29Nov

White Paper Series: Initial Consultation Response on Statutory Levy and Update on Online Slot Stake Limits

29th November 2024 John Hagan 200

The Department for Digital, Culture, Media and Sport (“DCMS”) announced on 27 November 2024 that the Government will bring forward the statutory levy on gambling operators to generate £100 million for the research, prevention and treatment of gambling harms. The Government has also confirmed online slot stake limits of £5 for adults aged 25 and over and £2 for young adults aged 18 to 24.

Statutory Levy

Gambling Minister Baroness Twycross indicated in her Ministerial Statement that the update is only an initial response to the consultation on the structure, distribution and governance of the statutory levy on gambling operators launched on 17 October 2023 (see our previous blog on the consultation), and that its aim is to publish a further response document in the coming months. The Government maintains its commitment to having the levy in place by the summer of 2025.

The Government has confirmed that the mandated levy will be charged to all licensed operators at varying levels depending on the sector, at a set rate for all holders of a given Gambling Commission licence, with rates accounting for the difference in operating costs and the levels of harmful gambling associated with different gambling activities. “In recognition of the higher rates of problem gambling associated with products online compared to most land-based products, as well as the higher operating costs in the land-based sector, the levy will see online operators pay more towards research, prevention and treatment.”

The Government believes that a mandated levy “will guarantee increased, ringfenced and consistent funding to prevent and tackle gambling harm” and “ensure all operators contribute a fair share”, stating that “under the current voluntary system not all gambling companies contribute equally, with some operators paying as little as £1 a year towards research, prevention and treatment”.

The levy will be introduced via secondary legislation. It will be collected by the Gambling Commission and overseen by a Gambling Levy Programme Board that will have central oversight, and which will in turn be assisted by a Gambling Levy Advisory Group that will provide expert advice on funding priorities and other emerging issues.

Levy funding will be split as follows:

50% will be directed to NHS England and appropriate bodies in Scotland and Wales to develop a comprehensive support and treatment system. This will include referrals and triage, through to recovery and aftercare. So “half of funding to directly benefit NHS-led gambling treatment system”.
30% will go towards investment in gambling harm prevention, which could include measures such as national public health campaigns and training for frontline staff. A lead commissioning body in this crucial and novel area has not yet been appointed, with the Government taking the time to get the important decision on the future of prevention right.
20% will be directed to UK Research and Innovation (UKRI) and the Gambling Commission to develop bespoke Research Programmes on Gambling, undertaking vital research to inform future policy and regulation.

“The current funding system for research, prevention and treatment of gambling-related harms reliant on voluntary donations from industry is no longer fit for purpose. While the industry’s significant uplift in the level of donations in recent years is welcome, we recognise that the quantum of funding is not the only requirement for an effective and equitable system.”

Baroness Twycross, Gambling Minister

The Government emphasises in its initial response that with distribution of funding to the NHS, UKRI and the Gambling Commission, “the gambling industry will have no say over how money for research, prevention and treatment is spent”.

A formal review of the levy system will be conducted within five years, where the structure and health of the levy system will be assessed, and adjustments can be made to ensure that the Government is achieving its aims.

Online slot stake limits

As widely anticipated, stake limits will be set at £5 per spin for adults aged 25 and over and £2 per spin for young adults aged 18 to 24, “bringing online slot games in line with existing restrictions on slot machines in casinos”. DCMS’ press release cites Evidence from the Office for Health Improvement and Disparities and the Gambling Survey for Great Britain which shows that young adults can be particularly vulnerable to gambling related harm with under 25s having one of the highest proportion of respondents scoring eight or more on the Problem Gambling Severity Index of any age group. It also reiterates that online slots are “a higher-risk gambling product associated with large losses, long sessions, and binge play”.

Next steps

Operators are required to maintain voluntary financial contributions to research, prevention and treatment until the levy comes into force, with Baroness Twycross adding that its initial response “should provide sufficient notice to licensees of our approach”.

As stated above, the Government aims to publish its full response to the statutory levy consultation in the coming months, which will also include further detail on the 30% investment of levy funds in gambling harm prevention. The Government notes that the statutory instrument is silent on the distribution of levy funding, including in relation to prevention, and it is pressing on with its initial response and progressing the legislative process to meet its commitment to have the levy in place by the summer of 2025.

In respect of online slot stake limits, these will be subject to an implementation period. This means that, following debates in Parliament, operators will have six weeks from the day the statutory instrument is made to implement the £5 limit and a further six weeks thereafter to implement the £2 limit.

We will provide you with updates in due course but please do not hesitate to get in touch if you have any questions.

Our preliminary thoughts on the initial response

At the heart of the White Paper is a balance between consumer freedoms and choice on one hand, and protection from harm on the other. The White Paper was broadly well received when it was delivered in Parliament, within all sectors of industry, by the NHS, in the third sector and at the Gambling Commission, because the (Conservative) Government had achieved a healthy balance in its reforms; crudely put, there was something in it for everyone. As we said in our inaugural blog on the White Paper in May 2023, however, “it is imperative that the process remains balanced and that all the key stakeholders see comparable progress in relation to their interests”.

The announcement of the bringing forward of the statutory levy by the Labour Government is undoubtedly a momentous day for certain stakeholders and a cause for their celebration, and perhaps unsurprisingly the language is emotive and provocative, with for example the NHS saying problem gambling has “skyrocketed” and resolving to do all it can “to protect gamblers from this billion-pound industry”, and the All Party Group for Gambling related Harm saying that “for the first time the gambling industry will be mandated to pay for the harm they cause”. Even the Government itself in its press release makes more of the £1 some operators have been paying than the £50 million in voluntary contributions by Betting and Gaming Council members this year alone.

That said, we believe that it was always inevitable that the Government (whether Labour or Conservative) would lead with the statutory levy before introducing any measures relating to consumer freedom or choice, such as the long overdue land-based casino modernisation. The new Labour Government had to establish its credentials as being tougher on the gambling industry than the previous government and deliver on its manifesto promise commitment to reduce gambling harm. And we would suggest it was also sadly inevitable that the rhetoric would be critical of industry, even unfair and misleading, particularly at a time when fundamental gambling statistics such as the percentage of problem gamblers in the population are so keenly contested.

But the statutory levy itself was a fundamental plank of the White Paper, so it does not come as a surprise, even if as rumoured the rates transpire to be slightly higher than proposed, again Labour being tougher than the Conservatives. Indeed, industry has been supportive of a statutory levy in principle for some years now. Nor are the online slot stake limits a surprise, with the previous government making a similar announcement before disastrously calling an early General Election. Further, the financial implications of both the statutory levy and online slots stake limits should already be baked into industry projections and should not have a punitive impact, at least in the near future, the risk of course being that the levy rates will again, inevitably, increase in the years ahead.

For all the above reasons, we are not for the moment overly concerned that the Government is heading in a new direction when it comes to gambling reform. This is not a policy area where the new Government might argue that it was left a “black hole”, quite the reverse, it was left a fully-fledged policy developed over many years and wrapped in White Paper, which it would be well advised to adopt and move on with other legislative priorities free from gambling distractions. Nothing has happened this week which was not expected and we remain optimistic that the delicate balance of the White Paper will be delivered by the Government and the Gambling Commission in the year ahead. We will of course continue to monitor for any departure from that course in future blogs.

With thanks to Ting Fung for her invaluable co-authorship.

31Oct

Gambling Commission Annual Report 2023-2024

31st October 2024 Ting Fung 204

The Gambling Commission’s latest Annual report and accounts (the “Annual Report”) for the reporting period 1 April 2023 to 31 March 2024 (the “Period”) was published on 17 October 2024. Key focuses during the Period include the implementation of the Gambling Act Review and the Gambling Commission’s award of the Fourth National Lottery Licence, which led to the first ever change of licensee in the history of the National Lottery.

Performance report

The Annual Report contains a performance report in which the Gambling Commission provides a detailed overview of its delivery during the Period against the five strategic objectives from its 2021-2024 Corporate Strategy. We have summarised some key information from this performance report below, along with other highlights from the Annual Report.

Protecting children and vulnerable people from being harmed or exploited by gambling

Following the publication of the Gambling Act Review White Paper, there were a number of consultations in the Period in relation to proposed changes to the Licence Conditions and Codes of Practice (“LCCP”) and the Remote gambling and software technical standards. Proposals included: (a) improving consumer choice on direct marketing; (b) strengthening age verification on premises; and (c) reviewing socially responsible incentives to ensure incentives such as free bets and bonuses do not encourage excessive or harmful gambling. The issue that proved most controversial related to financial risk checks, with the Gambling Commission reiterating in the Annual Report that this a complex area as it aims to “protect vulnerable people from harm whilst respecting the freedom of others to gamble freely”. Therefore “ committed to a step-by-step approach to implementation and a pilot on the enhanced financial risk assessments to test the process and impacts on consumers.”

The Gambling Commission sets out the several changes it made to the LCCP during the Period including by: (a) setting out its approach to ‘vulnerability’; (b) extending the requirement to participate in GAMSTOP to all gambling licensees that make or accept bets by telephone and email; and (c) adding an additional reportable event that requires all gambling licensees to inform it when they become aware that a person who has gambled with them has died by suicide.

Gambling Commission publications in the Period aimed at improving the breadth and quality of data included:

The Gambling Survey for Great Britain: Statistics on gambling participation – Annual report Year 1 (2023): Official statistics (See Other highlights below for further detail);
Evidence Gaps and Priorities 2023-2026 (July 2023); and
Young People and Gambling Report (November 2023).

2. A fairer market and more informed consumers

The Gambling Commission points out that it has reviewed its approach to tackling non–compliant terms and practices, including the processing of customer withdrawals. Delays to the withdrawal of funds from accounts, (more than 2,400 complaints during 2023) remained the primary consumer complaint during the Period. The Gambling Commission has previously worked with the Competition and Markets Authority and updated the LCCP to clarify licensees’ responsibilities, including the requirement that licensees do not seek to verify information at the point of withdrawal that they had the opportunity to do earlier in the process. In the Annual Report the Gambling Commission reiterates that “Where such practices are identified, we will continue to hold licensees to account.” Please see our blog Account withdrawals: The mask operators cannot hide behind for more information.

In addition to initial outputs from the Consumer Voice research programme, the Gambling Commission has completed 58 website reviews, with 51 websites found to be either complaint or to have minor issues relating to things such as promotional bonus offer terms. The remaining websites reviewed raised more significant issues requiring further investigation and/or escalation.

Keeping crime out of gambling

The Gambling Commission explains that it has continued to work with partners to undertake intelligence-led disruption and enforcement initiatives to contribute to a reduction in crime associated with gambling, stating that “our collection, analysis and sharing of intelligence with other regulators and agencies remains a cornerstone of our work.” It has held discussions with search engine providers to discuss referrals and further action on search results and talks are ongoing to improve its ability to disrupt unlicensed operators.

Key figures in the Period in this area include:

384 cease and desist and disruption notices were issued to unlicensed operators resulting in 136 website restrictions through suspension or IP blocking; and
122 compliance assessments of online and land-based operators, 77 website reviews and 182 security audits were conducted.

In addition, from April 2023, the Gambling Commission also assumed responsibility for collecting the Economic Crime Levy from licensed casino operators.

Optimising returns to good causes from the National Lottery

Returns to good causes which were derived from a combination of the Third and Fourth Licence period totalled £1.7 billion at the end of the financial year. The Period saw the transition of the National Lottery licence from Camelot to Allwyn, who were formally granted the Fourth Licence to operate the National Lottery on 1 February 2024. Subject to the resolution of the legal challenges this licence will run for 10 years.

Key changes to the Fourth Licence include:

A new ‘Incentive Mechanism’ so that all National Lottery products will now make returns to good causes at the same level (meaning Allwyn will only see profits rise if returns to good causes increase); and
A move to an outcomes-based approach that will give Allwyn greater responsibility to fulfil its obligations, while retaining the Gambling Commission’s powers to intervene if they fail to do so.

Improving gambling regulation

The Gambling Commission recognises the need for an upgrade to existing systems in order to “serve the needs of the business more efficiently” and expects this to be completed during 2024 to 2025. Its requirement that licensees send returns quarterly is intended to ensure the information it receives is relevant and timely, and enables it to identify issues arising as early as possible.

Further information on the Gambling Commission’s plans for gambling regulation are set out in its Corporate Strategy 2024 to 2027 published on 8 April 2024, with commitments to be detailed in annual business plans and outcomes published in future annual reports.

Other highlights

Gambling Commission research

In respect of other datasets referred to in the Annual Report, the Gambling Commission’s Cost of Living (2023) research found that:

“1 in 5 gamblers who reported changes in their gambling behaviour (either increased or decreased) said this was entirely due to increased cost of living. In addition, 8.5 per cent of gamblers reported using gambling to supplement their income on a regular basis.”

The Gambling Commission therefore continues to stress the need for operator vigilance during these times of heightened consumer vulnerability.

Gambling Survey for Great Britain

In respect of the Gambling Survey for Great Britain (“GSGB”), which focuses on the types of gambling activities that people take part in and the reasons why people gamble, the Annual Report emphasises that because the GSGB is a new survey, it does mean that it cannot compare GSGB data to data from previous alternative surveys and that, with time, the data collected will grow and enable it to look at trends and comparisons across this data source.

Enforcement?

The Annual Report notes that in 2023 – 2024, enforcement action led to the suspension of one operating licence and £13.4 million in fines or regulatory settlements: a reduction on the previous year. The Gambling Commission acknowledges that it has seen a significant increase in compliance from larger operators at the point of their assessment, with the rate of operators achieving compliant first-time outcomes doubling and the rate for the largest operators almost trebling in the past two years.

In terms of other operational activities, 133 operator licenses were processed and 122 compliance assessments were conducted for online and land-based operators in the Period.

Industry figures and statistics

Gross Gambling Yield (“GGY”) for the British gambling industry in 2022-2023 was £15.1 billion (a 6.8% increase when compared to April 2021 – March 2022) and GGY for the British remote and/or online sector was £6.5 billion in 2022 – 2023 (a 2.8% increase when compared to April 2021 to March 2022).

For the Period, the Gambling Commission’s fee income comprised:

£1.21 million from operator applications (down from £2.05 million in 2022-2023)
£0.75 million from personal licence fees (down from £0.76 million in 2022-2023)
£23.86 million from operator annual licence fees (up from £22.89 million in 2022-2023)
£0.36 million from miscellaneous sources (down from £0.39 million in 2022-2023)

In terms of expenditure, gambling regulation costs in the Period totalled £21.07 million (up from £19.33 million in 2022-2023), and National Lottery functions accounted for £19.34 million (down from £21.58 million in 2022-2023), of which £17.03 million was spent on the National Lottery Fourth Licence competition. Overall, the Gambling Commission’s table of year-on-year expenditure for gambling and National Lottery regulation shows an increase in operational costs since 2019-2020.

What’s next?

In the Foreword of the Annual Report, Gambling Commission Chair, Marcus Boyle and its Chief Executive Officer, Andrew Rhodes, both agree that:

“The next few years provide a once-in-a-generation opportunity to make gambling safer, fairer and crime free.”

The Gambling Commission’s next steps are set out in its Corporate Strategy 2024 to 2027. For further details on the Corporate Strategy 2024 to 2027, see the previous blog from Gemma Boore.

08Oct

Reminder: Changes to specified management offices come into force on 29 November 2024

8th October 2024 Chris Biggs 167

Licensees are reminded that on 29 November 2024, the Gambling Commission will update licence condition (“LC”) 1.2.1 of the Licence Conditions and Codes of Practice (“LCCP”) to clarify and extend the roles captured as ‘specified management offices’ (“SMOs”) under this requirement. Licensees impacted by this change should take action now to ensure relevant individuals are granted personal management licences (“PMLs”) before the new requirements come into effect.

Background

Earlier this year, the Gambling Commission published its response to the Summer 2023 consultation (“Consultation Response”) in which it confirmed that it would proceed with changes to the LCCP to clarify and extend the roles captured as SMOs, which from 29 November 2024 will include:

Chief Executive Officers, Managing Directors or equivalent positions;
Chairs of Boards – unless that person only holds the position on a transient and short-term basis for individual meetings; and
Those responsible for AML and CTF, including the Money Laundering Reporting Officer and Nominated Officer.

For further background and discussion please see our previous blogs: White Paper Series: Transforming corporate culture by “driving personal accountability and responsibility” for lookers-on seeing most of the game? and Gambling Commission publishes Summer 2023 Consultation Response and Betting & Gaming Council announces New Industry Voluntary Code.

New Requirement

From 29 November 2024, LC 1.2.1 (2) will read:

1.2.1 (2). The specified management offices are those offices (whether or not held by a director in the case of a licensee which is a company, a partner in the case of a licensee which is a partnership or an officer of the association in the case of a licensee which is an unincorporated association) the occupier of which is by virtue of the terms of their appointment responsible for:

a) the overall management and direction of the licensee’s business or affairs (this is likely to be the Chief Executive Officer, Managing Director or equivalent).

b) chairing the Board (where the licensee has such a body) where that appointment is held for a fixed or indeterminate term of office, unless:

1. 1. 1. the position is held only on a transient and short-term basis for individual meetings; and
    2. the licensee retains evidence in support of point 1.

….

i) the licensee’s anti-money laundering and counter-terrorist financing function as head of that function his is likely to include the following:

a) for holders of casino licences, the person responsible for compliance with the relevant regulations (and appointed in accordance with those regulations); and the person responsible for submission of reports of known or suspected money laundering or terrorist financing activity under the relevant legislation (and appointed in accordance with the relevant regulations)

b) for holders of licences other than casino licences, where an individual has been appointed to submit reports of known or suspected money laundering or terrorist financing activity under the relevant legislation, that individual.

As regular readers will be aware, the Gambling Commission consulted on the proposal that the Board Chair be required to hold a PML “to ensure that those responsible for scrutiny, strategy and leadership at the most senior level within the organisation”. This means that, where licensees sit within corporate groups, the obligation to hold a PML could be extended to the Board Chair of the top parent company, and CEOs or Directors of parent companies, due to the level of influence those individuals are able to exercise over the licensee. It is therefore important that licensees with extended group structures: (1) consider which individuals within their wider group may be impacted by the new requirement so any necessary PML applications can be made as soon as possible; and (2) if there is uncertainty, proactively contact the Gambling Commission for clarification in advance of the requirements coming into effect.

Next Steps

The changes come into force on 29 November 2024, meaning PML applications for these positions must have been granted before this date. On the basis that it can take eight weeks for the Gambling Commission to process a PML application (assuming there are no issues with the application), PML applications need to be submitted as soon as possible. If affected individuals do not hold a PML before 29 November 2024, the licensee will be in breach of LC 1.2.1 (2).

Please get in touch with us if you have any questions about PMLs, if you would like assistance with PML applications, or if you are interested in our PML training services.

30Jul

Gambling Survey of Great Britain: Publication of first annual report

30th July 2024 Chris Biggs 223

After more than 3 years of development and significant industry scrutiny, the Gambling Commission published the first Gambling Survey for Great Britain (“GSGB”) Annual Report on 25 July 2024 (“GSGB Annual Report”).

In a press release announcing the publication, the Gambling Commission stated that this first edition features responses from 9,804 people “but will increase to around 20,000 by next year.” The Gambling Commission goes on to state that the GSGB Annual Report provides greater insight into attitudes and gambling behaviours:

“presenting a fuller picture, illuminating participation rates, the type of gambling activities participated in, experiences and reasons for gambling, and the consequences that gambling can have on individuals and others close to them.”

We have previously explained the GSGB’s structure and purpose in our blog Gambling Survey of Great Britain: Gambling Commission’s new approach to collecting gambling participation and prevalence data.

We now turn to the key facts outlined in the GSGB Annual Report and consider the information published by the Gambling Commission to support the GSGB.

Key Facts

The GSGB Annual Report highlights key facts from the data collected from adults aged 18 years and older living in Great Britain, summarised below.

Participation

48% of GSGB participants participated in any form of gambling in the past four weeks. This figure dropped to 27% when those who only participated in lottery draws were excluded.

GSGB participants were more likely to gamble online (37%) than in-person (29%), however this difference was largely accounted for by people who purchase lottery tickets online. Excluding those individuals, GSGB participants were more likely to gamble in-person (18%) than online (15%).

The most commonly reported gambling activities were the National Lottery (31%), purchasing tickets for other charity lotteries (16%) and buying scratchcards (13%). The average number of activities for those who had participated in gambling in the past 4 weeks was 2.2 activities during that period.

Experiences of and reasons for gambling

41% of GSGB participants who had gambled in the past 12 months rated the last time they gambled with a positive score (6 or above on a scale of 0 to 10), 37% expressed they neither loved nor hated it (score of 5) and 21% gave a negative score. When participating in lottery draws was excluded the pattern displayed a slightly higher proportion of positive scores, with 50% positive, 31% neutral and 19% negative.

The most common reasons that GSGB participants gambled were for the chance of winning big money (86%), because gambling is fun (70%), to make money (58%) and because it was exciting (55%).

Figure 11 of the GSGB Annual Report displays the full list of reasons for gambling in the past 12 months surveyed, represented below where the percentages comprise individuals who reported ‘sometimes’, ‘often’ or ‘always’ as a reason for gambling for each statement.

Notably, GSGB participants were also surveyed on the types of leisure activities in which they participated in the past 4 weeks. The vast majority of participants indicated they spent time with friends and family (98%), watched TV (95%) and listened to music (91%), with many also reported shopping (80%), eating out at restaurants (73%), participating in sports or exercise (64%), doing DIY or gardening (61%) or going to pubs, bars or clubs (50%).

Consequences from gambling

GSGB participants who had bet on non-sports events in person were over 9 times more likely than average to have a score of 8 or higher on the Problem Gambling Severity Index (“PGSI”), which represents problem gambling by which a person will have “experienced adverse consequences from their gambling and may have lost control of their behaviour.”

GSGB participants who had gambled on online slots were over 6 times more likely than average to have a PGSI score of 8 or higher.

41.4% of GSGB participants with a PGSI score of 8 or higher reported experiencing at least one of the severe adverse consequences asked about.

The severe adverse consequences surveyed required ‘yes’ or ‘no’ responses and consisted of: (1) losing something of significant financial value because of gambling; (2) relationship with spouse or partner or family member breaking down because of gambling; (3) experiencing violence or abuse because of gambling; and (4) committing a crime to fund gambling or pay gambling debts. Overall, 2.8% of GSGB participants who had gambled in the past 12 months reported experiencing at least one severe consequence.

The Gambling Commission also highlights that the GSGB is the first time that it has collected data on the consequences of someone else gambling. 47.9% of GSGB participants reported that someone close to them gambled. The most reported severe consequence of someone else gambling was the breakdown of a relationship with a spouse, partner or family member (3.5%).

Gambling Commission Guidance

To accompany the GSGB Annual Report, the Gambling Commission released Guidance on using statistics from the Gambling Survey for Great Britain (“GSGB Guidance”). The purpose of the GSGB Guidance is to ensure the GSGB data is reported correctly, with the Gambling Commission reiterating that these official statistics are new and are collected using a different methodology than previous official statistics.

The GSGB Guidance therefore lists the purposes for which the GSGB can and can’t be used, as well as where it can be used with some caution, in relation to the data on: (1) gambling participation; and (2) the consequences of gambling within the GSGB Annual Report. Of note, the GSGB can be used:

to look at patterns within the data amongst different demographic groups;
to assess future trends and changes in gambling participation and consequences of gambling, measuring changes against the 2024 baseline; and
to describe the range of consequences that someone may experience as a result of their own gambling and as a result of someone else’s gambling.

The GSGB can be used with some caution “until further work is completed”:

to provide estimates of gambling participation amongst adults in Great Britain;
to provide estimates of PGSI scores amongst adults in Great Britain; and
to provide estimates of the prevalence of consequences of gambling amongst adults in Great Britain.

The GSGB should not be used:

to provide direct comparisons with results from prior gambling or health surveys;
as a measure of addiction to gambling; and
to calculate an overall rate of gambling-related harm in Great Britain.

The GSGB Guidance also addresses the misuse of GSGB statistics. The Gambling Commission encourages the use of the statistics to support the understanding of important issues relating to gambling, but expects that “anyone using official statistics should present the data accurately and in accordance with the guidelines presented .”

Reiterating the message issued by Andrew Rhodes, Chief Executive Officer of the Gambling Commission, in his open letter to the industry in August 2023, if an individual or organisation is found to be using the GSGB inaccurately, the Gambling Commission “may contact them and request that they correct the statistics.” In “severe cases or continued misuse of official statistics”, the Gambling Commission may refer the individual or organisation to the Office of Statistics Regulation (“OSR”).

Whilst the Gambling Commission’s expectations for the use of the GSGB statistics have been made clear, it has not defined what it considers a “severe” case of misuse. However, the Gambling Commission’s Executive Director, Tim Miller, stated during the VIXIO Regulatory Intelligence webinar on 23 July 2024 that the Gambling Commission will challenge any misuse “in an appropriate way” such as by referral to the OSR, which has included “some examples in recent months where has taken those sorts of approaches.” We therefore encourage the industry to ensure its adherence with the GSGB Guidance.

Strengths and Limitations

The Gambling Commission has acknowledged that measuring adverse consequences from gambling in surveys is a challenging task, and cites Professor Patrick Sturgis’ statement in his Assessment of the Gambling Survey for Great Britain (GSGB):

“Given the widespread negative social norms around gambling, particularly harmful gambling, obtaining representative samples and accurate response data is at the more difficult end of what survey researchers seek to measure in general populations.”

Furthermore, the Gambling Commission states in its press release that Professor Sturgis warned that estimates of problem gambling rates should be used with caution due to the risk that the new methodology “substantially overstates the true level of gambling and gambling harm in the population.” The Gambling Commission updated its Gambling Survey for Great Britain – technical report to include a list of the GSGB’s strengths and limitations and caveats for the interpretation of PGSI score estimates produced in the GSGB.

Having set out these strengths and limitations, its expectations for the correct use of the GSGB statistics and the consequences for misuse, the Gambling Commission has seemingly attempted to temper the industry’s concerns about the accuracy and reliability of the new official statistics. During the VIXIO webinar, Miller stated that the Gambling Commission has listened to “recognised experts in data and statistics in developing the GSGB methodology”, as well as the GSGB Guidance. Acknowledging that all methodologies have limitations, Miller stated that a key difference is that the Gambling Commission is “very open and transparent about what the GSGB’s current limitations are”.

Miller defended criticism of the GSGB’s methodology and noted that the Health Survey for England is not without significant issues, having presented an “inflexibility” to update questions for relevance and an inconsistent method for the Gambling Commission to collect data on gambling activity. Miller confirmed the Gambling Commission continues to invest “a significant amount” into the GSGB methodology and is “confident that as to develop , this will become the new gold standard”.

Next Steps

The Gambling Commission explains that in a typical year, there will be four wave-specific publications from the GSGB, plus an annual report. In his blog accompanying the GSGB Annual Report, Ben Haden, Director of Research and Statistics at the Gambling Commission, explains that the GSGB removes its over-reliance on the PGSI as a “proxy for harms” and, even at a headline level, “a more general analysis of wider consequences and behavioural symptoms will give a far more nuanced picture than ever before.” Haden also states that two “in-depth reports” will be released before Christmas as the Gambling Commission commences its deeper analysis of the GSGB statistics.

Where the Gambling Commission acknowledges that the GSGB may overstate the true level of gambling and gambling harm in Great Britain, the release of the GSGB Annual Report will not calm industry concerns about the accuracy of these official statistics. Indeed, we share this concern where the proposals outlined in the White Paper may be evaluated, and potentially derailed, by these statistics. The Gambling Commission promised a “gold standard population survey for the whole of Great Britain”, in its effort to improve the quality, robustness and timeliness of official statistics on gambling behaviour in Great Britain: this is no doubt a challenging task. Therefore, noting Miller’s confidence in the GSGB as the Gambling Commission continues to develop the methodology, we will continue to follow the GSGB closely with the hope that the Gambling Commission moves closer to its aim.

Please get in contact with us if you have any questions about the GSGB Annual Report, the GSGB Guidance or how these statistics may impact your business.

26Jul

Account withdrawals: The mask operators cannot hide behind

26th July 2024 Jessica Wilson 212

On 18 July 2024, the Gambling Commission published a blog by Chief Executive, Andrew Rhodes, on its expectations on account withdrawals, which comes a year after it published its concerns regarding delays customers were experiencing when attempting to withdraw funds.

Whilst the Gambling Commission has seen a reduction in customer complaints regarding withdrawals, they remain the number one subject of complaints the Gambling Commission receives across all operator sizes. As stated in its previous blog, the Gambling Commission reminds operators that it is not acceptable to introduce friction when a customer tries to withdraw from their account, rather than when they deposit into the account, nor should they place their commercial interests over those of their consumers. The Gambling Commission’s blog details several issues it has encountered as part of its compliance work.

Issue 1: Explaining the reason for requesting additional information from the customer or the reason for not paying out

The Gambling Commission has seen operators requesting additional information from customers, as part of the withdrawal process without explaining to the customer the reason for requiring such information.

Under licence condition (“LC”) 17.1.1, operators must obtain and verify a customer’s identity before the customer is permitted to gamble. A customer request to withdraw funds must not result in a requirement for additional information to be supplied as a condition of withdrawal, if the operator could have reasonably requested that information earlier.

The Gambling Commission has reminded operators that it wants transparency for consumers on withdrawals, meaning operators “should make proper efforts to explain to customers what the checks and restrictions are” and that “customers should be informed of the reasons why their withdrawal has been delayed”.

The Gambling Commission has issued a warning that “where we find evidence that an operator has deliberately misled a customer in its communications with them, we will consider the need for regulatory action”.

However, the Gambling Commission does acknowledge that, where there is a knowledge or suspicion of money laundering offences being committed, operators must ensure customers are not tipped-off, which could result in committing an offence under the Proceeds of Crime Act 2002 (“POCA”).

Issue 2: Timing of requests for additional information

The Gambling Commission has seen cases where operators have asked a customer to provide source of funding information after a withdrawal request has been made, with the operator withholding the account balance until the source of funding requests have been satisfied.

Operators are expected to monitor customers’ accounts on an on-going and risk-sensitive basis. The lack of source of funding evidence, in this case, did not prevent the customer from being allowed to make deposits and gamble their funds.

The Gambling Commission has reminded operators that that if they do not have any regulatory concerns about a customer (such as suspicions of money laundering), then there is no valid reason to delay the payout of the withdrawal. Operators “should not…continue to accept deposits indefinitely and then seek to rely on their anti-money laundering procedure to frustrate a withdrawal request”.

Issue 3: Third-party payment methods

The Gambling Commission is aware of instances where an operator has suspected customers funding their accounts through third party payment methods, but only verifying that payment method after a withdrawal request has been made.

The use of third-party payment methods is classified as high risk in the Gambling Commission’s money laundering and terrorist financing risk assessment for the British gambling industry. It is therefore usual for operators to have terms and conditions in place to prevent customers using such payment methods. Where there is suspicion that an account may be funded by a third party, operators should ensure that any investigation is conducted promptly. The Gambling Commission considers it unfair to customers if operators accept deposits from third-party payment methods, but only makes enquiries when a withdrawal request is made.

Issue 4: Confiscation of customer deposits

The Gambling Commission has been made aware that operators sometimes seek to confiscate a customer’s deposit balance, either due to money laundering suspicions or because of a suspected breach of terms and conditions.

The Gambling Commission reminds operators of the offences and statutory requirements under POCA and the Terrorism Act 2000, and that confiscating or returning account funds where there is knowledge or suspicion of money laundering or terrorist financing could result in committing an offence, unless a defence has been sought.

The Gambling Commission further reminds operators of LC 7, which requires operators to ensure that the terms on which gambling is offered are not unfair. The Competitions and Markets Authority has published guidance on unfair terms, with one principle being that consumers should be allowed to withdraw their deposit balance at any time without restriction (except to comply with general regulatory obligations, including anti-money laundering and fraud prevention).

Other reminders

The Gambling Commission’s blog ends with some other useful reminders for operators:

Operators should not have terms that give them undue discretion as to when and how those terms are applied, as such terms could be unfair, as set out in the Gambling Commission’s guidance. For example, they should not have terms that say the operator “may” or “reserves the right” to void or withhold winnings in situations.
Operators must comply with consumer protection laws and treat customers in a fair, open and transparent way.
There may be reasons for an operator to seek further information from a customer for safer gambling purposes as part of a customer interaction, but operators should be transparent with their customers that the reason for requesting more information is for safer gambling purposes. However, the Gambling Commission confirms that it would not be “fair, transparent or necessary to delay or prevent withdrawals purely for customer interaction purposes”.

The Gambling Commission lastly states, “it is imperative that operators review their terms and practices on withdrawals on an ongoing basis, to ensure they are acting compliantly and are treating their customers fairly.”

The Gambling Commission’s blog makes it clear that a delay in processing a customer withdrawal could unmask other areas of non-compliance, including failing to conduct customer due diligence correctly, allowing a customer to gamble without sufficient identity or source of funding checks taking place or failing to verify third-party payment methods before being allowed to gamble

Attempting to correct these mistakes at the point a customer withdraws funds is a mask operators cannot hide behind, as the Gambling Commission has shown that it can see through these actions. Operators should review the Gambling Commission’s guidance in its blog and review their practices to ensure they do not make similar errors. The Gambling Commission’s confirmation that it is not afraid to take regulatory action is a clear warning to operators.

However, operators should not lose sight of their anti-money laundering responsibilities and obligations under POCA, the Terrorism Act 2000, the Licence Conditions and Codes of Practice, the Gambling Commission’s anti-money laundering guidance for casino businesses and for non-casino businesses, and the Money Laundering and Counter-Terrorist Financing (Information on the Payer) Regulations 2017.

If you have any questions or concerns regarding account withdrawals, your policies and processes, your terms and conditions, or your anti-money laundering and counter-terrorism financing responsibilities and obligations, please do reach out to your usual Harris Hagan contact, or get in touch with us here.

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24Jul

White Paper Series: UK Gambling Act Review: What Now? VIXIO Webinar

24th July 2024 Harris Hagan 206

On 23 July 2024, Bahar Alaeddini appeared as a panellist on a VIXIO Regulatory Intelligence webinar titled “UK Gambling Act Review: What Now?” together with Tim Miller from the Gambling Commission, Sarah Fox from the Department for Culture, Media and Sport and Dan Waugh from Regulus Partners, and moderated by Joe Ewens, Global Managing Editor from Vixio. This was the third webinar on the White Paper organised by Vixio. The panellists had an insightful and lively discussion about the current status of the White Paper proposals following the General Election:

Two earlier webinars took place on 16 May 2023, titled “The End of the Beginning”, 15 September 2023, titled “Defining the Future”. Please click on the dates to watch the earlier webinars.

15Jul

Unlicensed gambling – Part 2: Is the Gambling Commission winning the “whack-a-mole” game?

15th July 2024 Gemma Boore 172

As regular readers will recall, in our blog: Unlicensed gambling – Part 1: Growing threat or exaggerated myth? which was published in November 2023, we:

discussed the threat of unlicensed gambling in Great Britain, along with steps the Gambling Commission had – as at that date – been taking to disrupt illegal, unlicensed operators;
advised businesses on the steps to take if they discover their intellectual property is being used on illegal gambling sites; and
provided a helpful checklist of actions for licensees to take, if they receive communications from the Gambling Commission regarding illegal gambling activity.

In this next instalment, we explore recently published research regarding the extent of unlicensed gambling in Great Britain, discuss the different ways in which gambling is illegally being made available to consumers, and comment on some of the newer methods the Gambling Commission is using to tackle unlicensed gambling – pending the introduction of its new powers under the Criminal Justice Bill.

What do we mean by unlicensed gambling?

As noted in our previous blog, it is an offence to provide facilities for gambling to customers in Great Britain from anywhere in the world, without holding an operating licence from the Gambling Commission – unless a relevant exemption applies.

Gambling is defined in the Gambling Act 2005 (the “2005 Act”) as including “gaming”, “betting” and “participating in a lottery”. Accordingly, anyone who provides facilities that allow British consumers to (a) take part in gaming (which typically includes casino products such as slots – but also extends to more novel and even free-to-play products if the player is “playing a game of a chance for a prize”), (b) bet (which includes peer-to-peer and pool betting, as well as fixed odds); or (c) enter a lottery, without holding the appropriate Gambling Commission licence / benefitting from an exemption, will commit an offence under the 2005 Act.

Is it really that bad?

A report published by the International Betting Integrity Association (“IBIA”) in March 2024, which considered the channelisation rate (i.e. the proportion of gambling taking place with licensed vs unlicensed operators) of sports betting, seems, at first blush, to indicate that black market gambling is less of a threat in Great Britain than elsewhere.

The study, which is entitled: The Availability of Sports Betting Products: An Economic and Integrity Analysis analysed channelisation rates in a range of jurisdictions:

Great Britain, which permits a wide range of sports betting products (including in-play bets) had the highest channelisation rate across the surveyed jurisdictions, of 98% in 2022.
Italy, which has minimal restrictions on pre-match and in-play betting, was a close second with a channelisation rate of 93%.
By contrast, in markets such as Australia and Germany, where access to sports betting markets is more tightly controlled, the rates were 78% and 59%, respectively.

The IBIA study hypothesised that these statistics indicate a strong correlation between the wide availability of sports betting products and the proportion of consumers who place bets with onshore regulated sports betting operators. Citing Canada as a case in point; the authors noted that channelisation in Ontario, a province that introduced an online sports betting licensing system in 2022, is expected to reach 92% in 2024. This figure is a stark contrast to the channelisation rate for the rest of Canada combined, which continues to operate a limited monopoly model, and is forecast to have an onshore rate of 11% in 2024 and lose an estimated $2bn in taxable sports betting gross gambling revenue between 2024 and 2028.

So Great Britain must be doing something right when it comes to sports betting… but is this the whole story?

To work out the answer, it is important to remember that sports betting makes up only a fraction of licensed gambling in Great Britain. In fact, according to an interactive dashboard published by the Gambling Commission in February 2024, only 31.5% of GB gross gambling yield (“GGY”) during the 2022/2023 financial year derived from remote and non-remote betting (which also includes non-sports betting, for example, on politics) – with the lion’s share of the remaining proportion being derived from casino, bingo, lottery and licensed amusement arcades.

Putting non-remote gambling to one side, the Gambling Commission’s interactive dashboard reveals that the percentage of industry GGY from remote betting dips to 15.1% (or £2.29bn) – with the largest contribution to remote gambling actually deriving from online casino, which made up an impressive 26.7% (£4.04bn) – or just over one quarter of total industry GGY – during the 2022/2023 financial year.

Surely it follows, therefore, that a significant percentage of money staked by British customers in the unregulated black market, ought to be on online casino?

At the time of writing, we are unaware of any studies that have recently considered the channelisation rate for online casino only, in Great Britain. However, research in other jurisdictions has indicated that casino channelisation tends to be lower than for other verticals. For example: in Sweden, AB Trav och Galopp estimated that the channelisation rate for remote casino in Q3 2023 was 74% vs 82% for remote sports betting.

Applying this rationale in Great Britain suggests that 98% channelisation rates for sports betting are unlikely to also apply in respect of other verticals. Pending regulatory changes in Great Britain impacting the online casino market may also detrimentally impact the licensed sector – with reforms proposed in the Government’s White Paper: High stakes: gambling reform for the digital age (the “White Paper”) including lower stake limits (£5, with a lower £2 limit for young adults aged between 18 and 24), game design changes and financial vulnerability checks, all due to come into force in the near future. For further information please see our blogs: White Paper Series: DCMS announces online slots stake limits and Gambling Commission publishes Summer 2023 Consultation Response and Betting & Gaming Council announces New Industry Voluntary Code.

Trying to fit a square peg in a round hole?

Even when properly measured, traditional methods for calculating channelisation might not reveal the whole story.

A more modern phenomenon that must be considered in the round, is the growing popularity of pay-to-enter competitions that often incorporate a question and free entry route to mitigate the risk that they are an illegal lottery. These arrangements can, if properly structured, lawfully be operated in Great Britain without an operating licence. However, the Gambling Commission actively monitors these competitions – and has recently been increasing its enforcement action in relation to arrangements that cross the line and are, in fact, illegal lotteries.

Similarly, many other new and disruptive product types run the risk of constituting gambling (and may thus be illegal gambling) in Great Britain. These include mystery, or loot boxes, where participants pay for a chance to win a prize that is allocated to them at random; and even traditional prize competitions such as crosswords or sudoku, where the underlying activity is presented as involving an element of chance.

The bottom line is that if a new product falls within the statutory definitions of “gaming”, “betting”, or “participating in a lottery” under the 2005 Act then, unless the person offering it in Great Britain does so in reliance upon an operating licence or exemption under the 2005 Act, they may be conducting illegal gambling in Great Britain and could face enforcement action by the Gambling Commission.

In addition, it is less likely that lost revenue from such products will be considered in the calculation of channelisation rates in Great Britain, which has historically focused on more traditional product verticals.

What is the Government doing to curb unlicensed gambling?

Within the White Paper, the Government acknowledges that estimating the size of black market gambling is difficult. Unlicensed gambling sites can appear, disappear and change without warning and until recently, the Gambling Commission’s resources for responding to unlicensed gambling have been concentrated on acting on complaints and intelligence with a risk-based approach.

Accordingly, one of the solutions presented by the Government in the White Paper was to increase the Gambling Commission’s powers, with the aim of creating a safety net and versatility for the Gambling Commission to “apply to court as a last resort” if required. However, the relevant legislation remains pending: although the Home Office’s Criminal Justice Bill contains provisions to confer new powers on the Gambling Commission to apply to court for an application to suspend an IP address or domain name if it is being used for the purposes of serious crime connected with unlicensed gambling, the Bill is still at the Commons Report stage and certain onlookers have queried whether, as currently drafted, the Bill goes far enough. Particularly given that equivalent powers are not granted to the regulator and competition authority for UK communications industries, Ofcom, which could be well placed to work alongside the Gambling Commission in taking action against unlicensed gambling websites.

We also note that, from a political perspective, Labour’s recent election has cast doubt over the timing of the Bill’s enactment, as newly elected members of Parliament will need time to get up-to-speed on the Bill and settle into their new roles.

What can the Gambling Commission do in the meantime?

At the Westminster Media Forum on the future for the betting and gaming industry in the UK, which took place online on 13 May 2024, Ben Dean, director for Sport and Gambling at the Department for Culture, Media and Sport commented that tackling illegal gambling continues to be an arduous process, akin to a game of “whack-a-mole”. He attributed this in part to the flexible nature of unlicensed organisations in circumventing restrictions, but stressed that:

“Working with internet service providers and payment agencies is key.”

Indeed, Andrew Rhodes, Chief Executive Officer and Commissioner of the Gambling Commission, confirmed at the same event that whilst the Commission awaits its new powers, a significant portion of its work in this sphere has been with third parties such as Google, resulting in the removal of over 7,000 URLs from search results in the last six months.

In addition, Rhodes confirmed that the Gambling Commission has:

in January 2024, issued 98 cease and desist and disruption notices with 39 successful disruption outcomes; and
more than trebled the number of successful positive illegal website disruption outcomes – from 25 in FY21/22, to 79 in FY22/23.

Rhodes explained that the Gambling Commission is focussing on identifying and undertaking high impact interventions with a view to “making it difficult to provide illegal gambling at scale”. Notably, and in addition to the measures outlined in our November 2023 blog (e.g. the Gambling Commission’s work with web hosting companies, registrars, internet search providers, social media firms and payment providers – as well as international regulators and its own licensees), recent efforts have included:

using intelligence and software programmes to identify those websites with the largest British footprint or profile and focus on those which pose the highest risk, especially websites and affiliates which target vulnerable consumers such as GAMSTOP self-excluded players;
engaging with banks to raise awareness and identify consumer protection protocols to identify and stop payments to illegal websites;
agreeing protocols with search engines to remove illegal websites from search results; and
actively identifying UK-facing online advertorial articles and engaging strongly with publishers (for example, by threatening public prosecution) to get these articles, and the marketing affiliates that are posting them, removed.

Rhodes also confirmed that the Gambling Commission has been working in conjunction with other bodies and regulators, such as the National Crime Agency, Police Intellectual Property Crime Unit and His Majesty’s Revenue and Customs (“HMRC”):

“For example, our work with HMRC where we have been tackling illegal Facebook lotteries has not only seen those lotteries shut down by the Gambling Commission, but the organisers have found themselves paying £600,000 in penalties to HMRC as well.”

Conclusion

Dean and Rhodes’ comments highlight the importance of and continued need for cooperation and unity in efforts to tackle illegal gambling, to maximise their effectiveness. Pending the introduction of the Gambling Commission’s new powers under the Criminal Justice Bill, there is still much that can be done to deter unlicensed operators from targeting customers in Great Britain – and ultimately protect the businesses (and revenue) of those that have invested the time, money and resources in obtaining, and complying with, operating licences issued by the Gambling Commission.

Please get in touch with us if you have any questions about the lawfulness of new gambling products in Great Britain, the process for obtaining a gambling operating licence from the Gambling Commission and/or if you require assistance with licensing and compliance matters generally.

With sincere thanks to Yue-Ting Fung for her invaluable co-authorship.

02Jul

Financial Action Task Force: June 2024 update to Grey List jurisdictions

2nd July 2024 Chris Biggs 191

The Financial Action Task Force’s (“FATF”) June Plenary concluded on 28 June 2024, with the announcement of changes to its list of Jurisdictions under Increased Monitoring (“Grey List”).

The changes to the Grey List are as follows:

Jamaica and Turkey are no longer subject to increased monitoring by FATF, due to “significant progress” in addressing the strategic anti-money laundering (“AML”) and counter-terrorism financing (“CTF”) deficiencies previously identified during their mutual evaluations. Even though these countries have been removed from the Grey List, they will continue to work with FATF and their local FATF-style regional bodies to continue improving their AML/CTF regimes.

Conversely, FATF have added Monaco and Venezuela to the Grey List, meaning these jurisdictions have committed to implement an action plan to resolve strategic deficiencies in their regimes to counter money laundering, terrorist financing and proliferation financing within agreed timeframes.

FATF made no changes to its list of High-Risk Jurisdictions subject to a Call for Action (“Black List”), which at the time of writing includes the Democratic People’s Republic of Korea, Iran and Myanmar.

A full list of high-risk third counties on FATF’s Grey and Black Lists can be found on its website.

As discussed in our previous blog, the Gambling Commission recently reminded licensees in its Emerging money laundering and terrorist financing risks from February 2024 to conduct robust customer due diligence checks in relation to any customer relationships associated with the jurisdictions on the Grey List.

Additionally, holders of casino operating licences issued by the Gambling Commission are required by regulation 33(3)(a) of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 to conduct enhanced customer due diligence and enhanced ongoing monitoring in any business relationship with a person established in a jurisdiction named on the Grey or Black Lists (a ‘high-risk third country’).

Next steps

We recommend that all licensees review their AML/CTF policies, procedures and controls, including business risk assessments, to ensure appropriate measures are applied in relation to high-risk third counties including, from July 2024, Monaco and Venezuela. In addition, licensees should diarise the date of the next FATF Plenary meeting, so they can check if there are further updates. FATF’s next meeting will take place in October 2024.

Please get in contact with us if you require assistance reviewing your AML/CTF policies, procedures or risk assessments or with any other AML/CTF compliance matters.

20Jun

Reminder: Quarterly regulatory returns in force for all licensees from 1 July 2024

20th June 2024 Chris Biggs 186

On 1 July 2024, the Gambling Commission will update licence condition 15.3.1 of the Licence Conditions and Codes of Practice (“LCCP”) to require all licensees to submit their regulatory returns on a quarterly basis, within 28 days of the end of each quarterly period.

The Gambling Commission will also update its regulatory returns guidance from 1 July 2024, to remove guidance that applies to questions that will be removed from regulatory returns and amend the wording of guidance “in some cases” to clarify what data is required, based on feedback from licensees.

As we discussed in our previous blog, Quarterly regulatory returns across the board from July 2024, this change to the LCCP follows the Gambling Commission’s publication of its Frequency of regulatory returns: Consultation Response in March, and will harmonise regulatory return reporting dates across the industry.

The Gambling Commission has published information on its website to explain how it will transition licensees from their current regulatory returns reporting period, in addition to information about the questions it will be removing from regulatory returns from 1 July 2024, split by reference to licence type.

The first set of regulatory returns that will relate to the quarterly return period 1 July 2024 to 30 September 2024 must be submitted by 28 October 2024.

Importantly, licensees with current regulatory return periods containing 30 June 2024 will have their reporting period end date changed to 30 June 2024. In such cases, licensees may have shortened reporting periods and due dates. The Commission has published worked examples on its website, to illustrate how the reporting periods for different licence types will align.

The guidance also contains a reminder that once these changes have taken effect, licensees’ reporting periods will not, in most cases, reflect the regulatory year applicable to their licences, which will continue to be used to calculate the correct fee category, and thus annual fee, for operating licences.

If a licensee believes that they will exceed their fee category limit at any time after they have paid their annual fee, they must submit an application to vary their fee category to the Gambling Commission. Details of how to submit applications to vary licence fee categories can be found in the Gambling Commission’s guidance on how to make changes to your operating licence.

Please get in touch with us if you have any questions about regulatory returns and your obligations, licence fee categories, or if you would like assistance with any compliance or enforcement matters.

13Jun

Gambling Commission AML updates: Changes to legislation

13th June 2024 Chris Biggs 187

On 24 May 2024, the Gambling Commission published four notices on its AML Hub, relating to recent changes to legislation and the Licence Conditions and Codes of Practice (“LCCP”) impacting the anti-money laundering (“AML”) and counter-terrorist financing (“CTF”) obligations of licensees.

These notices cover: (1) Scheduled LCCP update: new PML requirements; (2) High-risk third countries; (3) DAML exemption provisions for the regulated sector; and (4) Politically exposed persons.

We summarise each of the notices below.

Scheduled LCCP update: new PML requirements

On 1 May 2024, the Gambling Commission published its Summer 2023 consultation response, announcing it will introduce the changes to personal management licence (“PML”) requirements in the LCCP as proposed in the Summer 2023 consultation. For detailed analysis and insight into this announcement, as well as guides and tools for PMLs, please see our recent article White Paper Series: Changes to Personal Management Licences.

Specifically, the Gambling Commission will, from 29 November 2024, require the person responsible for a licensee’s AML and CTF function, as head of that function, to hold a PML. The Gambling Commission points out that this will include:

for holders of casino operating licences issued by the Gambling Commission (“Casino Licensees”):

the person responsible for compliance with The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations (“MLRs”) (and appointed in accordance with the MLRs). Where appropriate, with regard to the size and nature of the business, this individual “will be a member of the casino’s board of directors (or equivalent management body if there is no board) or of its senior management…”; and
the person responsible for submission of reports of known or suspected money laundering or terrorist financing activity under the relevant legislation (and appointed in accordance with the MLRs), which will be the Casino Licensee’s nominated officer;

for holders of licences other than casino licences, where an individual has been appointed to submit reports of known or suspected money laundering or terrorist financing activity under the relevant legislation, that individual.

The above requirements apply to all licensees, except ancillary remote licensees. Small scale operators will also remain exempt from these requirements in accordance with licence condition 1.2.1 (6).

Key point

The Gambling Commission is now accepting PML applications for these roles and recommends that applications “should be submitted in good time so that the PMLs are in place on 29 November 2024.” Therefore, licensees must ensure PML applications for these roles (if they are currently occupied by individuals who are not PML holders) have been submitted and granted before the extended requirements come into force on 29 November 2024.

High-risk third countries

Casino Licensees are required by the MLRs to conduct enhanced customer due diligence and enhanced ongoing monitoring in any business relationship with a person established in a high-risk third country or in relation to any relevant transaction where either of the parties to the transaction are established in a high-risk third country.

With effect from 23 January 2024, the MLRs were amended by The Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024 to update the meaning of a ‘high-risk third country’.

Instead of referring to a separate schedule that contained the list of high-risk third countries, regulation 33(3)(a) of the MLRs now defines a “high-risk third country” as “a country named on either of the following lists published by the Financial Action Task Force as they have effect from time to time—

High-Risk Jurisdictions subject to a Call for Action;
Jurisdictions under Increased Monitoring;”.

The Gambling Commission has confirmed that it will update its The prevention of money laundering and combating the financing of terrorism guidance “in due course” to reference these changes.

Key point

In order to keep abreast of which countries are high-risk countries, Casino Licensees must refer directly to the lists published by the FATF of ‘Jurisdictions under Increased Monitoring’ and ‘High-Risk Jurisdictions subject to a Call for Action’. The Gambling Commission points out that these lists are updated 3 times a year on the final day of each FATF Plenary meeting, which is held every February, June and October. The dates of these meetings – which we recommend licensees diarise – are published several months in advance, in the FATF’s events calendar and the FATF list of countries are updated and published in full on the FATF website.

Defence against money laundering (“DAML”) exemption provisions

On 26 October 2023, The Economic Crime and Corporate Transparency Act 2023 (“ECCT”), updated the Proceeds of Crime Act 2002 (“POCA”) and introduced two new exemptions to money laundering offences that apply to casinos (and other businesses in the regulated sectors).

Exemption from authorised disclosure requirement

Section 182 of the ECCT enacted an exemption under sections 327, 328 and 329 of POCA which affects paying away funds under £1,000 when exiting a relationship with a customer, where there is knowledge or suspicion of money laundering or criminal property.

This means that if a Casino Licensee has knowledge or suspicion of criminal property, it can transfer money or other property owing or belonging to a customer for the purposes of exiting that customer relationship, without needing to submit an authorised disclosure to the National Crime Agency (“NCA”), provided the value is less than £1,000 and any customer due diligence measures required under the MLRs have been completed before transferring or handing over the money or other property.

Exemption for mixed property transactions

Section 183 of the ECCT, enacted an exemption under sections 327, 328 and 329 of POCA for mixed property transactions which allows Casino Licensees to “ring-fence funds they believe are criminal property and transact with funds outside of those ring-fenced funds” where they know or suspect that part – but not all – of funds held on behalf of a customer are criminal property.

This exemption will apply provided:

it is not possible, at the time the act (i.e., the Casino Licensee’s transfer of funds) takes place, to identify the part of the funds or property that is the relevant criminal property; and
the value of the funds in the account or accounts, or of the property so held, is not, as a direct or indirect result of the act, less than the value of the relevant criminal property at the time of the act.

Key point

In both of the above circumstances, Casino Licensees will still need to report their suspicions of money laundering to the NCA, but are not required to submit an authorised disclosure and obtain consent from the NCA to avoid committing money laundering offences under sections 327, 328 and 329 of POCA. Importantly, these exemptions do not apply to non-Casino Licensees, so those businesses continue to be subject to authorised disclosure requirements in the above scenarios.

Politically exposed persons

With effect from 10 January 2024, the MLRs were amended by The Money Laundering and Terrorist Financing (Amendment) Regulations 2023 (“2023 Amendments”) to address the treatment of Politically Exposed Persons (“PEPs”) who are entrusted with prominent public functions by the UK, their family members and known close associates (collectively, “Domestic PEPs”).

The 2023 Amendments introduce a proportionate and risk-based scale for regulated firms in their assessment of a Domestic PEP vs non-Domestic PEP. Specifically, this means that Domestic PEPs must still be subject to enhanced customer due diligence measures, but should, as a starting point, be treated as lower relative risk than non-Domestic (or foreign) PEPs.

We have previously discussed the 2023 Amendments in our article Treatment of Domestic Politically Exposed Persons under the Money Laundering Regulations.

Key point

Casino Licensees must bear in mind that it remains critical that the individual risks posed by PEPs are still assessed on a case-by-case basis: any risk factors identified that do not concern the customer’s position as a Domestic PEP, may still give rise to the obligation to conduct enhanced customer due diligence.

Casino Licensees should also note that the Financial Conduct Authority (“FCA”) is due to review and update its own PEP guidance by June 2024. Accordingly, the Gambling Commission’s guidance on the treatment of PEPs may be further updated, if there are amendments to the FCA’s guidance that the Gambling Commission considers should also apply in relation to Casino Licensees.

Next steps and Recommendations

Licensees should consider whether their money laundering and terrorist financing risk assessments, as well as their policies, procedures and controls, should be amended as a result of these changes and if so, ensure such amendments are prioritised.

Please get in touch with us if you would like assistance with PML applications, reviewing AML policies, procedures and risk assessments in the light of these updates, or with any other AML/CTF compliance matters.