Gambling Commission Compliance and Enforcement Report 2020-2021
The Gambling Commission’s latest Raising Standards for consumers – Compliance and Enforcement report 2020 to 2021 (the “Report”) was published on 9 December 2021, the first since Neil McArthur’s departure, and details “one of the busiest [years] for [its] Enforcement and Compliance teams…”. Unsurprisingly, the focus of the Report remains on social responsibility and anti-money laundering failings. It also includes designated sections on licensed operators and financial stability, special measures and licence suspensions, personal management licence (“PML”) reviews and illegal gambling. However, surprisingly, and unlike the Raising Standards for consumers – Compliance and Enforcement report 2019 to 2020, affordability is not featured as a key theme despite the continuing and increasing focus by the Gambling Commission across its compliance enforcement work.
Certainly, this is reflected in the Gambling Commission’s summary of its compliance and enforcement work:
- 15 financial penalty packages or regulatory settlements totalling £32.1 million;
- 262 security audits;
- 57 personal licence reviews were finalised; and
- 82 website reviews conducted; and
- 30 full assessments of online and non-remote operators.
Alongside an acknowledgment of the challenges of the pandemic upon consumers and businesses, the foreword concludes that:
“Looking back at enforcement in 2020 to 2021 we see the same two weaknesses in almost every case – operators failing to adhere to social responsibility and anti-money laundering rules…The reasons for these failings are almost as concerning as the failings themselves. Our casework reveals that operators are either not making suitable resources available or are simply putting commercial objectives ahead of regulatory ones…As the Great Britain’s regulator for the gambling industry, we still see far too many breaches of regulations where everyone in the industry agrees we should not see them. The industry has the resources, skills and knowledge to change this.”
We strongly encourage applicants and licensees to review, carefully, the Gambling Commission’s identified common poor practices, case studies, notable enforcement cases, guidance and lessons learned and health-check good practices.
Summary of other key areas from the Report:
Anti-money laundering and counter terrorist financing
“The Commission is finding increasing instances of gambling operators failing to consider how problem gambling can be linked to ML and TF despite both the Commission’s Guidance for remote and non-remote casinos: The prevention of money laundering and combating the financing of terrorism and Duties and responsibilities under the Proceeds of Crime Act 2002: Advice to operators (excluding casino operators) stating:
a pattern of increasing spend or spend inconsistent with apparent source of income could be indicative of money laundering, but also equally of problem gambling, or both.”
The common poor practices which led to “avoidable failings” were cited as:
- inadequate due diligence measures;
- failure to account for the Gambling Commission’s various guidance documents;
- failure to consider the full range of circumstances in which enhanced due diligence (“EDD”) is to be applied;
- over reliance on third party providers to conduct due diligence (“CDD”) checks;
- delayed customer identification checks;
- commercial considerations overriding the need to comply with anti-money laundering (“AML”) and counter-terrorist financing (“CTF”) provisions;
- operators having no clear methodology in place in their money laundering (“ML”) and terrorist financing (“TF”) risk assessments;
- vague references made in ML and TF assessments;
- not considering how problem gambling can be linked to ML and TF;
- high financial thresholds in place before CDD or EDD measures take place;
- high financial thresholds based on losses, deposits, or winnings only; and
- the ML/TF risk assessment not being fully used to inform policies, procedures and controls.
The Gambling Commission highlighted the need for licensees to:
- apply a risk-based approach;
- conduct robust CDD and EDD checks;
- ensure that their ML/TF risk assessment along with their policies, procedures and controls sufficiently mitigate the risk of ML and TF;
- ensure that they are compliant with and stay up to date on customer interaction requirements, and that they take account of the current formal guidance for their sector; and
- deliver robust and up to date employee training.
Licensed operators and financial stability
“It is not surprising given the significant challenges the pandemic has posed globally, that we have observed a significant increase in gambling operators, particularly land-based operators, experiencing extreme financial difficulty. In such situations it is imperative that operators, and their representatives are mindful of what is required of them in relation to the Licensing Objectives and customer protections. We urge licensees who are encountering financial stability issues to engage with the Commission at an early stage.”
Key takeaways from this section are:
- responsibility for regulatory compliance remains – at all times – on the licensee, whether this is the gambling business or an appointed administrator;
- in the case of administration, all regulatory responsibilities continue and vest in the administrator; and
- operating licensees and PMLs were reminded the Gambling Commission will remain focused on ensuring licensees are treating consumers fairly. Fair treatment includes but is not limited to ensuring that segregated funds with medium and/or high-risk customer protection measures are ring fenced and not used to pay business expenditure.
The unsurprising consequence of either improper closedown or not adhering to continuing regulatory responsibilities are risks to any continuing operating licences PMLs. The Gambling Commission further emphasised that any adverse outcomes “may” affect future applications both in Great Britain and with other regulators abroad.
As part of its regulatory toolkit, the Gambling Commission has been piloting the use of special measures, since September 2020, “to bring operators to compliance at pace” following the identification of failings during a compliance assessment.
During the special measures process a licensee makes various commitments to, and is supervised by, the Gambling Commission in “a closely managed and monitored timetable to achieve compliance over a relatively short period of time.” Wide-ranging, significant and immediate improvements are required to the licensee’s policies, procedures and controls, generally, within a challenging timeframe. Once the Gambling Commission is satisfied improvements have been made and there is no risk to the licensing objectives, particularly consumers, the special measures will be lifted.
The Report highlights that the pilot scheme has used in relation to eight licensees. The Gambling Commission has found special measures highly effective in incentivising licensees to make quick and substantial improvements (and divestments!) to avoid a licence review, and that it why they are being formalised (as noted below). The shared objective of the dangled carrot is to avoid a section 116 licence review, and in the case of the licensee, the uncertainty, huge stress and cost that they bring!
The Gambling Commission is currently consulting on special measures, to make them a permanent feature of their regulatory toolkit, as part of its consultation on the Licensing, compliance and enforcement under the Gambling Act 2005: policy statement. Read more about the consultation and special measures process in our blog on 13 December 2021.
“Businesses do not make decisions – people do. This is why the Commission continues to ensure that personal licence holders are held accountable, where appropriate, for the regulatory failings within the operators they manage.”
Key failings identified through casework included:
- inadequate source of funding or source of wealth checks;
- record keeping – lack of adequate documentation and audit trails to demonstrate properly informed decision making;
- reporting criminal offences – delays or failures to report Schedule 7 offences as a key event;
- nominated officer/ MLRO poor practice; and
- senior management lacking oversight.
The associated casework has resulted in the following outcomes:
- 10 licence revocations – eight Personal Functional Licenses (“PFL”) and two PMLs;
- 11 PML warnings issued;
- One PML warning with conditions;
- 21 PML advice as to conducts; and
- 10 PMLs surrendered.
“We are particularly focused on identifying and disrupting websites which are targeted at young or vulnerable people, those who experience significant harms from their gambling and self-excluded gamblers. The most widely reported complaints from members of the public related to the allowance of gambling. This accounted for 62% of all unlicensed remote reporting for the financial year 2020 to 2021 representing a 17% increase compared to the financial year 2019 to 2020.”
There were 99 reports of unlicensed remote operators in the financial year 2020 to 2021, some of which accounted for the same illegal website. In addition:
- consumers’ inability to withdraw funds remained a prevalent issue;
- there was a rise of illegal lotteries on social media;
- the Gambling Commission continues to work with social media outlets and other regulators internationally to counteract the risks posed by illegal lotteries;
- the Gambling Commission is also assessing its need for further legislative powers to counteract illegal gambling and will report any conclusions to the Department of Culture, Media and Sport as part of the Gambling Review.
The Gambling Commission’s foreword concludes that:
“The reasons for [licensees’] failings are almost as concerning as the failings themselves. Our casework reveals that operators are either not making suitable resources available or are simply putting commercial objectives ahead of regulatory ones.
This is simply unacceptable and will be seen as such by others in the industry who work hard to achieve compliance.
Our Enforcement and Compliance work will continue to focus on customer protection, as consumers have every reason to expect. This will vary from paying very close attention to novel products to checking that operators are looking after their customers by meeting the LCCP requirement and taking into account the current Commission guidance on anti-money laundering and customer interaction”.
Compliance and enforcement action will continue unabated.
Updated and consolidated guidance on AML and customer interaction is due to be issued “shortly” following the Gambling Commission’s consultation that ended nearly a year ago on 9 February 2021.
We strongly encourage applicants and licensees to review, carefully, the Report and the Gambling Commission’s identified common poor practices, case studies, notable enforcement cases, guidance and lessons learned and health-check good practices.