Judgement by the company you keep: Licensees’ responsibilities for third parties
On 19 June 2023, the Gambling Commission released its new hub addressing licensees’ responsibilities for third parties (the “Hub”). In its announcement, the Gambling Commission explained that the Hub sets out its expectations and requirements for licensees which enter into business relationships with third parties. This includes white label and other unlicensed partners.
The announcement comes as a warning to licensees who contract with third parties. There is a strong undertone of compliance in the announcement, reminding the industry that the Gambling Commission’s release of the Hub follows its recent “enforcement action against operators [which should be read as B2C and B2Bs] for failures related to due diligence checks on third parties.”
What is included in the Hub?
Primarily, the Hub sets out the Licence Conditions and Codes of Practice (“LCCP”) including social responsibility code provisions (“SRCP”) that impose obligations on licensees relating to their business with third parties.
The Hub sets out the following relevant SRCPs:
This SRCP applies to all licensees who contract with third parties for the provision of any aspect of their business related to their licensed activities, and makes clear that they are responsible for third parties. It also requires licensees to ensure any contracted third parties conduct themselves, in so far as they carry out activities on behalf of the licensees, as if they were bound by the same licence conditions and subject to the same codes of practice.
This SRCP applies to all remote licensees.
The Gambling Commission further explains the requirements imposed on licensees by SRCP 1.1.2. It reiterates that it expects licensees will: (1) conduct adequate due diligence on third parties to “ensure (amongst other things) that they are competent and reliable”; and (2) have sufficient oversight and controls in place to ensure all activities are carried out in accordance with the LCCP.
The Gambling Commission warns that a failure to maintain adequate control of third parties can result in regulatory action against licensees, including suspension or revocation of an operating licence.
White label partnerships
There is limited detail included within the Hub specific to white label partnerships. However, the Gambling Commission importantly reminds licensees that the responsibility for compliance of all B2C gambling websites, including white labels, sits with the licensee and cannot be transferred to any other party. Licensees must know their customers and implement their controls to minimise any risk to the licensing objectives. A failure to do so may bring into question the licensee’s suitability to hold a licence.
The Gambling Commission directs licensees to section 7 of its Compliance and Enforcement report 2019 to 2020 for guidance on how it expects licensees to conduct their white label partnerships.
Early action after the White Paper
“To ensure all licensees fully understand their responsibilities when entering into such arrangement, the Gambling Commission will consolidate existing information and good practice for operators on contracting with third parties, including white labels.”
Given the Hub was released less than two months after the White Paper, the Gambling Commission will consider this announcement as a box ticked, despite the relatively basic information provided.
Additional requirements or new guidance has not been published. This is, as expected, following the Gambling Commission’s view (as stated in its Advice to Government) that it considers the existing legislative and regulatory framework provides sufficient controls to address the current risks.
The release of the Hub is a timely reminder to all licensees contracting with white labels or other unlicensed third parties for any aspect of their business in Great Britain, that they, as the licensees, are ultimately responsible for the third parties with whom they contract.
We recommend that all licensees review their policies, procedures and controls relating to third parties, including due diligence processes and contractual agreements to ensure they are fit for purpose and mitigate the risk of regulatory enforcement action, as the Gambling Commission will judge licensees based on the company they keep.
Please get in touch with us if you would like assistance with any due diligence, compliance or enforcement matters, or any aspect of your business and its arrangements with third parties.