10Nov

Recap on the Fourth National Lottery Licence Competition

10th November 2022 Jessica Wilson 270

On 20 September 2022, the Gambling Commission formally awarded the Fourth National Lottery Licence (“Licence”) to Allwyn Entertainment UK (“Allwyn”), which will be the second National Lottery Licence holder since its launch in 1994.

As explained in our previous blog, the Fourth National Lottery Licence Competition (“4NLC”) process got off to a bumpy start when delays were announced as a result of the Covid-19 pandemic. In fact, the whole 4NLC process was not as smooth sailing as perhaps expected, with legal appeals being brought against the Gambling Commission criticising how it ran the 4NLC.

Now that Allwyn has been awarded the Licence formally, due to commence in February 2024, we take a look back on the ups and downs of 4NLC process.

4NLC is launched…finally

The 4NLC was announced in November 2018 and, after a three-month delay, was formally launched on 28 August 2020. In the interim period, the Gambling Commission set up an Expert Advisory Group to help inform and design the 4NLC and carried out global market engagement with all interested parties.

The 4NLC was divided into multiple stages:

Selection questionnaire
Invitation to apply
Announcement of preferred applicant
Transition period
Expiry of third National Lottery licence and commencement of the fourth National Lottery licence

Delays to stages 1 to 3 were incurred for several reasons; to “provide additional time for applicants to complete the applications and for the Gambling Commission to feedback”, to “contribute to a fair, open and robust competition by providing applicants with sufficient time”, “to provide opportunity for applicants to further refine their proposals”, and due to the impact of Covid-19 restrictions on the preparation of applications.

Such delays resulted in the third National Lottery Licence (held by Camelot UK Lotteries Ltd (“Camelot”)) to be extended by six months to February 2024.

Allwyn takes the Crown

The Gambling Commission received four final applications: Allwyn, Camelot, Sisal SpA, and The New Lottery Company Ltd.

After rumours of Camelot being the Preferred Applicant again, the Gambling Commission announced Allwyn (a Czech group previously known as Sazka Entertainment) as its preferred applicant on 15 March 2022, almost seven months after the intended announcement date of August 2021. Camelot was named as the Reserve Applicant.

The Gambling Commission stated that “the selection of Allwyn as the Preferred Applicant follows a fair, open and robust competition which received four applications at the final stage. This is the highest number of applications since the first National Lottery licence was awarded in 1994”.

A busy Summer for the Courts

Despite the Gambling Commission’s adamance that the 4NLC was fair, open and robust, in April 2022 the Gambling Commission received legal proceedings from Camelot and its technology provider, International Games Technology PLC (“IGT”), challenging the 4NLC process and appealing the Gambling Commission’s decision of appointing Allwyn as the new licensee.

Proceedings were issued in the High Court, with Camelot claiming that the Gambling Commission got the decision “badly wrong” and demanding a “proper explanation” as to why it was not chosen as the Preferred Applicant. Camelot stated that the Gambling Commission “failed to provide a satisfactory response” leaving Camelot “with no choice but to ask the court to establish what happened”.

The proceedings placed an automatic suspension on the Gambling Commission’s ability to formally aware the Licence to Allwyn. The Gambling Commission appealed the suspension on the basis that it would “present potentially severe consequences for the National Lottery and good causes”. Ruling in favour of the Commission, on 29 June 2022, the High Court lifted the automatic suspension, citing public interest as a strong factor in the Court’s decision:

“…maintaining the suspension until resolution of the dispute will cause delay to the Fourth Licence. In turn, this will cause delay to the benefits of the Fourth Licence, giving rise to reduced contributions to the good causes and delayed introduction of the enhanced game portfolio and new technologies. Balanced against the commercial losses that might be suffered by Camelot and IGT, for which damages would be an adequate remedy, in this case, allowing the Commission and Allwyn to proceed with the Fourth Licence is the course that will produce the least risk of injustice if ultimately it proves to be wrong”.

However, the Gambling Commission’s win was short-lived. On 14 July 2022, the Court of Appeal granted permission for Camelot and IGT to appeal the High Court’s decision, putting the automatic suspension on the Licence back in place…but only until September when both Camelot and IGT withdrew their appeals, deciding instead to pursue damages only.

Allwyn officially takes the crown

On 20 September 2022, the Gambling Commission, no longer bound by the suspension, formally awarded the Licence to Allwyn. The parties have now entered into an Enabling Agreement, confirming the official granting of the Licence to Allwyn, and are in a transitional period with Camelot until the Licence takes effect in February 2024.

What key changes can we expect with the fourth licence?

A fixed 10-year licence.
Incentive mechanism to ensure Allwyn’s incentives and delivery are better aligned with contributions to good causes.
Move to an outcomes-based approach, giving Allwyn greater responsibility to fulfil its obligations while retaining the Gambling Commission’s power to intervene if they do not.
Flexibility for Allwyn to adapt their offerings to reflect changing technology, consumer safety, regulation and consumer preferences.
A retail charter to ensure Allwyn engages proactively with retailers.

There is no doubt that the 4NLC process was a rollercoaster for all involved. The Gambling Commission may have learned some lessons along the way, and we hope that the next National Lottery Competition will be a more straightforward and less contentious process.

11Oct

Gambling Commission Special Measures: Trick? or Treat?

11th October 2022 Julian Harris 311

For better or worse, a number of licensees have now experienced the Gambling Commission’s special measures process. Although we remain of the view that much greater informal engagement by the Gambling Commission with individual licensees would be preferable and appropriate when compliance issues are identified, it was encouraging to note the Gambling Commission introducing a less draconian form of engagement than commencing a licence review under section 116 of the Gambling Act 2005 (“the Act”). We now examine those measures, the implications for licensees and whether a cautious welcome for the new process is justified.

The background

Following the completion of an operating licence review under the Act, the Gambling Commission have specifically granted powers to:

suspend or revoke an operating licence
attach an additional condition to an operating licence
give the holder of an operating licence a warning
require the holder of an operating licence to pay a financial penalty.

To that armoury the Gambling Commission have added certain lesser measures over the years since the Act came into force, including issuing advice as to conduct to licensees.

Whilst the Gambling Commission say in their Enforcement Report for 2020 to 2021 (the 2021 Report”) that these measures served a useful purpose, they did not always result in swift intervention and remediation.

To counter this, as part of its regulatory toolkit, from September 2020, the Gambling Commission piloted the use of special measures, “to bring operators to compliance at pace” following the identification of failings during a compliance assessment. The 2021 Report stated that the pilot scheme was used in relation to eight licensees.

In the 2021 Report, the Gambling Commission explain that the special measures process was introduced for “isolated situations” where the Gambling Commission had a high level of confidence that, for example the licensee had accepted its failings, as identified by the Gambling Commission and is committed to raising standards.

Of late, those situations have become less isolated and have become more common in their application to licensees where, whilst there have been infractions or failings, there has been no criminal spend, serious consumer harm, or systematic failure to comply.

The current position

The new special measures process formed part of the consultation for the revised Licensing, Compliance and Enforcement Policy Statement published on 23 June, 2022. The process is now embodied in and included as part of that revised official Gambling Commission policy without any changes from the pilot scheme previously being trialled.

The requirements

If considered appropriate by the Gambling Commission, the process of special measures is commenced following a compliance assessment in which serious failings are identified. The Gambling Commission explains in the 2021 Report that “special measures are appropriate where the licensee has reached the threshold for a section 116 review but determines a very high level of confidence that there is no, or limited, ongoing risk of consumer harm, with demonstration of early acceptance of failings and a clear, proactive commitment to swiftly remediating the failings.” In order to qualify for the special measures process, the licensee must meet the following requirements:

the licensee must acknowledge and accept the failings;
a formal action plan detailing improvements to be made must be submitted within five days; this plan should implement controls that immediately mitigate the risk of consumer harm; and
key persons must attend a formal meeting and explain why there are failings and what will be done immediately to mitigate the risk of consumer harm.

The process

The Gambling Commission will consider the submitted action plan and decide whether it appears acceptable. A further short extension may be given if some alterations are required (not more than two days) to enable agreement on the suggested revision. Thereafter, the licensee is required to adhere to the following requirements and timetable:

report weekly on the progress against the action plan and meet the deadlines proposed
complete the action plan within three months
pass a further compliance assessment after three months
calculate how much they have financially benefited from non-compliance and propose how they will divest themselves of this amount.

Cases which the Gambling Commission do not consider suitable for special measures will not enter this process and will be subject to the usual suite of regulatory action. Where there is evidence that consumers may be at significant risk of harm, the Gambling Commission will consider suspending licensable activity immediately and special measures will be deemed inappropriate.

If the licensee fails to agree an action plan, or fails to implement the agreed action plan, the Gambling Commission is likely to proceed to review the licence. Importantly, the Commission specifically state that “compliance with the action plan does not prevent the Commission from reviewing the licence in any event, but that such compliance will be treated as a mitigating factor”: this point is dealt with further below. Where the licensee has fully complied with the action plan, it may request release from Special Measures. The Gambling Commission will consider such a request following a further compliance assessment.

Treat?

The process of special measures deserves a cautious welcome, especially if the alternative is a full licence review, with all that entails for licensees: the cost, the length of the review, the management time involved, the potential for substantial financial penalties, warnings, public statements, as well as the ever-present threat of suspension or even loss of licence. Against that background, the alternative of special measures is an attractive one.

For licensees, a further advantage of the process is that the Gambling Commission cannot impose either a financial penalty or warning. However, they will usually expect a divestment proposal, which we address below.

From the Gambling Commission’s perspective, the process produces quick results in relation to perceived failures in compliance, particularly in relation to anti money laundering and safer gambling issues, specifically in securing the lowering of thresholds. The nature of the process means considerably less work for the Gambling Commission, but this applies also to licensees, many of whom have now been through the process.

It is well known that the Gambling Commission has concerns throughout the industry with the level of customer losses before customer interactions, affordability (often linked to AML) or EDD enquiries are undertaken. The special measures process is a much less formal one than a licence review and can be less antagonistic. It goes some way to answer the call from many independent advisers to the industry, including Harris Hagan, for greater opportunity for discussion between regulator and licensee to resolve issues, though, as we have said, there is more to be done in this regard.

In our experience, the meetings are relatively good spirited, with the Gambling Commission sticking mainly to the points raised in the findings letter following the compliance assessment, looking for broad insight into the failings identified, and seeking to understand what actions have been and or are being taken to address those concerns. Given that the licensee will have submitted an action plan by the time of the meeting, it can serve as a sensible agenda for discussion in the meeting.

Trick

Whilst special measures may not be a Trojan horse, neither are they a gift horse. Inevitably there are downsides and traps for the unwary. The special measures process is not in reality an attempt by the Gambling Commission to “trick” licensees. However, there are difficult decisions to be made during the process, for which careful judgement is required.

A licensee may refuse Special Measures; however, this would probably mean that the licensee, based on the identified failings, would be subjected to a review of its licence. As part of that review process, the Gambling Commission would want to understand why the licensee was unwilling to work to achieve compliance quickly. Such a refusal could be prejudicial to the outcome of the review, so a compelling explanation would need to be offered.

There is also potential risk associated with the necessary acceptance of alleged failings, as well as in the preparation of an action with remedial measures. Both may result in the licensee admitting more and promising more than it necessarily agrees with. There is no option to challenge alleged failings without the attendant risk of a licence review, where the Gambling Commission’s findings can be challenged in the licensee’s representations. Therefore, there is potential prejudice for the licensee’s position should a licence review follow.

As mentioned above, there is no power for the Gambling Commission to impose a financial penalty or warning as part of the process, but only where a licence review has been commenced; however, there is an expectation for divestment where there is a finding of potential harm to customers. Any proposal for divestment is therefore voluntary, but that proposal must be balanced against the risk of the Gambling Commission deciding to commence a review.

The Gambling Commission will not only expect a quantum assessment, but also a report setting out how that quantum has been reached. It is important that this report is carefully considered as (1) it needs to be realistic and justifiable (2) it needs to meet the Gambling Commission’s expectations, (3) with an eye on the risk of regulatory action, licensees will not want to acknowledge and divest for failings beyond those with which they agree, and (4) it is important that any divestment is no more than strictly necessary. This is because, in the event of a future licence review, this could result in a financial penalty and an attendant risk of having to pay twice for the same failings.

There is no formal methodology for calculating any proposed divestment. Identifying an appropriate figure is best achieved through judgement and experience, combined with an analysis of the findings identified. Here lies the conundrum: start too low and the figure may be interpreted by the Gambling Commission as not demonstrating sufficient insight into alleged failings and/or that it may aggravate the Gambling Commission. Go too high and the point at (4) above may apply.

Formulating the correct approach therefore requires careful thought; it will vary according to the circumstances and to the nature and extent of the Gambling Commission’s findings: identifying an appropriate figure is best achieved through judgement and experience, combined with an analysis of the findings identified.

It should also be remembered that special measures can be an interim process: it is not a fixed alternative to a licence review, which remains an option available to the Gambling Commission. It may follow up both in relation to proposed actions and divestment. Most frequently, the greatest difficulty often is satisfying the Gambling Commission as to the level of thresholds in operation, or in relation to proposed divestment in relation to certain customers.

But the greatest risk is that a licensee fails to meet the Gambling Commission’s expectations at the three-month revisit and assessment. This inevitably risks the threat of suspension and/or the commencement of a licence review.

Licensees should be aware that in the event of an unsuccessful special measures process, with a subsequent licence review, the Gambling Commission may seek to introduce failings identified on the first assessment. It is therefore important that in carrying out this exercise, a licensee does not provide the Gambling Commission with the opportunity to point to comments or admissions made during the special measures process in any subsequent review process.

Final word

In conclusion, our view is that perhaps two cheers, rather than three, are raised for special measures; the new process is often effective both for the regulator and for the licensee. However, the licensee should always bear in mind that a licence review may follow, and act accordingly. Great care needs to be taken from the very beginning. Our advice to licensees is therefore to seek legal advice as soon as notification of special measures is received from the Gambling Commission.

26Sep

The Gambling Commission’s Checklist for Licensees on Good Practice Complaints Handling

26th September 2022 Adam Russell 329

Following a review of licensee complaints policies which contained “a number of areas for improvement”, the Gambling Commission published advice and good practice tips for operators on 21 July 2022. This blog serves to summarily remind licensees of existing rules and guidance enclosed in the Gambling Commission’s update.

Player complaints: relevant themes

Research from the Gambling Commission found that 8% of players have made a complaint in the past, with an additional 4% reporting their wish to complain but failure to do so. These statistics are supplemented by qualitative data which suggests that some players refrain from pursuing complaints procedures because it is often considered a “tedious process”, with some licensees appearing “purposefully difficult to reach”.

However, it is important that players can locate policies and “raise their complaints without any barriers” to “improve outcomes” for both them and operators.

Although mentioned in the detailed leaks in July 2022, it remains to be seen whether a gambling ombudsman scheme will be introduced, as part of the Gambling Act Review, to adjudicate gambling complaints.

Checklist for good practice complaints handling

In light of this, the Gambling Commission issued the following checklist for good practice complaints handling:

ensure your complaints process is clear and short;
include clickable and appropriately functioning links, including a link to the complaints procedure on your homepage;
avoid jargon/legalese and use plain English instead;
inform players what information is required to investigate their complaint;
include details of the 8-week time limit for either resolving the complaint or issuing a final response;
clearly indicate whether a final decision or ‘deadlock’ has been reached;
utilise technology (such as webforms and decision trees) to help guide consumers through the complaints process, but always provide alternative contact methods;
ensure that your complaints procedure is accessible for all, including vulnerable people, with adjustments readily made where required;
maintain a virtual paper trail;
utilise consumer support tools, such as Resolver; and
provide clear signposting to ADR providers.

The overarching theme is that licensees should design their complaints procedures in a transparent, clear and accessible manner.

Next steps

We strongly encourage licensees to review their complaints procedures against the Gambling Commission’s checklist on good practice for complaints handling, making them as simple as possible, and ensuring policies are implemented.

Please get in touch with us if you require assistance in developing appropriate internal policies and/or updating your complaints procedure in line with the Gambling Commission’s checklist.

28Jan

Chambers Gaming Law 2021 Global Practice Guide now available for download

28th January 2022 Ting Fung 281

In our last blog about Chambers Gaming Law 2021 Global Practice Guide, edited by Julian Harris and Bahar Alaeddini, we set out the various features of the latest edition. These include key trends covered by jurisdiction under the Trends and Developments section and the opportunity to perform jurisdiction comparisons using the Compare locations tool.

In addition to the above features, we are pleased to add that the Gaming Law 2021 eGuide may also be downloaded at your convenience via the homepage. Users have the option to download the eGuide in full or select the relevant chapters required.

We are also able to provide upon request, offline copies of the Introduction, authored by Julian Harris, the Alderney chapter authored by Bahar Alaeddini, and of course, the UK chapter which is co-authored by both Partners. Please contact us if you wish to be emailed a copy of the respective chapters.

22Jun

Consultation response: Gambling Commission fees to increase from 1 October 2021

22nd June 2021 Jemma Newton 363

On 14 June 2021 the UK Government issued its response to a consultation by the Department for Digital, Culture, Media and Sport (“DCMS”) in relation to proposals to increase the fees which are payable by gambling operators in Great Britain to the Gambling Commission (the “Commission”).

The Government’s response set out that the consultation had proposed an increase in fees in order to enable the Commission to continue to “recover its costs and address regulatory challenges”.

The Government confirmed it intends to proceed with implementing the proposals outlined in the consultation, which were to:

increase annual fees for remote operating licences by 55% from 1 October 2021;
increase all application fees by 60% from 1 October 2021;
make other changes to simplify the fees system, including removing annual fee discounts for combined and multiple licences, from 1 October 2021; and
increase annual fees for non-remote operating licences by 15%, with implementation of these increases delayed until 1 April 2022.

The Government also confirmed that two minor amendments will be made to fees regulations:

to “ensure fees regulations are consistent with the provisions of UK GDPR and the Information Commissioner’s Office’s guidance”, no variation fee will be charged where individuals exercise their right to have inaccurate personal data rectified; and
the fee for an application for a Single Machine Permit will be increased, from £25 to £40, “to ensure that the Commission recovers its costs in processing these applications”.

The Government’s full response can be viewed here.

The Commission released a response to the Government’s confirmation of an increase in fees, stating that it “welcomes publication of consultation response on the funding of gambling regulation”, and clarifying that the much needed changes to its fees income “will enable to continue to regulate effectively”. The Commission’s response can be viewed here.

What does this mean for licensees?

As set out above, in addition to a significant increase to licence application fees, remote licensees will be required to pay considerably higher annual fees to the Commission from 1 October 2021. Notably, the increase in annual fees for non-remote licensees will be delayed until 1 April 2022, to account for the Government’s recognition of the impact COVID-19 restrictions have had on the non-remote sector. The Government’s response sets out that:

The majority of non-remote operators are required to pay their annual fees in August or September each year, meaning that the new annual fee levels for much of the non-remote industry will not be due until August 2022.

Uncategorised

Recap on the Fourth National Lottery Licence Competition

Gambling Commission Special Measures: Trick? or Treat?

The Gambling Commission’s Checklist for Licensees on Good Practice Complaints Handling

Chambers Gaming Law 2021 Global Practice Guide now available for download

Consultation response: Gambling Commission fees to increase from 1 October 2021