Gambling Commission sends a clear message to licensees: raise standards or face the consequences
It has been a tumultuous week for the gambling industry. The global news is of course that a casino operator has been elected President of the United States and we await the impact upon the US gambling market with interest, not least upon the slow gathering traction for the legalisation of online sports betting. This is of course long overdue, not least for the protection of consumers, a theme to which we return below. Of more immediate and local interest was the speech by Gambling Commission CEO, Sarah Harrison, in Birmingham to an impressive gathering of those responsible for regulatory compliance across the entire UK gambling industry, including the National Lottery.
The language of the speech was strong and unambiguous. Whilst there was recognition that some operators are moving in the right direction and that there has been good work by individual operators and implementation of industry wide initiatives, the clear message was that operators need to do more to raise their standards and put consumers at the heart of their businesses. They were also implored to quicken their pace. “Don’t wait for a crisis to happen that shakes the very foundation of customers’ trust in your industry”. “Act now and demonstrate to customers that your interest in their needs is genuine”. Ask yourself “What does the consumer need?” rather than “What does the Gambling Commission expect?”. The specific areas of focus were not new and have been well rehearsed in Commission speeches, new licence conditions and enforcement action in recent years – (1) social responsibility and the prevention of harm, (2) treating customers fairly with a particular emphasis on advertising and marketing, terms and conditions, self-exclusion and protection and withdrawal of customer funds and (3) anti-money laundering measures which prioritise compliance over commercial gain, not the other way around.
We at Harris Hagan are acutely aware that the industry is already weary of criticism and under considerable strain from the new LCCP requirements, increased scrutiny of marketing and advertising and everything that goes with the triennial review, not to mention planning for the implications of Brexit and a Trump Presidency and the sheer complexity of operating in a global market with wildly varying technical and regulatory requirements. Further, it is a certainty that realising the Commission’s vision for raising standards will be hugely challenging and expensive. There will be those who consider that the industry can never do enough in the Government’s or the Commission’s eyes, that the Commission is being unreasonable, that recent initiatives in relation to, for example, reality checks and self exclusion need time to bed down and that the Commission’s concerns are not sufficiently grounded in evidence. These arguments are not without some substance but, on the other side of the scales, can there really be any doubt about the high level of political and public concern relating particularly to machines and advertising but also gambling more generally, about the failure by even major operators to learn lessons from public statements and about the good sense of a cautionary approach to the prevention of gambling harm?
The harsh reality is that this is a powerful statement from the Commission, which sits comfortably with the wider political and public debate on gambling and, wider still, the heightened consumer focus in all industries. It must not be confused by operators as mere restatement of the Commission’s longstanding “raising standards” message. The industry has no alternative but to raise its game. We share the industry’s concern that it can never win the argument, that enough will never be enough when it comes to gambling, but we would urge the industry to postpone that argument until the industry itself truly believes it is already doing enough. We would encourage the industry to view the Commission’s message in as positive a light as possible, as an opportunity to take the initiative and improve its business and reputation. The Commission will no doubt expect the larger, high impact operators to take the lead. Strong and brave leadership will be required both within sectors and individual organisations and we believe the industry can emerge stronger with a healthy, sustainable business in the longer term.
We turn now to consider some of the direct legal implications of the Commission’s escalation of enforcement policy underlying their drive to accelerate the pace of industry change.
Removal of bias towards voluntary settlement
Critically, Sarah Harrison stated that the Commission would no longer have a bias towards voluntary settlements in dealing with regulatory compliance issues.
The current “bias” is established in the Commission’s Licensing, Compliance and Enforcement policy statement which states that:
“As licence reviews can be time consuming and expensive for both the Commission and licensees, the Commission will seek, where appropriate, to fulfil its statutory obligations and pursue the licensing objectives through means that stop short of formal licence reviews”
In accordance with this statement, only “where a licensee is unable or unwilling to meet the requirements” for a voluntary settlement (which include being open and transparent, demonstrating insight into failings and suggesting changes, publishing a public statement and divesting itself of winnings) would the Commission currently seek to commence a licence review.
Under proposed amendments to the Commission’s policy (which will be subject to consultation) all regulatory sanctions, including licence review, would be put on an equal footing. We interpret this to mean that the Commission will no longer begin case work with an assumption that there will be a voluntary settlement whenever the requirements are met, but rather make an objective assessment each time as to which form regulatory action should take, taking all the options into account.
The impetus for this change appears to be the fact that voluntary settlements have not, in fact, proven to be less time consuming and expensive for the Commission or for licensees than licence reviews. Instead, voluntary settlements have often become a long and drawn out process of negotiating the terms of the public statement and amount of the divestment of winnings.
Operators must be proactive
Sarah Harrison indicated that where operators come forward of their own volition to report issues to the Commission, with sensible proposals as to how they will improve their practices to prevent further issues, voluntary settlement will still be an option. This is a clear message to operators that they must be proactive in coming forward when faced with an issue which has implications for customers.
It is, in any event, a requirement of ordinary code provision 8.1.1 of the LCCP to inform the Commission of any matters that the Commission would reasonably need to be aware of in exercising its regulatory functions, including any matters which could have a material impact on the business or affect compliance. Whilst not explicitly stated, in our view it is clear that the Commission expects any breaches of the LCCP or technical standards to be reported under this requirement. Failure to report will heighten significantly the risk of a licence review if the matter comes to the attention of the Commission by other means.
Higher penalties – but early agreement discounts
The Commission sent a warning to operators that compliance breaches would, in future, lead to higher financial penalties. This applies to both operating licences and personal licences. There was at least a small comfort that discounts on penalties will be available for those reaching an early agreement with the Commission as to the level and nature of penalties to be applied.
Raising standards must be made a priority
It seems certain that, notwithstanding the best efforts of operators, the elimination of the existing regulatory preference for settlement will almost inevitability lead to more frequent and serious regulatory action. We therefore urge operators to give serious and urgent consideration to any areas where their policies and procedures fall short, and to whether the policies and procedures that are in place are being appropriately followed by all levels of the business. We will continue to advise our clients as to what the Commission may be expecting in practical terms and the higher risk areas.
The Commission wishes to see UK operators as the most trusted operators in the world. We happen to believe that UK operators are already the most trusted gambling operators in the world. That is not to say that they cannot “raise their sights and ambitions higher” and lead the way globally in these important areas of social responsibility, fairness to consumers and anti-money laundering and well within the four year term of the new President!