially longitudinal data.

5. Gambling Commission example research questions: How can marketing and safer gambling practices be incorporated effectively together as part of a seamless player experience? How well do consumers understand information (for example, about offers or products) provided to them by operators? How effective are harm detection algorithms used by online operators? What are the factors that drive and influence consumer’s perception of whether gambling is fair and can be trusted?

Gambling Commission focus: gaining greater access to operator-held account-level data to further explore the impact of operator practices.

6. Product characteristics and risk

About: improving understanding of which products and behaviours carry greater risk of harm, for whom, and why; gaining a deeper understanding of how consumers interact with different products and links to gambling harms; identifying areas of new or emerging risk and building a strong understanding of changes in the market.

Gambling Commission on what is needed: Research that identifies markers of harm and increased risk, with examples including examining real-time account activity data, opportunities created through data linkage, or robustly evaluated product trials in live environments.

Gambling Commission example research questions: Are certain product characteristics associated with gambling-related harms? Do some product characteristics disproportionately affect certain types of gamblers? How can gambling products be designed to mitigate the riskiness of game characteristics without compromising enjoyment? How do people’s patterns of play vary between products?

Gambling Commission focus: gaining greater access to operator-held account-level data to further explore patterns of play; using secondary analyses of existing datasets to further our understanding of product risk.

7. Illegal gambling and crime

About: understanding links between gambling and criminal activity; understanding crime as a dimension of gambling-related harm; improving knowledge of the extent and impact of the unregulated market.

Gambling Commission on what is needed: Given the secretive nature of criminal activity, a requirement for more specialised and focused research methods, with greater reliance upon new and existing partner organisations and new tracking techniques identified within the gambling landscape section.

Gambling Commission example research questions: What is the extent of criminal activity to fund gambling activities? What is the size of the illegal market, and what’s the impact on British consumers? What is motivating consumers to gamble on the illegal market? How easy is it for consumers to tell that they are using an unregulated operator?

Gambling Commission focus: research into consumers’ understanding and use of unlicensed illegal gambling operators; using the Gambling Survey for Great Britain to develop understanding of the commission of and victims of crime as a dimension of gambling-related harm.

In order for this projected work to be impactful, it will be important for the Gambling Commission to emphasise effort on the aspects for which it has been criticised. It has acknowledged this in part through acknowledgment of the need for more qualitative data, including increased longitudinal research. However, this needs to be more than just lip service and as the Document already recognises, these efforts must work in conjunction with other areas of evidential weaknesses highlighted in the White Paper in respect of gambling research. These include: making full use of the UK Research and Innovation (UKRI) funding to increase the number of studies on gambling behaviour, with the aim of attracting wider interest from academic and research institutions in order to generate more high quality and peer-reviewed research.

In addition, it could be inferred from the White Paper that Government views the Gambling Commission’s main strength in relation to RET to be its access to datasets it collects from operators. Therefore, it will be interesting to see the development of the Gambling Commission’s focus in this area (as highlighted in sections 4 and 5 above) not only in terms of scope and methodology but also its exploration on how anonymised regulatory data can be shared with researchers.

13Jun

White Paper Series: DCMS speaking at IAGA 40th Annual Gaming Summit in Belfast

13th June 2023 Harris Hagan 188

We are very pleased to announce that Ben Dean, Director of Sport and Gambling, from the Department for Culture, Media and Sport (“DCMS”) will be participating in the International Association of Gaming Advisors (“IAGA”) 40^th annual International Gaming Summit at the Culloden Estate and Spa in Belfast, Northern Ireland from 20 to 22 June 2023.

This will be the first time DCMS has spoken publicly since the publication of the long-awaited gambling white paper (the “White Paper”) on 27 April 2023.

Ben will be discussing the White Paper and next steps in his keynote at 1.30pm on Wednesday 21 June 2023 and he will join industry experts in the following panel at 1.45pm:

The Long-Awaited White Paper on Gambling Reform in Britain

After nearly 30 months, six Gambling Ministers, three Prime Ministers, two Monarchs, 16,000 responses, several leaks, a World Cup and a global pandemic, this panel considers what the publication of the White Paper tells us about the future of the regulated market for betting and gaming in Britain.

Moderated by Dan Waugh from Regulus Partners, the panellists include:

Ben Dean, Director – Sport and Gambling, DCMS
Antony Gevisser, Senior Vice President – Legal & Operational Affairs, Super Group
Andrew Herd, Managing Director, Lancashire Court Capital Ltd
Wes Himes, Executive Director, Betting & Gaming Council
Helen Rhodes, Director of Major Projects, Gambling Commission

The keynote and panel are essential for anyone licensed in Great Britain or thinking about market entry, including through an investment or M&A activity.

Spaces are limited so please book your ticket to avoid disappointment!

As mentioned in our earlier blog in May, as a silver sponsor, Harris Hagan proudly continues its long association with IAGA, which includes Julian Harris and John Hagan serving as President in 2013 and 2019/2020, respectively, and Bahar Alaeddini serving as General Counsel and Co-Chair of the Conference Programme Committee. Partners, John and Bahar, will moderate panels on What’s Happening in the Republic of Ireland and The Current State of Industry M&A. It is without hesitation that this Summit is commended to readers not least for the excellent quality of the content and networking events.

Please feel free to contact us if you would like to know more about IAGA’s work, membership and/or the Summit. We very much hope that you can join us there!

22Mar

Getting it right: how to comply with the “strong appeal” test when using sports personalities to advertise sports betting

22nd March 2023 Gemma Boore 255

Nearly half a year has passed since the introduction of the “strong appeal” test for gambling advertisements in the United Kingdom, and it has been a whirlwind of a six months for sport:

the Rugby League Men’s and Women’s World Cups took place in October and November 2022 after being postponed due to Covid-19 and the Cricket ICC World T20 (Men)’s event was hosted in Australia at the same time;

the FIFA World Cup took the world by storm between November and December 2022; and

2023 has not disappointed yet either – sports fans have been treated to numerous events in Q1 including the Tennis Australian Open, the Rugby Six Nations and the Cricket ICC World T20 (Women)’s event.

For betting operators, the resurgence of live sports presents a rich (and well overdue) opportunity to re-engage with existing and attract new customers. However, regulatory restrictions on advertising gambling products in Great Britain have tightened in recent years and operators must be mindful not to fall foul of current advertising rules including the new “strong appeal” test, which came into force on 1 October 2022.

In this article, we explain the strong appeal test, consider the impact of recent rulings by the Advertising Standards Authority (“ASA”) concerning its implementation, and share our top tips for gambling operators, marketing agencies and affiliates that want to ensure they comply with the strong appeal test when advertising sports betting to UK customers.

The strong appeal test – how does it work?

The UK Code of Non-broadcast Advertising and Direct & Promotional Marketing (the “CAP Code”) and the UK Code of Broadcast Advertising (the “BCAP Code”) (collectively, the “UK Advertising Codes”) set out the rules relating to marketing communications in broadcast and non-broadcast media in the UK.

Parts 16 of the CAP Code and 17 of the BCAP Code set out rules bespoke to gambling advertisements. In particular, since 1 October 2022, each section has contained the following requirement (in rules 16.3.12 and 17.4.5 respectively):

“Advertisements for gambling must not be likely to be of strong appeal to children or young persons, especially by reflecting or being associated with youth culture.

They must not include a person or character whose example is likely to be followed by those aged under 18 years or who has a strong appeal to those aged under 18.

Where appropriate steps have been taken to limit the potential for an advertisement to appeal strongly to under-18s, this rule does not prevent the advertising of gambling products associated with activities that are themselves of strong appeal to under-18s (for instance, certain sports or playing video games).”

These ‘strong appeal’ tests effectively prohibit content (including imagery, themes etc.) that has a strong level of appeal to under-18s regardless of how it is viewed by adults. It extends to the use of celebrities (including footballers) to promote sports betting or convey responsible gambling messaging.

The new strong appeal tests replace the ‘particular appeal’ test in the previous edition of the UK Advertising Codes, which generally allowed marketing communications regarding gambling to feature celebrities (including footballers) who were well known to under-18s, provided the vast majority of their fans were adults. A typical barometer used was the proportion of the celebrity or footballer’s fans on social media: if 25% or less of their fans and followers were under 18, it was generally accepted that they did not have a particular appeal to children and could therefore feature. The new “strong appeal” tests are much stricter as they focus only on whether there is strong appeal to children – appeal to adults is irrelevant.

The guidance published by CAP and BCAP relating to the strong appeal tests: “Gambling and lotteries guidance: protecting under-18s” Advertising Guidance (non-broadcast and broadcast) (the “Guidance”) notes that “determining the likely appeal of a marketing communication is not always straightforward and is, to an extent, subjective… …Advertising approaches or pieces of creative content of ‘strong’ appeal to under-18s can take a variety of forms”.

The Guidance goes on to give several examples of approaches that are likely to be problematic, two of which are of particular relevance to sports betting advertisements:

Content linked to activities that are very popular or common among younger people (both in terms of their direct participation and viewing)

In its Guidance, the ASA confirms that it considers certain subjects and activities to be of inherently strong appeal to under-18s and gambling advertisements relating to these subjects and activities will be prohibited unless they fall under one of the exemptions. Two examples of sports with strong appeal are cited in the Guidance: football and eSports.

Other national sports such as cricket and rugby are also discussed and it is noted that by comparison, these sports have low-to-moderate levels of participation and interest among under-18s. However, the national teams in these sports attract more media interest and are more likely to be considered of inherent strong appeal. Conversely, sports such as horseracing, greyhound racing, darts, snooker, boxing, motorsports and golf are noted to be more adult-orientated and unlikely to be of inherent strong appeal.

In order to advertise betting opportunities concerning sports that strongly appeal to under-18s, gambling operators must ensure that their product falls within one of the exemptions cited in the Guidance, five of which are of relevance to sports betting:

Exemption A: Products in general terms. This permits betting advertisements to promote licensed products in general terms. The Guidance notes that the rules focus principally on imagery, themes and characters that are of strong appeal to under-18s. They are not intended to restrict simple text or audio references to sports, teams or individuals generally held to be popular with under-18s.

Example: An advertisement stating that bets are available on the outcome of a particular football or eSports match would not be prohibited as this falls within Exemption A.

Exemption B: Generic descriptions. This permits generic depictions of or references to the subject of the licensed product. The Guidance notes that the generic depictions must be suitable and not, of themselves, likely to appeal strongly to under-18s.

Example: An advertisement using suitable characters or CGI to depict a sport held to be of strong appeal to under-18s (e.g. football or eSports) or generic items or places associated with the sport (e.g. a ball, goal post, trophy, or stadium) would not be prohibited as this falls within Exemption B provided that the depictions are not stylised to appeal strongly to under-18s (e.g. cartoons).

Exemption C: Logos and other identifiers. This permits the use of logos and other identifiers for the subject of a betting activity.

Example: An advertisement showing that bets are available on the outcome of a particular match, tournament or other event that includes the logo for the event or the teams playing in it would not be prohibited as this falls within Exemption C.

Exemption D: Branding. This permits material relating specifically to an advertiser’s brand identity. The Guidance notes that this exemption does not extend to brand characters, which will need to be assessed under the strong appeal test for persons and characters (discussed below).

Example: An advertisement including the brand or livery of the operator advertising the bet (e.g. an advertisement featuring the logo of Mr Green in green and white colours) would not be prohibited as this falls within Exemption D. However, the use of the character “Mr Green” would need to be assessed separately to see whether it is of strong appeal to under-18s.

Exemption F: Certain persons and characters. This permits the use of persons or characters associated with subjects of strong appeal (e.g. football and eSports) provided marketers are satisfied that they are not, in and of themselves, of strong appeal to under-18s. Again, this will be assessed separately under the strong appeal test for persons and characters.

Example: An advertisement featuring a football player would not be prohibited as this falls under Exemption F provided the football player is not themselves of strong appeal to under-18s. See below for further discussion.

2. Persons and characters who have a strong appeal to under-18s

As set out above, the UK Advertising Codes require that gambling advertisements must not feature any person or character who has a strong appeal to those aged under 18.

Persons and characters generally fall into one of five categories: (a) personalities/celebrities, (b) brand ambassadors, (c) licensed characters (e.g. a movie or video game character), (d) characters played by actors; and (e) brand-generated characters (e.g. characters created by the advertiser).

The ASA makes its assessment of appeal of these persons and characters to under-18s based both on (i) their appearance and behaviour in the advertisement, and (ii) their profile and relevance outside the advertisement for personalities, brand ambassadors and licensed characters (but not characters played by actors and brand-generated characters as these have no external profile).

In determining the extent of a person’s appeal to under-18s, advertisers are encouraged to use as many insights and sources of data as they can. Having determined what a person or character is known for (in terms of activities, roles or associations) marketers can then identify information and data sources that provide insights on the likely level of a person or character’s appeal to under-18s.

For example:

Profiles outside the context of the advertisement. In determining whether a person or character is likely to appeal strongly to under-18s on the basis of their profile, the ASA will consider factors such as: (a) whether they have obvious and direct links to activities for, or highly popular with, under-18s; (b) the general audience for, and popularity of, what the person or character is known for; and (c) the likelihood that their inclusion in an advertisement will strongly attract the attention or interest of under-18s.

Example: Persons and characters with obvious and direct links to under-18s should be avoided (e.g. current or recent children’s TV personalities, popstars associated with youth culture, licensed characters from popular board games and influencers that focus on youth-related themes).

If a person or character does not have an obvious and direct link to under-18s that would render them of ‘strong’ appeal, advertisers must still assess their likely level of appeal. Social and other media audience demographics are an important and quantitative source of data.

Example: Football players in national or other well-known teams such as Manchester United may be viewed in an aspirational or influential way among under-18s and should be avoided. The same principle applies in relation to leading sportspeople in other sports and those involved in World Cups or other high-profile tournaments. Players in lower-level teams and other individuals involved in sports (e.g. managers) are more likely to be acceptable if it can be demonstrated that the individuals have a negligible following of under-18s on social media and/or there is a negligible proportion of under-18s in the audience (either for their sport or other programmes in which they feature).

The ASA notes that more weight should be attached to present and recent activities. Personalities whose appeal has shifted away from under-18s over time are less likely to fail the strong appeal test.

Example: An individual that played in a national sports team in 2002, such as David Beckham, is less likely to appeal to under-18s now compared to an individual that played in a national sports team in 2022, such as Raheem Sterling.

Appearance and behaviour within the advertisement. The second part of the ASA’s assessment of ‘strong’ appeal for persons and characters is how they appear and behave in advertisements.

Marketers must avoid featuring behaviour that is likely to strongly appeal to under-18s. This includes youth culture themes (e.g. disregard for authority, rebelliousness, immature adolescent or childish behaviour and participation in practical jokes), speech and language (e.g. sounding like a child or using slang terms or text abbreviations), humour (e.g. slapstick or juvenile jokes) and other behaviour (e.g. dancing, singing or reciting rhymes).

Example: A person that is behaving in a manner associated with under-18s (such as Simon Bird from The Inbetweeners) is more likely to appeal to under-18s.

In addition, persons and characters played by actors must not be presented in a way that renders them likely to be of ‘strong’ appeal to under-18s. They should not wear clothing, accessories, jewellery, body art, piercings or hair styles that are obviously associated with a current trend or style popular with under-18s.

Example: A person that is wearing clothing associated with teenagers (e.g. a crop top, oversized hoodie, baggy jeans or a bucket cap) should typically be avoided.

Finally, characters that are colourful or have exaggerated features are more likely to be of strong appeal to under-18s and this includes ‘cuddly’ or ‘cute’ animals. Licensed characters (for example, from games and movies) will be assessed based on the popularity of the game or movie with under-18s.

Example: Characters with similarities to soft toys and exaggerated features such as enlarged eyes should typically be avoided. Characters related to stories or themes that are popular among children like pirates, princesses, superheroes, robots and fairy tale characters should also be avoided unless they are from traditional fairy tales, not stylised with exaggerated features and are not otherwise associated with childhood (e.g. characters such as Santa Clause, the tooth fairy and the Easter bunny are cited in the Guidance as being associated with childhood and should therefore be avoided).

There is a helpful checklist at the beginning of the Guidance that summarises the risk-based scenarios of featuring different types of persons in gambling advertisements:

High risk	o Anyone with direct connections to under-18s through their role like children’s TV presenters or film stars o Anyone with a significant under-18 following on social media o UK footballers who play for top clubs, UK national teams or in high-profile competitions – this would apply also to managers o Non-UK ‘star’ footballers, particularly those at top European clubs – this would apply also to managers o Other prominent sportspeople involved in sports like cricket, tennis and rugby that, at the highest levels, have a significant national profile o Leading eSports players

Moderate risk	o Footballers from teams outside the top-flight will be assessed on the basis of their social and other media profile o Footballers with lower profiles at top Euro/world clubs might be acceptable o Retired footballers who have moved into punditry/commentary will be assessed on the basis of their social and other media profile o Other eSports players dependent on their social media and general profile o Sportspeople involved in clearly adult-oriented sports who are notable ‘stars’ with significant social media and general profiles making them well-known to under-18s o A small but notable following of under-18s on social media will be considered alongside the personality’s general profile and could contribute to an ASA decision to categorise the individual as being of ‘strong’ appeal

Low risk	o Footballers at lower league and non-league clubs o Footballers at lesser Euro/world clubs o A long-retired footballer now known for punditry/commentary o Sportspeople involved in sports like cricket, tennis and rugby that don’t have a significant role in the sport or general profile o Sportspeople involved in clearly adult-oriented sports (e.g. darts, snooker, golf, horseracing, and motorsports)

Exception for narrowly targeted advertising

There is one key exception to the strong appeal rules: they do not apply in media where under-18s can, for all intents and purposes, be entirely excluded from the audience.

Principally, this applies in circumstances where the marketer can robustly age-verify the potential recipients of the advertisement as being 18 or older such as:

direct mail, email and SMS communications sent to recipients who have been verified as being 18 or older;
areas of websites and applications that can only be viewed/accessed those who have been verified as 18 or older on sign-up; and
online platforms (such as social networks or publications) that provide advertisers with functionality enabling them to target users that have been age-verified to a very high degree of accuracy.

In the event of challenge, the ASA expects advertisers to provide evidence to demonstrate that the systems used to identify audiences from which under-18s are, for all intents and purposes, excluded are robust. Gambling Commission licensed websites are cited as a good example of a media environment where under-18s are extremely unlikely to form part of the audience. Other sources of marketing data may also be acceptable where robust means of age verifications have been employed (e.g. payment data or credit checking). More general marketing data, such as that inferred from user behaviour, is unlikely to be sufficient.

Recent ASA rulings – what do they tell us?

To date, there have been three ASA rulings regarding the strong appeal tests, each of which provides helpful context – particularly in relation to footballers who, as noted as above, can be potentially low, medium or high-risk depending on the individual.

Philippe Coutinho, Jesse Lingard and Kalidou Koulibaly – of strong appeal

In December 2022, the ASA upheld a complaint for a promoted Tweet featuring the text “Can these big summer signings make the question marks over their performances go away?” and an embedded video that featured three current Premier League footballers: Philippe Coutinho, Jesse Lingard and Kalidou Koulibaly, set against a background of question marks.

The advertiser argued that although football and topflight footballers could strongly appeal to under-18s, targeting and age-gating tools had been used to remove under-18s from the advertisement’s audience. This included self-verification by the audience and targeting techniques designed to ensure the advertisement would only reach users aged 25 or over.

The ASA did not accept these arguments and upheld the complaint. In its view, both football and the players used (who were Premier League and international footballers at the time) were likely to be of strong appeal to under-18s; and the targeting techniques were not sufficiently robust to exclude under-18s from the audience with the highest level of accuracy, as required.

Peter Crouch and Micah Richards – not of strong appeal

In February 2023, the ASA did not uphold two complaints regarding advertisements featuring retired footballers.

The first complaint concerned two TV advertisements featuring Peter Crouch conducting a choir and celebrating (amongst other activities) with the text “COMPLETELY FREE BET BUILDER ON ALL ENGLAND GAMES”. During the advertisement, a voice-over was heard saying, “You hear that? That’s the sound of Christmas and the world cup colliding. So come on all ye faithful, let’s be having ya. Glory to the king of headbutts. Knit those kits. Cross those sprouts. Stuff those turkeys. And attack those carols. Cause from this day we’ll forever ask where were you in twenty-two.”

The second complaint concerned a promoted Tweet featuring the text “Club football returns following the international break… Get £20 IN FREE BETS when you place a £5 bet!” and an image of Micah Richards.

Both Crouch and Richards had retired in 2019 and the ASA took a pragmatic approach that although this meant “not long retired”, the teams and the games in which the players featured during the later years of their career (e.g. Burnley and Stoke City for Crouch, and Aston Villa for Richards) meant that they were unlikely still to be of strong appeal to under-18s. The players were therefore assessed on the basis of their social and other media profiles:

Peter Crouch
Crouch did not have public accounts on TikTok, Facebook or Twitch at the time the advertisements were broadcast, and his Instagram account had not been updated since 2014. He did have a public account on Twitter that, at the time the advertisements were seen, had almost 1.5 million followers but demographic data from September to December 2022 showed that 0.46% of his followers were aged 13-17 years. Even though Twitter is a media environment where users self-verify, the ASA accepted this as evidence that a very small number of Crouch’s followers on Twitter were aged under 18.

The ASA further noted that the TV programmes in which Crouch appeared (such as BT Sport, the documentary ‘Save Our Beautiful Game’ and Crouch’s own TV shows, ‘Peter Crouch: Save Our Summer’ and ‘Crouchy’s Year Late Euros’) and his podcasts were primarily aimed at adult audiences and not of strong appeal to children. The exception being ‘The Masked Singer’ in which Crouch appeared as a panellist. The ASA noted this to be a family entertainment programme and of appeal to children. However, Crouch appeared as one of four panellists, the programme was of broad demographic appeal and there was no evidence that his role in the programme had led to him being viewed in an aspirational or influential way by under-18s. Accordingly, the ASA concluded that Crouch’s appearance in this programme was unlikely to make him of strong appeal to under-18s.
Micah Richards
Richards did not have active public accounts on YouTube, TikTok or Twitch and audience demographics on Instagram and Twitter showed that: 0.07% of Richards’ Instagram followers were aged 0-16 years and 2.19% were aged 17-19 years; and 0.04% of his Twitter followers were aged 0-16 years and 2.15% were aged 17-19 years. Again, the ASA accepted that this data demonstrated that his social media profile was unlikely to make Richards of strong appeal to under-18s.

In terms of TV programmes, the ASA noted that Richards was a regular and well-known pundit on Match of the Day but BARB data in the lead up to the advertisement confirmed that a significant number of children had not watched live. The regulator also noted that Richards appeared as a pundit on Sky’s live coverage of Premier League matches which would be of strong appeal to under-18s, but that the strong appeal did not extend to the pundit-based discussion that took place around the game. Accordingly, Richards’ appearance in this context would be unlikely to hold strong appeal to under-18s.

Aside from his role as a football pundit, Richards had appeared on ‘A League of their Own’ and ‘Gogglebox’. Both programmes were scheduled post 9pm and primarily aimed at an adult audience.

In addition, Richards appeared on a CBBC programme ‘Football Academy’, which was considered likely to be of strong appeal to under-18s but the episode had not aired at the time the advertisement was seen. The ASA noted that if Richards had appeared regularly and prominently on such a programme, it was likely he would have been considered to have strong appeal to under-18s.

Top Tips

Below are our key takeaways for operators, marketing agencies and affiliates that want to comply with the strong appeal rules when advertising sports betting in the UK.

Be careful of using anybody in the advertisement that has an active presence on YouTube, TikTok or Twitch. These platforms are known to have particular appeal to under-18s. Although recent rulings do not expressly state that an active account on these platforms would denote someone as having strong appeal, it is notable that neither Crouch nor Richards had a presence on these platforms.

Do not assume that retired players will automatically fall outside the strong appeal category.Consideration should be taken of the individual’s complete career history including the time since they played topflight sport, when they stopped playing completely, and whether they played for a national team during their career, as well as recent appearances on television and other media. The sport that was played is also relevant: football and eSports are highest risk, whereas adult-orientated sports such as darts, snooker, golf, horseracing, and motorsports carry a much lower risk and the use of current or more recently retired players in these sports may be acceptable.

Do not automatically exclude football pundits. Even recent appearances as a football pundit covering football matches that are of strong appeal to under-18s, do not automatically mean that the individual will be of strong appeal themselves. Consideration should be taken of their overall appeal to under-18s.

Be cautious of links with children’s or family entertainment programmes, but do not assume this precludes all individuals featuring in them. Although an appearance in the television show that is aimed at children or is otherwise of strong appeal to under-18s is relevant and should carefully be considered, this will not automatically preclude an individual from appearing in a gambling advertisement provided the advertiser can demonstrate this did not alter the individual’s appeal to under-18s as a result.

Make use of available, verifiable data regarding social media and other followings. Be prepared to defend selections by use of robust data including individual’s social media followings and audience demographics for other media appearances. The ASA’s recent rulings on the strong appeal test are lengthy by usual standards and it is clear significant data was considered. Being able to produce relevant data is going to be vital in cases like this going forward.

Keep the position under review. Where advertisements appear on multiple occasions and/or an individual is used to represent a brand on an ongoing basis (e.g. as a brand ambassador), evidence that the individual does not strongly appeal to under-18s should be kept under regular review. An individual that did not appeal strongly to under-18s yesterday may do so today if they have featured in a new children’s or reality TV show, for example. To mitigate this, consider adding restrictive covenants to commercial agreements with brand ambassadors and others used in gambling advertisements, restricting them from participating in other programmes or media that appeals strongly to under-18s before or during the period that an advertisement is broadcast.

Review commercial scripts to ensure advertisements do not feature characters that appear or behave in a way that is likely to strongly appeal to under-18s. Avoid behaviour, speech / language and humour that is associated with youth culture. Ensure the individuals are dressed in an adult manner and do not feature other characters (e.g. cartoons or licensed characters) in the advertisement that may strongly appeal to under-18s.

If you are not satisfied that you can demonstrate that the advertisement is unlikely to appeal strongly to under-18s, exclude under-18s from the audience. It is imperative that reliable age-gating mechanisms are utilised. These may include validation by payment data and credit checking, but do not extend to self-verification or the use of data inferred by user behaviour.

Summary

This article has explained the strong appeal test, considered the impact of recent rulings by the ASA concerning its implementation and outlined key takeaways for gambling operators, marketing agencies and affiliates that want to ensure they comply with the strong appeal test when advertising sports betting to UK customers.

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

19Jan

The time for reflection?

19th January 2023 David Whyte 233

Harris Hagan and Regulus Partners have set out over the course of four articles our concerns about the Gambling Commission’s (the “Commission”) consultation (the “Consultation”) on the proposed Customer Interaction – Guidance for remote operators (the “Guidance”). Of these many concerns, the principal one is that the Guidance is so obviously bad regulation. It may have been inspired by noble intentions, but a combination of loose drafting, weak evidence, legislative incompatibility and a failure to fully and adequately consider the consequences threatens to result in a costly, ineffective and incoherent regime. All of these issues can relatively easily be avoided if the Commission revisits the Guidance in the light of responses to the Consultation.

Drafting

Putting aside the fact that it is inappropriate, and arguably ultra vires, for the Commission to introduce formal requirements through guidance, the drafting of the Guidance is hopelessly ambiguous; key terms are either undefined or so highly generalised as to be meaningless. This creates scope for subjectivity, wildly divergent interpretation, market distortion and confusion about what constitutes compliance. Licensees are required, for example, to consider both “young adults” and “older adults” as vulnerable, but without any explanation as to when one stops being ‘young’, or starts being ‘older’. A customer using “multiple products” is said to be displaying an “indicator of harm or potential harm”, but the Guidance is silent on what a ‘product’ is, or what timeframe should be considered; is someone whose only gambling consists of annual punts on the Grand National and the FA Cup Final really exhibiting potentially harmful behaviour?

There is a lack of clarity as to what the Commission considers to be a “strong indicator of harm” in the Guidance. In the Consultation the Commission acknowledges previous concerns raised about this, and states that it “does not consider it appropriate at this time to set requirements which would remove the discretion or ability on the part of operators to tailor processes to their businesses and customers”. There is no easy way of prescribing precisely what may be a “strong indicator of harm”, however, if the Commission wishes to permit discretion, it could assist licensees by explaining to them how it will determine, during compliance assessments or enforcement action, what amounts to a “strong indicator of harm” so that they are appropriately informed when applying that discretion.

The Guidance appears to conflate “indicators of harm” with actual harm – requiring licensees to take action to correct customer behaviours regardless of whether they are in fact harmful. There is a clear distinction between “identifying harm or potential harm” and identifying customers “that may be at risk of harm”. In consequence, licensees are required to demonstrate impacts on behaviour, even where the customer is gambling without issues. This risks unjustifiably trampling on consumer autonomy, a dangerous precedent in regulation. It also makes it almost impossible for licensees to justify not conducting a safer gambling interaction based on either “indicators of harm”, “vulnerability” or both: a combination of the “indicators” applying to anyone who gambles.

Process

The second big problem is one of process. Whereas the Gambling Act 2005 recognises vulnerability as an exceptional state applicable to people unable to make properly informed or adult decisions, the Guidance conceives vulnerability to harm as being universal, with consumers divided between the victims and the vulnerable. The Commission’s revisionism has enormous implications for the functioning of the market and the interests of consumers as well as parliamentary sovereignty. It is not the Commission’s role to twist the law in order to accommodate moral inclination and the Consultation itself raises questions of process with certain aspects of the Guidance seemingly inviolate.

Neither the Consultation, nor the Guidance takes account of the practicability of the measures required, the cost implications, or the potential for negative unintended consequences.

The Guidance offers few clues as to what specific actions licensees should take in response to “indicators” and proposes a distinction between what operators ‘should’ do and what they ‘must’ do: a distinction that is likely to elude most compliance officers, as well as the Commission’s own enforcement officials.

Evidence

Very little evidence is presented by the Commission to explain the basis for selection of the “indicators”, and much of what is provided is highly selective and in some cases misleading: the classification of in-play betting as an “indicator” is an obvious example of this. The effect is that the regime appears arbitrary and deprives licensees who attempt to understand it of important context: understanding the specific basis for classifying something as an “indicator” would mean licensees are better placed to respond appropriately and to the benefit of consumers.

The Commission appears to have undertaken no research into consumer support for the measures that are being mandated or how they might react to them. One of the more alarming aspects is the characterisation of vulnerability in the Guidance based on broad generalisations about age (‘young’ as well as ‘older’ adults), disability (‘poor physical or mental health’) or educational attainment (‘poor literacy or numeracy skills’ and ‘knowledge’). This, along with the suggestion in the Guidance that licensees should harvest medical information about their customers, could be interpreted as unfairly discriminatory and introduces issues of privacy and data protection, with licensees encouraged to harvest and store highly sensitive information about a customer’s health or personal life. There is no demonstration within the Consultation that the Commission has considered the ethical or legal dimensions of this requirement, the extent to which licensees possess the requisite expertise to interpret such information, or whether this is even possible.

Timing

The Social Responsibility Code (which obliges licensees to take into account the Guidance) will be implemented in full from 12 February 2023, less than three weeks after the Consultation closes. This is an indecently short period for the Commission to weigh opinion and evidence and leaves licensees with little time to align safer gambling systems to the new rules. To date, it appears that very little, if any, effort has been made to understand the views of gambling consumers, or to consider the negative unintended consequences that seem almost certain to arise for them.

As the Commission has itself recently noted, many operators are “moving in the right direction and are looking to move their customers away from behaviours that present a higher risk to licensing objectives.” Whilst the Commission is admirably seeking to ensure that customers are not harmed from gambling, it is vitally important that its expectations are clear and evidence based if that positive progress is to continue. In its current form, the Guidance does not deliver in those areas: this is not only unfair on licensees, it is dangerous from a consumer protection perspective. In recent times the Commission’s actions have indicated a willingness to improve its engagement with licensees. This is a very positive change. Rather than rush to implement the Guidance, the Commission would be best served to consider all consultation responses, and revisit the Guidance, even if this means a delay.

Conclusion

There is common sense at the heart of the Guidance; but common sense tends to be context dependent and often resists codification. The Commission’s approach reflects a philosophy of market regulation by rules alone; something that is guaranteed to result in bad regulation and negative outcomes for consumers. Now is the time for reflection.

With thanks to Dan Waugh from Regulus Partners for his invaluable co-authorship.

17Jan

Is in-play betting really an ‘indicator of harm’?

17th January 2023 David Whyte 235

The Gambling Commission (the “Commission”) is currently consulting (the “Consultation”) on the proposed Customer Interaction – Guidance for remote operators (the “Guidance”). While this exercise has not yet attracted the same attention as its 2020 predecessor consultation and call for evidence on remote customer interaction requirements and affordability checks (on remote customer interaction and affordability checks) it is potentially every bit as significant for licensees and consumers. In this, the fourth in a series of articles, Regulus Partners and Harris Hagan examine one specific detail of the Guidance – its classification of in-play betting as an “indicator of harm” – and consider what insights it holds for the Commission’s approach to evidence-based policy-making.

The decision to single out in-play betting participation, from all the other forms of online gambling, as a behaviour that might be an “indicator of harm” should strike even the most casual reader of the Guidance as odd. The seemingly arbitrary nature of the classification is reinforced by an absence of supporting evidence. Instead, we are offered a rather banal explanation that: “people who bet in-play may place a higher number of bets in a shorter time period than people who bet in other ways, as in-play betting offers more opportunities to bet”. It adds that: “some studies have shown that placing a high number of in-play bets can be an indication that a customer is at an increased risk of harm from gambling”; but the studies themselves are not cited.

In search of enlightenment, Regulus Partners submitted a request under the Freedom of Information Act in order to obtain the missing evidence. This turned out to constitute one blog article, one journal paper and a selection of results from the Commission’s 2016 Telephone Survey. An examination of these sources raises various questions about the Commission’s capacity for critical analysis. Most importantly, however, the evidence cited does not support the classification of in-play betting as an “indicator of harm”.

In-play betting

Before we delve into the detail, it is worth explaining what an in-play bet is, because the image of turning sports into a slot machine is somewhat misleading. To bet in-play is to place a wager on an event which has already started, but before the result is known; that sounds simple but here are some practical examples. Placing a bet on the final score of a football match during half-time counts as in-play, but during the 100 minutes or so that a typical football match lasts, there are typically ten domestic horse races, even more international and dogs races, and as many virtual betting opportunities that a customer can hope to find. Equally, a tennis match typically lasts 90 minutes and can go on for hours; in Australia in-play betting is not permitted on the internet, so in tennis it is the game rather than the match which is considered to be the unit of play; therefore most ‘in play’ bets on a standard definition become ‘pre-match’ in Australia by applying a common sense workaround. Basketball can be similarly divided up: a two and a half hour match comprises four twelve-minute periods and a lot of stoppage time. Perhaps the most obvious ‘in play’ definition trap is a three-day test match in cricket, substantially all of the betting is necessarily ’in play’ but hardly ever fast-paced. The frequency at which a gambler bets is clearly an important potential marker for harm, but whether or not a bet is in-play is typically a definitional red-herring based upon the length and game-structure of the sport rather than the customers’ betting frequency on a given sport.

The blog

In April 2013, Professor Mark Griffiths of Nottingham Trent University published a blog The ‘In’ Crowd: Is there a relationship between ‘in-play’ betting and problem gambling?’. The article contained no analysis of betting data or harm. It was instead a conjectural piece that considered whether an ability to place football bets more frequently (through in-play) heightened risk of disordered gambling. It argued that the ability to place successive wagers on successive matches, combined with an expansion in television coverage of live football, might increase risk of harm for some people compared with the days when most games kicked off at 3pm on a Saturday afternoon and were not televised live. If anything, the blog appears to suggest that the dispersal of matches across the week (and at different times of the day), which reduced the intervals between football betting days, was the bigger issue.

The blog concluded that: “in-play betting is something that many of us in the problem gambling field are keeping an eye on because it’s taken something that has traditionally been a non-problem form of gambling to something that is more akin to betting on horse racing.” This is significant for two reasons. First, the speculative nature of the commentary is emphasised by Professor Griffiths’ intention to “keep an eye on” in-play betting. His concerns stemmed not from any actual data or observations of in-play betting, but from what some people might theoretically do given the chance to place bets throughout the duration of a football match. Moreover, Professor Griffiths noted the relationship between bet frequency and event frequency needs further empirical investigation and conceded that “ntil more research is forthcoming a definitive answer is currently not available.” Second, he compared in-play betting on football with horserace betting – an activity with consistently low rates of “problem gambling” reported via official prevalence surveys. In short, Professor Griffiths did not suggest that in-play betting was especially risky.

The journal

The second piece of Commission evidence is a study published in the Journal of Gambling Studies in 2015, Demographic, Behavioural and Normative Risk Factors for Gambling Problems Amongst Sports Bettors (Hing et al.). The study features results from an online survey of sports bettors in Australia in 2012. It concluded that: “risk of problem gambling was also found to increase with greater frequency and expenditure on sports betting, greater diversity of gambling involvement, and with more impulsive responses to betting opportunities, including in-play live action betting.”

It would be wrong, however, to read this conclusion as vindication of the Commission’s targeting of in-play betting. First, the study was based on data from Australia, where in-play betting is only permitted by telephone or in person and where on-line in-play bets may therefore only be placed with unlicensed operators. Second, it is based on a relatively small sample of sports bettors (n=639) and the use of an online survey vehicle that “deliberately oversampled to optimise recruitment of adequate numbers of problem and at-risk gamblers”. Third, the data was gathered via a self-report survey rather than actual observation of betting behaviour. It relied on respondent recollections, from the previous 12 months, of the proportion of bets that they placed by different channels, at different times (i.e. the day before the event, the day of the event, during the event) and on different outcome classifications (i.e. final outcome of event, key events such as ‘first goal’ and micro-bets such as ‘next point’ in tennis). The classification by respondents of betting activity in this way for an entire 12-month period would have involved fairly heroic feats of recall.

Most importantly however, the journal paper’s findings do not support the Commission’s categorisation of in-play betting as an “indicator of harm“. The researchers did find an association between the percentage of an individual’s bets placed “during the match” and their Problem Gambling Severity Index (“PGSI”) score – but they also identified a similar association for traditional bets placed within the hour prior to kick-off. Perhaps more significantly, they found that betting in-play on the final outcome of the match was associated with lower PGSI scores than final outcome bets placed before kick-off. Associations between the percentage of bets on “key events” and PGSI score was similar whether the bets were placed before or during the match. It did indicate that regular betting on “micro events” (which can only be made in-play) are associated with higher PGSI scores: but to suggest that this proves the inherent riskiness (or harmfulness) of all forms of in-play betting is at best a profound misreading of the research.

The survey

The final item of evidence is a set of results from the Commission’s Quarterly Telephone Survey in 2016 (the “2016 Survey”). The Commission reported that “27.4% of online gamblers who bet in-play were classified as problem gamblers, compared to 10.9% of all online gamblers and 5.4% of online gamblers who do not bet in-play. 44.1% of online gamblers who bet in-play were classified as at risk of problem gambling compared to 40.4% of all online gamblers and 26.4% of online gamblers who do not bet in-play.”

On the face of it, these findings appear to support the classification of in-play betting as an “indicator of harm”. This however overlooks important considerations of survey methodology and interpretation.

The 2016 Survey typically samples around 4,000 people a year. While this is a reasonable sample size for estimating overall participation in gambling, findings are likely to be less robust when considering specific activities. For example, we calculate that the number of online football bettors in the sample in 2016 was around 160; the number of tennis bettors just 14. The ‘problem gambling’ rates for online gambling cited by the Commission (using the short-form PGSI rather than the full nine-item instrument) were three times higher than those found in the ‘gold-standard’ NHS Health Survey for the same year, something that raises obvious questions about sample bias. Upon original publication of the results in 2016, the Commission noted with suitable circumspection that “due to small base sizes the data presented here should be considered as indicative, and be treated with caution.“

Issues of survey reliability aside, there are a number of issues of interpretation. The Commission appears not to have considered that people who typically bet in-play may, for other reasons, be considered higher risk. For example, young men (a higher risk demographic group) are likely to be over-represented amongst in-play bettors. It seems plausible that a majority of in-play bettors will also bet traditionally; in which case they may be assumed to have broader wagering repertoires than people who only place bets before the start of the event (because they do both). Finally, the analysis is limited to a comparison of “problem gambling” rates between two different types of online sports betting. It provides no comparison between in-play betting and other forms of gambling, which would be necessary to classify it as a uniquely risky product.

Conclusion

The Commission’s decision to classify in-play betting as an “indicator of harm” is, according to its Freedom of Information Act disclosure, based entirely on an assessment carried out in 2016, which stated: “on the balance of the evidence we have reviewed and considered, we have concluded that the current regulatory regime in place for in-play betting is sufficient and further controls are not needed at this time.” It is unclear therefore why a review of precisely the same evidence base in 2022 should arrive at such a different view.

The Commission is correct to point out that short gaps between bets or high-staking after a big win may be risk indicators for some people, but if so, this is true of many other activities and not just in-play betting. Indeed, in-play betting does not appear to be particularly high-risk viewed solely through a lens of bet frequency or rapidity.

Official prevalence surveys have consistently shown that participation in online sports betting is associated with low rates of PGSI and DSM-IV “problem gambling”. As we pointed out in our third article, this is particularly the case where bettors have not participated in other forms of online gambling. We know from Commission data that around one-quarter of online gamblers, and therefore a much higher proportion of online sports bettors, participate in in-play betting. It is not a difficult jump to realise that it is implausible that problem gambling rates could be so low for remote sports betting in total if in-play betting on its own was a significant “indicator of harm”.

There is no inherent logic to consider in-play betting as especially risky. After all, ‘in-play’ simply denotes the fact that the wager is placed after the event has commenced. A final outcome result bet placed five minutes into a match is really no different to the same bet placed five minutes before kick-off. If anything, the bettor has more information on which to make his or her decision. Some bet types, in particular ‘micro-bets’, may indicate elevated risk; but specific bet-choices may be indicative of risk in all forms of gambling: this is not unique to in-play.

Our analysis indicates that the Gambling Commission’s decision to categorise in-play betting as an “indicator of harm” is based on a mis-reading of a very thin and selectively assessed evidence base. Indeed, we would go further, the Commission’s claims are in fact contradicted by the only peer-reviewed study presented as evidence. The Griffiths blog is a cogent article, however it proves nothing and in any case does not support the Commission’s classification, whilst results from the 2016 Survey appear to be at odds with the ‘gold-standard’ Health Survey for that year (and all other years) and are presented without context and in a way that does not allow further checking or analysis. In this article, we have examined, and found wanting, the evidence presented by the Commission in support of just one of the vast number of “indicators of harm” or “vulnerability” that feature in the Guidance. This may in itself be an indicator of a particular vulnerability within the Commission: a susceptibility to believe the worst about the market it is required by law to oversee. It is certainly an indicator that evaluation is difficult and may be subjective, something that would benefit from introspection in any final version of the Guidance.

With thanks to Dan Waugh from Regulus Partners for his invaluable co-authorship.

09Jan

Proposed Customer Interaction Guidance: The problems with common sense by decree

9th January 2023 David Whyte 227

The Gambling Commission (the “Commission”) is currently consulting (the “Consultation”) on the proposed Customer Interaction – Guidance for remote operators (the “Guidance”). While this exercise has not yet attracted the same attention as its 2020 predecessor (on remote customer interaction and affordability checks) it is potentially every bit as significant for licensees and consumers. Once implemented, it is likely that its strictures will in time bind non-remote gambling licensees and consumers too. Regulus Partners and Harris Hagan have written a series of co-authored articles to assist stakeholders responding to the Consultation. In the second of these articles, we described how the Guidance threatens to alter the meaning in law of “vulnerability” through its definition of “vulnerable persons”, by rendering universal what had formerly been considered exceptional. In this, our third article, we examine why this matters, in terms of both near-term regulatory compliance and longer term attempts to stigmatise participation in gambling.

The most striking feature of the Guidance is the extent to which it attempts to mandate common sense through a series of ill-defined rules – proposing a vast bureaucracy to facilitate and evaluate customer interactions. Having established a wide range of criteria for classifying customers as either “vulnerable” to, or “at risk” of, gambling harm; two concepts that appear to be definitionally similar but which the Commission, at different times, treats as both distinct and the same, the Guidance then requires licensees to configure a range of actions in response. The Guidance is, however, silent on what specific actions should be aligned to particular criteria (or clusters of criteria).

A little less conversation, a lot more interaction

Such is the breadth of the Commission’s conceptualisation of “vulnerability to harm” (there are literally millions of possible combinations of the “factors of vulnerability” and “indicators of harm” contained within the Guidance), it is inevitable that different licensees will take different actions in response to the same risk factors. More significantly and putting aside the inconsistent use of the differing terms “may be experiencing harm” and “may be at risk of harm” in the Guidance, licensees’ interpretation of what actions should be applied to any particular constellation of “indicators” is likely to differ from the Commission’s (and indeed, within the Commission, between one official and another).

In the absence of clearer direction, licensees will be left to learn from painful experience what “vulnerability” looks like through the eyes of Commission officials as well as what action or response should be considered appropriate (knowing that the Commission’s view on any given day is no guide to future interpretation). More cautious licensees may find themselves conducting customer interactions as a response to the vaguest suggestions of vulnerability; for example, being above or below certain, as yet unspecified, age thresholds. In this way, a degree of standardisation may eventually be achieved; albeit with thresholds set at successively lower levels.

Licensees who adhere to the Guidance, are exposed through a requirement that their staff “need to be trained on the skills and techniques they need to help them carry out customer interactions, including what to do if a customer becomes distressed or there is a risk of suicide.” There is no question of anyone in the gambling industry not wishing to prevent suicide. However, this wording implies that it is the responsibility of licensees or their employees to identify risk of suicide, and act upon it. Suicide risk is always the result of a complex array of factors, that may or may not, include an individual’s gambling. It is the responsibility of qualified professionals to identify that risk, not licensees, and it is dangerous on multiple levels, including in relation to the wellbeing of licensees’ employees, to suggest otherwise in formal Guidance.

The consequences of all this may be guessed at: enforcement action ramped up as the Commission weaves an ever more intricate web of compliance tripwires; licensees absorbing (or passing onto customers) substantial increases in the cost of doing business; and customers facing greater levels of intrusion and inconvenience based upon lifestyle preferences but also a range of factors beyond their control, such as age or disability.

Under the Guidance, licensees will be expected to conduct customer interactions according to a quota system based on DSM-IV and PGSI “problem gambling” prevalence rates from the Health Survey for England 2018 (the “Health Survey”). Online sportsbooks must therefore interact with at least 3.7% of their customers each year; while the minimum quota for online slots, casino and bingo operators is set at 8.5%. Licensees will be required to carry out monthly checks to ensure that they are on course to hit these targets.

The use of quotas raises a number of questions not addressed within the Consultation, which does not even canvass views on the wisdom of such a scheme. First, it reveals a discontinuity in the Commission’s logic – with “problem gambling” belatedly introduced as a proxy for “vulnerability to harm”. It should not, however, be assumed that someone with a DSM-IV or PGSI classification of “problem gambling” will meet the definitional criteria set out by the Commission for “vulnerability” or “harm”. This invites the question of just what problem is to be addressed and who, in particular, licensees are expected to protect: those whose gambling might be considered problematic according to recognised psychiatric criteria, or those who may meet the regulator’s often more nebulous definition of “harm”. The requirement that licensees use “specifically the problem gambling rates for the individual activities” exposes a basic misunderstanding of prevalence surveys. The Health Survey does not in fact provide “problem gambling” rates by discrete activity. Instead, it shows prevalence rates for people who participate in certain activities in combination with others, which is a rather different thing.

The Guidance becomes even more muddled in proposing interaction quotas for licensees with online sportsbooks and casinos – suggesting the use of a combination of problem gambling rates weighted for the percentage of revenue derived from each activity. It overlooks a simpler, more targeted and more logical method – using ‘problem gambling’ prevalence rates for customers who only use sportsbooks when gambling online, those who only play online slots, casino or bingo and those who do both. We have provided the figures below from the Combined Health Surveys for 2016: it would be a relatively straight-forward matter for the Commission to update these for 2018.

Activity	DSM-IV/PGSI ‘problem gambling’ rate (% of customers participating)
Online betting	0.4%
Online slots, casino & bingo	7.3%
Online betting and online slots, casino & bingo	8.7%

The Guidance states that these quotas may be recalibrated in the future – with particular reference to how “problem gambling” or “gambling-related harm” are measured. Here it should be recalled that the Commission is part-way through a process to wrest control of the measurement of gambling and “problem gambling” prevalence from the NHS – through the replacement of the Health Surveys with its own vehicle. The Commission’s Update: Pilot of survey questions to understand gambling-related harm published in May 2022 (the “Pilot Survey”) produced a combined PGSI problem gambling’ rate of 1.3% – more than three times higher than the result from the Health Survey. Analysis by Regulus Partners has highlighted previously a number of serious errors with the Pilot Survey (including a failure to carry out cross-checks with regulatory returns data; and overlooking the impact of Covid-19). The Commission has neglected to address these flaws and states, as an article of faith and without supporting evidence, that Health Surveys under-report “problem gambling”.

The Pilot Survey also contained questions about gambling-related harms, although the Commission has been rather selective in releasing these results. Some of these “harms”, as we explained in our previous article, include reduced attendance at the cinema, spending less time with loved ones or “feeling like a failure”. Rather unsurprisingly, they are experienced by a much larger group of gambling consumers than those likely to be classified as “problem gamblers”. Licensees may find therefore that interaction quotas are ramped up significantly in the future as a consequence of surveys controlled entirely by a regulator apparently intent on demonstrating that “problem gambling” or “gambling harms” are widespread in the population.

One obvious difficulty with issuing quota requirements is that they lead inevitably to a tick-box approach to compliance based on quota fulfilment. The Guidance sets out a very catholic definition of what might be considered an “interaction” – from generic safer gambling messages or pop-ups right through to treatment referrals and exclusion. Thus, in order to satisfy the quota, licensees may simply have to make sure that around one-in-five or one-in-ten customers receive a generic safer gambling message at least once a year – a figure that is likely to be well below current levels where responsible operators are concerned. In time therefore, the Commission may either drop the quota system or increase its complexity, with quotas for specific types of interaction (e.g. quotas for self-exclusion).

When combined, all of the above issues will make it incredibly difficult for licensees to act where there are “strong indicators of harm” as there is a lack of clarity in the Guidance as to what the Commission considers to be a “strong indicator of harm”. In the Consultation the Commission acknowledges previous concerns raised about this, and states that it “does not consider it appropriate at this time to set requirements which would remove the discretion or ability on the part of operators to tailor processes to their businesses and customers”. One might take the view that this is precisely what the Guidance does, particularly when it contains formal requirements.

Evaluation and Impact

The greatest area of complexity is likely to reside within the requirement that licensees conduct assessments in order to “understand the impact of individual interactions and actions on a customer’s behaviour”. The Commission is correct to highlight the importance of evaluation, even if it might strike some as hypocritical, given its own aversion to scrutiny, as safer gambling initiatives are often implemented or mandated on the basis of face validity rather than scientific observation. Evaluation is critical therefore if we are to improve and move beyond what should work in theory and understand what works in practice.

However, the implication here is that if the customer’s gambling activity does not change for the better (i.e. stop or reduce), they are suffering, or continue to be at risk of suffering harm. This cannot be correct: a customer may continue to gamble at previous levels or even increase their spend following an interaction for various reasons. There are several problems with the demand that licensees demonstrate the effect of changes to customer behaviour of every single customer interaction. First, it will be vastly bureaucratic and costly to implement, given the number of interactions that licensees will be encouraged to undertake. This might be acceptable if the benefits of such a system outweighed the costs, but this is unlikely to be the case. Gambling behaviour, and particularly disordered behaviour, is complex. To suggest that each individual licensee’s action might be separately assessed for discrete impact goes against the balance of research opinion as well as the Public Health whole systems approach. Neither the Guidance nor the Consultation give any consideration to proportionality, in direct contravention of the Responsible Gambling Strategy Board’s evaluation protocol.

This section of the Guidance gives rise to possible negative (and so presumably unintended) consequences. It fails to consider the substantial costs that such a system would impose on licensees or what this might mean in terms of customer experience where such costs are passed on through pricing. Most importantly, however is that it may impede efforts to protect consumers. Licensees swamped by assessing the impact of potentially millions of individual interactions may suffer a loss of perspective, impairing their ability to identify and understand what is happening to those at genuine risk of harm. People who fall under the Guidance’s discriminatory gaze (by virtue of being too old, too young, not physically fit enough or too trusting) may find themselves subject to repeated harassment by multiple licensees. Finally, there is the risk that a requirement to carry out evaluation on such a microscopic basis will in fact deter licensees from undertaking interactions over and above the level demanded by the quota system.

The Guidance of course, is not satisfied by requiring evaluations of every single customer interaction: licensees must also demonstrate impact. This stipulation reveals a fundamental flaw in the Commission’s thinking. As we explored in our second article, the basis for interaction in the Guidance is a range of “indicators” denoting “vulnerability” or “harm”; but indicators are not the same as actual vulnerability or harm. In demanding that all interactions must demonstrate impact, the Commission appears to conflate probability with certainty; and in doing so ignores the presence of false positives that are a feature of any diagnostic system. Under the Guidance, licensees will be required to demonstrate that interactions alter customer behaviour, regardless of whether reform is necessary, or to document, frequently, their decisions as to why such alteration was considered unnecessary despite the indicators identified. Worse, licensees will feel obliged to take progressively more heavy-handed approaches with such customers until a change is observed, the regulatory equivalent of factitious disorder imposed on another.

This impact becomes even more absurd when one considers the nature of some of the indicators in the Guidance that may trigger an interaction. To illustrate, we use the same hypothetical customer from our second article – a 24-year-old with dyslexia who bets in-play on football and cricket and typically spends slightly above the average for his age group. Now imagine this benighted individual suffers a bereavement. Displaying seven indicators of vulnerability or harm, some licensees may consider him an appropriate target for interaction – but what precisely should be the outcome? The licensee cannot alter his age, address his dyslexia or alleviate the distress of personal loss; and so must presumably either deter him from betting in-play (an activity branded an “indicator of harm” on the most spurious grounds, as we show in our next article) or encourage him to spend less. Even if a reduction in spending is achieved (via coercion of an individual displaying no actual symptoms of harm) the customer will still be considered vulnerable on four counts and at risk of harm on two – and therefore subject to further interactions in the future (until he ceases to be ‘younger’ or ‘bereaved’ perhaps). The consequences of such a regime are unlikely to be in the best interests of that customer; and while ‘black market’ risk can be overplayed, it seems legitimate to cite it where such blatantly anti-consumer logic is concerned.

These are the near-term implications of what the Commission proposes in its Guidance. It is possible too that the Guidance hints at longer term aims or outcomes: the addition of further regulatory restrictions which stigmatise betting and gaming as pastimes. The codification in the Guidance (which introduces “formal” requirements) of “younger adults” as intrinsically vulnerable, may in time be used to lobby for the legal age for gambling to be raised (with perhaps a new maximum age being introduced to address risk among “older adults”); while certain modes of gambling (most obviously in-play betting) may be curtailed or banned on the same basis.

The Guidance contains some useful insights but ultimately falls down in its attempt to inculcate common sense by diktat. In doing so, it fails to recognise the essence of common sense as something that cannot be circumscribed by rules. Whilst some of the factors set out in the Guidance are sensible and may have an effect on a customer’s powers of self-regulation, it is impractical to seek to enforce this in “formal” Guidance, particularly when that guidance is unclear. Further, there is no suggestion anywhere in either the Guidance or the Consultation that the Commission has taken the time to understand the basis of current licensee practices (a review of enforcement cases is, by definition, no way to assess the market as a whole); or to consider how desired behaviours might be encouraged rather than coerced. In our last two articles in this series, we will examine the evidence presented by the Commission for classifying in-play betting as an ‘indicator of harm’ in its own right; before closing with a summation of the reasons why all gambling licensees and consumers, alongside those concerned about personal freedom in other domains, should take the time to respond to this most worrying of consultations.

With thanks to Dan Waugh from Regulus Partners for his invaluable co-authorship.

22Dec

Putting the Customer First: Why all licensees should the take the Consultation on Customer Interaction Guidance seriously

22nd December 2022 David Whyte 238

A little over two years on from the launch of its consultation and call for evidence on remote customer interaction requirements and affordability checks, the Gambling Commission (the “Commission”) has initiated a new public consultation (the “Consultation”) – this time on the proposed Customer Interaction – Guidance for remote operators (the “Guidance”). While the Consultation has so far not attracted the same attention as the 2020 exercise, the implications are potentially just as profound. In a series of co-authored articles, Harris Hagan and Regulus Partners will explore the key proposals in the Guidance, examining the evidence that underpins them and asking whether they are in fact proportionate, legal and in the best interests of consumers.

We appreciate that some of the more cynical readers of this article may think there is little point in responding to the Consultation as the Commission will take little or no notice of any feedback it receives from licensees. However, we consider it critically important that all licensees, including non-remote licensees, do respond to the Consultation. It is more difficult for the Commission to ignore numerous representations on common concerns, and experience suggests that similar guidance may be produced for non-remote licensees in the future. Recognising that the timeframe for the Consultation will include the holiday period, the Commission has extended the originally proposed six weeks to approximately nine weeks, and it will now close on Monday 23 January 2023.

There are a number of areas of the Guidance which licensees should be concerned about – Harris Hagan included some of these in previous articles in July and September 2022. In this article, the first of the series, we set out a summary of those issues, and analyse the “Introduction” and “General requirements” sections of the Guidance. In subsequent articles we will also consider the central theme of assessing ‘vulnerability to harm’; and how licensees will be expected to take action to address it.

Key areas of concern

Our key areas of concern about the Guidance, many of which we will explore in more detail in this series of articles, are:

It has been poorly drafted. Many key terms are either undefined or defined in a fashion so highly generalised as to be almost meaningless. An absence of precision in the way that regulatory requirements are described inevitably invites a high level of subjectivity in terms of how they will be interpreted by both licensees and the Commission.
The evidence that underpins key measures contained in the Guidance is either absent or highly selective – and, in some cases, it is misleading.
It appears to conflate “indicators of harm” with actual harm – requiring licensees to take action to correct customer behaviours regardless of whether they are in fact harmful.
The definition of key terms is so broad as to make it almost impossible for licensees to justify not conducting a safer gambling interaction based on either “indicators of harm”, “vulnerability” or both.
It takes no account of the practicability of the measures required, the cost implications, or the potential for negative unintended consequences.
The Commission appears to have undertaken no research into consumer support for the measures that are being mandated or how they might react to them.
One of its more alarming aspects is the suggestion that licensees should harvest medical information about their customers. There is no demonstration within the Consultation that the Commission has considered the ethical or legal dimensions of this requirement, the extent to which licensees possess the requisite expertise to interpret such information, or whether this is even possible.

Issues not addressed in the Consultation

The Commission makes it clear that the Consultation relates solely to the Guidance which is issued on Social Responsibility Code Provision (“SRCP”) 3.4.3. The requirements of SRCP 3.4.3 itself are not within scope, nor are “matters associated with unaffordable gambling and specific thresholds which should apply”, the “separate consultation on the three key financial risks” the Commission committed to in May 2021 (yet to materialise), or matters associated with “single customer view”.

General requirements

“How to use this guidance”

There are inconsistencies in the Guidance between “aims” and “formal guidance”, and it is difficult to ascertain whether the Commission expects licensees to “take into account” or “address” its aim in setting each requirement.

The impact of this inconsistency can be seen throughout the Guidance. For example, requirement 1 states that “icensees must implement effective customer interaction systems and processes in a way which minimises the risk of customers experiencing harms associated with gambling.” However, aim 1 states that “Licensees must have effective controls to minimise the risk of customers experiencing harms associated with gambling”. There is a clear difference between implementing effective systems and having effective controls, the latter being more easily determined subjectively by the Commission and with hindsight: the assumption likely being that if any customer has suffered or experienced harm (a highly malleable term as we will explain further in our next article), the controls were ineffective.

It is critically important that the Commission ensures uniformity in the Guidance. If ‘aims’ are within scope, then the language used for requirements and aims should be consistent: if ‘aim’ is not within scope, then the “How to use this guidance” section of the Guidance should be amended and reference to licensees being obliged to “address that aim” removed, to ensure that this is abundantly clear.

Formal requirements as guidance?

Harris Hagan has previously set out its view that it is inappropriate, and arguably ultra vires, for the Commission to introduce formal requirements through guidance. The Commission seeks to address such concerns in the Consultation where it states:

“On occasion, the proposed guidance document uses the language of ‘must’ or ‘the Commission expects’. This language is used in contexts where the guidance is intended to reflect the requirements or SR Code Provision 3.4.3. The proposed guidance document also uses the word ‘should’, which denotes an approach or action that is not required by SR Code Provision 3.4.3, but which operators are required to consider. We are interested in stakeholders’ views on the language used in the proposed guidance document in this respect.”

Despite this statement, there are several areas of the Guidance where the language used does not reflect the requirements set out in SRCP 3.4.3, goes beyond those requirements, or is inconsistent with those requirements. This is inappropriate, will cause confusion, and exposes licensees to the risk of broad or inconsistent interpretation by Commission officials during compliance or enforcement action.

By means of an example:

Requirement 4 states: “Licensees must have in place effective systems and processes to monitor customer activity to identify harm or potential harm associated with gambling…”;
Aim 4 is stated as being to ensure “that customers who may be at risk of harm are identified”; and
Formal Guidance 4 states that “icensees must identify customers that may be at risk of harm.”

There is a clear distinction between “identifying harm or potential harm” and identifying customers “that may be at risk of harm”: the latter arguably being impossible as it applies to anyone who gambles. We will discuss this in more detail in a subsequent article. The importance of the Guidance being easily distinguished from the prescriptive requirements set out in SRCP 3.4.3, and of ensuring consistency between requirements and aims and formal guidance, must not be overlooked.

“How the Commission will use this guidance”

The Commission refers under this section of the Guidance to its expectation that “licensees demonstrate how their policies, procedures and practices meet the required outcomes”. However, at no point has the Commission set out what those required outcomes are. SRCP 3.4.3 is not outcome-led; it is, at least in part, prescriptive – as is the Guidance. We would therefore suggest that “requirements” rather than “required outcomes” is the more accurate language to be used here.

“Amending this guidance over time”

Under this heading, the Commission sets out that “for the purposes of raising standards, protecting customer interests, and preventing harm to customers, will update and re-issue guidance”. Harris Hagan has previously raised concerns about this approach. We remain of the view that the Commission should consult on any changes to the Guidance, particularly if those changes introduce formal requirements, or if they explain how the Commission may interpret those formal requirements. The Commission is comfortable with short consultation periods; it originally proposed that the Consultation be open for six weeks. To conduct further short consultations before amending the Guidance is hardly an arduous task, particularly given the benefit of doing so, not only to licensees and stakeholders, but to the Commission itself.

In our second article, we will discuss the concepts of “harm” and “vulnerability” that underpin the Guidance.

With thanks to Dan Waugh from Regulus Partners for his invaluable co-authorship.

Uncategorised