27Nov

The Legal 500 Country Comparative Guide 2023 – Gambling Law

27th November 2023 Harris Hagan 189

In its second year of publication, Partner Bahar Alaeddini and Associate Francesca-Burnett Hall have jointly contributed to the UK chapter of The Legal 500: Gambling Law Comparative Guide 2^nd Edition (the “Guide”), with Bahar once again acting as contributing editor.

UK-Chapter Download

The publication – which this year spans 19 jurisdictions – gives readers an overview of gambling law, regulatory and licensing requirements in various jurisdictions and the UK, on matters including:

key gambling legislation and the legal definition of gambling;
types of gambling licences available, with a headline of the application procedures;
prohibited gambling products;
information on gambling advertising and marketing affiliates;
penalties for unlawful gambling;
anti-money laundering and safer gambling requirements;
shareholder reporting and approval thresholds; and
the regulator’s enforcement and sanction powers.

Of particular interest in this year’s edition of the Guide are the key regulatory developments and proposals for reform expected over the next 12-24 months, including those set out in the White Paper, which we outline in the UK chapter.

You can read the Guide and compare jurisdictions here.

09Nov

Unlicensed gambling – Part 1: Growing threat or exaggerated myth?

9th November 2023 Gemma Boore 238

Earlier this month, Andrew Rhodes, the Chief Executive Officer and Commissioner of the Gambling Commission, took part in a two-part podcast discussion with The Gambling Files to reflect on and discuss topical issues affecting the gambling industry. Amongst the subject matter covered, Rhodes touched in Part 2: HE REVEALS MORE! on black market activity and the steps the Gambling Commission is taking to disrupt illegal gambling in Great Britain – which Rhodes claims to have resulted in significant drops in traffic to illegal operators.

This reflected themes in Rhodes’ keynote speech at the International Association of Gambling Regulators (“IAGR”) conference in Botswana on 16 October 2023, in which he noted whilst illegal online gambling market exists in Great Britain, as it does elsewhere:

“it is not a significant concern and this position hasn’t fundamentally changed. However, that does not mean there is no illegal market or no risk”.

In other news, Lucy Frazer, the Secretary of State for Culture, Media and Sport recently digested the contents of a letter from eight UK horseracing industry leaders. In the letter, the signatories reportedly warned that affordability checks, which the Government recommended be introduced in the Gambling White Paper, will cost racing £250 million in funding over the next five years and that this would be a disaster for British horseracing as punters either walk away from the sport or turn to the black market to gamble.

Potentially to back up this claim, the Racing Post then published the results of its “The Right to Bet” survey, which found that (1) one in four of the respondents would be prepared to switch to the black market if faced with stringent affordability checks; and (2) nearly one in ten have already used black market betting sites.

A petition was then posted on the UK Government and Parliament website, calling for the Government to abandon the planned implementation of affordability checks because “more intrusive checks triggered at a higher threshold risks bettors moving to the black market where there are no consumer protection or safer gambling tools”. This petition has – as at the time of writing – accumulated 76,204 signatures, three quarters of the number needed to trigger a debate in Parliament.

So, is the black market really a growing threat, or an exaggerated distraction? What are the Gambling Commission and the Government doing to curb illegal gambling? And what can businesses do if their proprietary content (intellectual property (“IP”)) turns up on unlicensed sites?

Read on for our discussion along with a helpful checklist for licensees that receive communications from the Gambling Commission regarding black market activity.

What is black market gambling?

The term ‘black market’ gained popularity during World War II (when common household products were rationed to avoid hoarding) and generally refers to an illegitimate market in which commodities are being traded, exchanged or performed in an illegal manner.

With regard to modern gambling in Britain, section 33 of the Gambling Act 2005 (as amended) (the “2005 Act”) makes it clear that it is an offence to provide facilities for gambling to customers in Great Britain from anywhere in the world, without holding a licence from the Gambling Commission unless a relevant exemption applies. Accordingly, it is common within the industry to refer to unlicensed online operators that illegally provide facilities for gambling to customers in Great Britain, without the appropriate licence or falling under a relevant exemption, as the “black market”.

Why is unlicensed gambling bad?

As Rhodes notes in his keynote speech at the IAGR conference, every gambling jurisdiction in the world has illegal online gambling:

“Whether online gambling is prohibited or not, if you can access the internet, then you will be able to find a way to gamble. We all know this. It’s also worth pointing out at this point that what is an illegal, unlicenced operator for me in Great Britain may be a legitimate, licensed business for you and vice versa.”

From a consumer perspective, one of the fundamental problems is that black market websites are not always distinguishable from those that are locally licensed – at least to the untrained eye. This means a consumer may be gambling on an illegal gambling site without even knowing it and, in this “Wild West” of the remote sector, unlicensed operators are not constrained by regulation. It is common to see consumer reports of problems, such as the inability to withdraw funds and difficulties contacting support in the event of a complaint. Indeed, Rhodes acknowledged in The Gambling Files podcast, that recent research has shown that illegal websites actively seek to advertise to people that have self-excluded from gambling on GAMSTOP and others allow unlawful activity in itself by, for example, allowing children to gamble.

So, what is the Gambling Commission doing?

One of the Gambling Commission’s key functions is to investigate and prosecute illegal gambling and other offences committed under the 2005 Act. As Rhodes noted in his IAGR keynote speech, the Gambling Commission typically deploys an “intelligence-led approach” to combat black market operators.

This means that ordinarily, they will initially issue a cease-and-desist letter to require the unlicensed operator to suspend their operations. Failing this, the Gambling Commission will implement “disruption techniques, using its partnerships or relationships with other companies”, which can include:

asking web hosting companies to suspend or ‘block’ British consumers from accessing the websites;
contacting payment providers to remove payment services;
liaising with internet search and service providers to prevent websites appearing on search engines;
working with social media firms to take down posts which promote illegal gambling; and
engaging with international regulators, including by sharing information and raising the prominence of the issue – and Rhodes used the keynote as an opportunity to call for collaboration in this regard.

In addition, Rhodes described in his speech more novel steps that the Gambling Commission is taking to disrupt unlicensed, illegal online operators through collaboration with others:

“…this means we’ve been going further upstream, further away from where our formal powers begin and have been looking to work with others to get between those illegal operators and British consumers and generally frustrate their business and force them out of our market.”

And this has included:

working with software licensees to prevent access to popular products when their games appear to be available on illegal sites; and

engaging with licensees if we discover their affiliates have placed adverts on illegal sites – ensuring licensees remove advertising and encouraging an assessment of business relationships with these affiliates.

By taking these steps, Rhodes claimed that the Gambling Commission has “increased… enforcement actions by over 500 percent between 2021-22 and 2022-23” and “more than doubled the number of successful positive disruption outcomes” leading to a “a 46 percent reduction in traffic to the largest illegal sites coming into market”.

Notwithstanding the bountiful fruit of its recent efforts, the Gambling Commission has always acknowledged that stronger measures are required. In its Advice to Government relating to its review of the 2005 Act, the Gambling Commission explains that:

“Under our current framework, we cannot compel third party providers to take action such as to block British access to the website, remove payment services or prevent websites from appearing in search engines. Moving to criminal prosecution has had limited effect, largely because websites can immediately disappear and reappear with a different identity (a phenomenon known as ‘phoenixing’), and their ultimate owners and lines of responsibility are very difficult to fully trace. This also makes it very difficult to accurately scope the size of the black market”.

How does this play into the White Paper?

Before it was even published, the black market was the backbone of many highly politicised debates concerning the White Paper and the proposals to be made therein. Affordability (and more specifically, mandatory deposit and/or loss limits) in particular, led to outcry from the sector and various interested parties commissioned research to try to truly gauge the extent of illegal, unlicensed gambling in Great Britain.

In particular, a 2021 PwC report entitled “Review of unlicensed online gambling in the UK” commissioned by the Betting and Gaming Council, claimed that the proportion of UK online gamblers using unlicensed operators in November 2020 had increased to 4.5 per cent – or around 460,000 people – from 2.2 per cent over the previous one to two years. In addition, the study found that stakes with unlicensed operators had doubled to £2.8 billion.

Neil McArthur, the then Chief Executive of the Gambling Commission, poured cold water on the PwC report in a letter to cross-party MPs investigating the harmful effects of gambling, reportedly stating it was “not consistent with the intelligence picture” and that the impact of the black market “may be being exaggerated“.

When the White Paper was finally published in April 2023 – some 30 months after the call for evidence – it was broadly accepted to be balanced and evidence-led. Chapter 3, which considered the potential for reform in the Gambling Commission’s powers and resources, outlined the Government’s views on black market gambling and whether it presented a tangible risk. Specifically, the Government acknowledged that although estimating the size of the black market is difficult, it was clear that “excessive commercial caution risks driving customers to the black market where they can be exposed to a variety of risks”. The Government further noted that there has been a rise of illegal operators in other jurisdictions with:

“either extremely permissive regulatory regimes or no regulatory oversight, and/or are being run by individuals with suspected links to serious and organised crime.”

It then went on to acknowledge the Gambling Commission’s disruptive approach was working well to an extent (a statement with which we agree), but recommended that the Gambling Commission’s powers to action be strengthened to create a safety net, giving the Gambling Commission the versatility to “apply to court as a last resort” if required:

“When Parliamentary time allows, we will introduce legislation that will give the Gambling Commission the power to apply to the court for an order that requires ISPs , payment providers and other providers of “ancillary services” to implement measures aimed at disrupting the business of an illegal gambling operator”.

While a laudable aim, changes to legislation take time and given other legislative pressures and the impending General Election, it is not clear when these changes will take effect – there certainly was no mention of such a bill in The King’s Speech on 7 November 2023. This contrasts with affordability checks (which the White Paper recommends become mandatory for operators to carry out when consumers reach specific loss thresholds), which have already been subject to a public consultation by the Gambling Commission and may take effect much sooner.

Lessons for licensed operators

For the meantime, Rhodes emphasised in his keynote that the Gambling Commission will continue to use its existing powers (and authority) to tackle illegally, unlicensed gambling. As noted earlier, this may include the Gambling Commission contacting its own licensees to try to persuade them to take steps to disrupt illegal gambling.

If you hold a British licence and are contacted by the Gambling Commission about a black market website, we recommend that you take professional advice. You may also want to consider taking one or more of the following steps:

verify that your content is being used / your adverts are being placed on an illegal website. Involve your tech teams as they should be able to confirm whether the content is legitimate or an infringing copy of your IP;

check that games / links are accessible in Great Britain and if they are, whether you receive any British traffic from the site in question;

identify the operator of the website and/or the affiliate that is placing advertisements on the illegal site;

consider whether you have a contractual relationship with the operator / affiliate or any member of its group. If you do not have a direct contract with the operator/ affiliate or one of its group companies, consider whether there may be an indirect relationship (for example, via a content distributor or affiliate program);

if a contractual relationship exists, investigate how this arose and review all due diligence you conducted on the third party/ies during the contractual relationship;

send a cease-and-desist letter (takedown notice) to all entities that you can identify as being involved; cite restrictions in your contract (if relevant);

if the third party does not cease the activity or justify their actions:

terminate any contracts with them promptly. Note that inclusion of such a termination right is a requirement under Social Responsibility Code Provision 1.1.2 of the Licence Conditions and Codes of Practice;

consider contacting third parties such as hosting providers, domain registrars and third-party search engine such as Google who may otherwise be able to stop the website being accessible by customers in Great Britain;

engage professionals to review:

your systems and processes for identifying use of your content / placement of your ads on illegal websites; and

your standard contracts,

to mitigate the risk that your IP rights are exploited illegally in the future; and

update the Gambling Commission within the deadline they have set on the outcome of your investigation and the steps you have taken to:

address the present infringement of your IP rights; and

mitigate the risk of a similar situation occurring again.

Please get in touch with us if you would like assistance responding to a Gambling Commission request, or if would like to discuss the themes in this blog more generally.

26Oct

Andrew Rhodes’ speech at the International Association of Gambling Regulators Conference: A call for collaboration

26th October 2023 Adam Russell 236

The current Chief Executive Officer (“CEO”) of the Gambling Commission, Andrew Rhodes, delivered a keynote speech at the International Association of Gambling Regulators (“IAGR”) Conference in Botswana on 16 October 2023. In this blog, we sum up the key messages from Rhodes’ speech, which was delivered to gambling regulators from across the world. Part One outlines Rhodes’s commentary on implementation of the UK Government’s Gambling White Paper, and Part Two summarises what was said regarding the Gambling Commission’s increasingly innovative approach to tackling black market gambling.

Part One: The White Paper

Background

Rhodes introduced the White Paper by stating that the Gambling Commission is “pleased to see so many of recommendations adopted”. He proceeded to describe “the publication of the White Paper an important moment”, citing the need to update the gambling regulatory framework with “evidence-based changes” to keep pace with digitisation in society.

Priorities

Rhodes acknowledged that “the White Paper is a key priority for the Commission”. However, he managed expectations by stating that “this will not be the work of a few months” given that the “Gambling Commission is either leading or supporting on the implementation of Government policy” in relation to “over 60 areas of work”. Rhodes then distinguished between priorities for the Government versus priorities for the Gambling Commission, the latter of which included to:

“ensure bonus offers and incentives do not lead to excessive or harmful gambling,
set further product controls for safer online games,
require operators to identify and take action for financially vulnerable consumers and to tackle significant unaffordable gambling through frictionless checks that are not disruptive for consumers.”

Rhodes noted that some of these themes would be common to all regulators at the conference and that while “attitudes, politics, regulatory frameworks and so on may be quite different”, human behaviour is similar cross-jurisdictionally, which may lead to “some commonality in the way approach these areas”.

Prior and upcoming consultations

Rhodes confirmed that the Gambling Commission has received “over 2,300” responses to its first round of White Paper consultations and that those responses “can and will help us improve the changes we make to our rules and to how gambling is regulated in Great Britain”. He considered, however that there have “been some misunderstandings” in relation to financial risk checks, some of which he put down to the complexity of the issue the Gambling Commission is facing. However, according to Rhodes, in other cases, misunderstandings have arisen as a result of “deliberate misinformation designed to muddy the waters of debate and to torpedo the implementation of Government policy.” This is potentially (we think) a not-so-subtle reference to the open letter to Racing Post readers published in September 2023, in which the Gambling Commission complained that the Racing Post has been writing imbalanced stories about the financial risk consultation.

Rhodes went on to confirm that progress is underway on launching “the next tranche of consultations”, which will initially include:

socially responsible incentives (such as bonuses and free bets), and
gambling management tools (including online deposit limits and opt-outs),

with further consultations to follow in 2024.

Gambling data and the evidence base

Rhodes noted that besides consultations, the Gambling Commission is “leading on” improvements to “gambling data” and “the evidence base”. He mentioned that the Gambling Survey of Great Britain will launch early next year. It is set to be the “largest survey of its type” worldwide and attract around 20,000 respondents annually.

He proceeded to outline the “inherent conflict” in relation to the use of problem gambling data, particularly in the context of polarised debate. Rhodes noted that some may seek to cite a low problem gambling rate of between 0.3 percent and 0.5 percent of the population, at the same time as arguing that the same “sometimes limited” sample sizes create “insufficient evidence to support intervention in areas of higher risk”. Although this is contradictory, Rhodes acknowledged that the evidence base requires improvement and promised that the Gambling Survey of Great Britain would help to achieve this – with updated questions for the digital age and “predictable, regular data” for study.

With regard to the broader evidence base, Rhodes reiterated the six priority objectives which were set out in the Gambling Commission’s three-year evidence gaps paper, namely:

early gambling experiences and gateway products;
the range and variability of gambling experiences;
gambling-related harms and vulnerability;
the impact of operator practices;
product characteristics and risk; and
illegal gambling and crime.

Part Two: The black market

Background

In the second half of the speech, Rhodes explained that the Gambling Commission has been taking an increasingly robust approach towards the black market. As above, the tackling of illegal gambling is a priority area of the Commission’s three-year evidence gaps paper, published in May 2023. Rhodes emphasised that while the black market is an issue, it “is not a significant concern” due to the high rate of channelisation. Channelisation refers to the proportion of consumers who gamble in the licensed market in comparison to the illegal market.

Actions

Rhodes outlined some of the actions that the Gambling Commission has been taking to “disrupt unlicenced , illegal online operators through collaboration with others”, which has broadly involved “going upstream, further away from where formal powers begin”. This means working with others to intervene between illegal operators and British customers to “generally frustrate their business and force them out of the market”.

Rhodes gave examples of what this work entails:

increasing engagement with payment providers and financial institutions,
collaborating with internet search and service providers to delist illegal operators from search results and geo-block their websites,
working with social media companies to remove posts which promote illegal gambling,
cooperating with Gambling Commission software licensees to prevent access to products which appear to be available on illegal sites, and
engaging with Gambling Commission licensees where affiliates have placed adverts on illegal websites.

Results

Rhodes revealed that the Gambling Commission’s combative approach has:

“more than doubled the number of successful positive distribution outcomes”
“close down hundreds of illegal lotteries”
“stop influencers promoting unlicensed gambling.

Further, between May and July, Rhodes explained that geo-blocking had restricted access to four of the top 10 illegal domains, and there was a 46 percent reduction in traffic to the largest illegal sites.

The Gambling Commission also “block 17 sites from Google search results through collaboration with Google, and “remov payment facilities from illegal sites” through their work with Mastercard.

Next steps

Rhodes pledged to “continue to study the impact of interventions and respond accordingly”, and to “deepen collaboration with partners in industry, tech and finance” to further strengthen their disruptive capabilities.

Moreover, Rhodes revealed that the Gambling Commission would be holding a Conference in March 2024 to explore “how can work with partners to further decay, frustrate and drive out illegal gambling”.

Rhodes reflected that “strong collaboration with others”, including with other regulators, has been crucial to the results the Gambling Commission’s disruptive enforcement work has yielded so far. However, he wants to see further collaboration take place and urged other regulators to join him in forging and strengthening relationships.

Reflection

This is Rhodes’ second time speaking at the IAGR conference. His last speech, delivered in Melbourne in October 2022 at a time when the White Paper was still pending, appealed for gambling regulators to work better together; share data and evidence; adopt common approaches; and coordinate actions where possible.

This year, Rhodes recognised the role that collaboration has had in successful outcomes during the last year, including in relation to tackling illegal online operators, and reiterated his call for overseas regulators to “share notes” with the Gambling Commission on gambling operators that trade globally.

Rhodes also emphasised that the Gambling Commission is “more than ready to work with ” – referring to a recent roundtable with nine US and Canadian jurisdictions as an example of the Gambling Commission “establish clear working relationships that will support all of us to be more effective”.

At the conclusion of the conference, IAGR members elected Ben Haden of the Gambling Commission as their new president. Mr Haden takes over the presidency from Jason Lane, the Chief Executive of the Jersey Gambling Commission.

Next steps

Please get in touch if you would like to discuss any aspect of this speech or if we can otherwise assist you. You can find out more about the services Harris Hagan provides here.

This blog has been written on the basis of the published version of Rhodes’ keynote speech available here, which may differ slightly from the delivered version.

19Oct

Harris Hagan retains Band 1 ranking in Chambers and Partners

19th October 2023 Harris Hagan 225

We are delighted to announce that Harris Hagan is ranked in Band 1 of Chambers and Partners UK 2024 for Gaming for the 20^th consecutive year.

“The team at Harris Hagan is comprised of experts in their field and is very accomplished at handling the complex landscape of gambling regulation in the UK.”

Partners John Hagan and Bahar Alaeddini continue to be recognised in Band 1. Consultants Julian Harris and Hilary Stewart Jones are ranked as Senior Statespeople. Senior Associates David Whyte and Gemma Boore, together with Associate Francesca Burnett-Hall, continue to be recognised as Associates to Watch. Together they constitute 7 of the 27 gaming lawyers recognised in the directory, befitting our status as a leading specialist gambling law firm. We were also invited by Chambers to write the introduction to the practice area.

We received many positive testimonials, including:

“The lawyers at Harris Hagan are top legal specialists in the remote gaming industry and have been able to assist with all our requests, with the ability to adapt to our business and commercial expectations.”

“John is the go-to person for reliable, practical and sensible advice. He has vast experience across the gambling sector and is able to draw on this to support our business.”

“Bahar is a master at solving complex issues and has an encyclopaedic knowledge of gaming laws and regulations.”

“David is very responsive and knows the industry, regulations and landscape well.”

“Gemma is very easy to deal with as well as very proficient in every aspect of her work.”

“Francesca is always available and very diligent.”

In view of the sensitive nature of much of our work, it is our long-held policy not to name clients in directories, but you know who you are, and we thank you for your continuing instructions and for helping us achieve these impressive rankings.

06Oct

Harris Hagan continues to be ranked Tier 1 in The Legal 500

6th October 2023 Harris Hagan 241

We are delighted to announce that Harris Hagan continues to be ranked in The Legal 500 2024 as Tier 1 for Gaming and Betting in the UK.

“There’s no one else to go to other than Harris Hagan for everything gaming. One stop shop for all your needs. They deliver trust, confidence and integrity.”

Managing partner John Hagan, alongside consultants Julian Harris and Hilary Stewart-Jones continue to be listed in The Legal 500’s Hall of Fame, and partner Bahar Alaeddini retains her listing as a Leading Individual.

David Whyte, senior associate, has been listed as a Rising Star and remains a key lawyer, alongside senior associate Gemma Boore, and associates Francesca Burnett-Hall and Jessica Wilson.

We received many positive testimonials, including:

“Market leader in gaming law.”

“The team is very knowledgeable about UK gambling laws and engaging with the regulator.”

“The individuals at Harris Hagan have a deep knowledge of not just the British gambling laws, but also of the way in which the regulator operates.”

“In-depth knowledge of gambling licensing in terms of regulations and how they are implemented.”

“Bahar Alaeddini and Jessica Wilson get full marks.”

“John Hagan, Julian Harris and Bahar Alaeddini are prominent leaders in the gaming law field.”

We wish to thank our clients and friends of the firm for their input and recognition of our work.

26Sep

Bahar Alaeddini named an Emerging Leader of Gaming 40 under 40

26th September 2023 Harris Hagan 220

We are very delighted to announce that Partner Bahar Alaeddini has been named an Emerging Leader of Gaming 40 under 40 by The Innovation Group, organisers of the Emerging Leaders of Gaming, and Global Gaming Business.

The programme recognises professionals under the age of 40 already making significant impacts in the global gambling industry, and the next generation of industry leaders.

This honour recognises Bahar’s continued exceptional impact on the gambling industry since joining Harris Hagan in 2012. Bahar advises many of the world’s largest online and land-based gambling companies, regulators, governments, financial institutions, and private equity firms on gambling law and regulation. Bahar is also at the forefront of thought leadership in the gambling sector, sharing her extensive experience and insight by authoring many articles on the topic, including acting as the editor of the Chambers Global Practice Guide on Gaming Law. Additionally, Bahar is General Counsel of the International Association of Gaming Advisors and top-ranked in Chambers UK and The Legal 500.

The group’s achievements will be celebrated at G2E in the Networking Lounge (Booth 5649) on 11 October 2023 from 4pm to 5pm. The reception is open to all registered G2E attendees, including past honourees and professionals across the Emerging Leaders of Gaming network.

22Sep

Julian Harris wins VIXIO’s 2023 Compliance Lifetime Achievement Award

22nd September 2023 Harris Hagan 237

We are very delighted to announce that Consultant and Founder Julian Harris has been awarded the Global Regulatory Award for Compliance Lifetime Achievement by VIXIO Regulatory Intelligence.

This special award recognises Julian’s unprecedented work in trailblazing a “culture of compliance and regulatory standards within the industry” for more than 40 years. During that time, Julian has advised many of the world’s largest online and land-based gambling companies, regulators, governments, financial institutions, and private equity firms on gambling law and regulation. Julian has also been at the forefront of thought leadership in the gambling sector, sharing his extensive experience and insight on various gambling regulatory issues by authoring many articles on the topic, including acting as editor of global publications on gambling law, and in his speeches at conferences across the world. He also served as President of the International Association of Gaming Advisors, the first person to do so from outside North America, testament to the esteem in which he is held amongst gaming advisers worldwide.

Julian first came to specialise in gambling law in 1981 representing the Gaming Board for Great Britain (the then British regulator). He co-founded Harris Hagan with John Hagan in 2004, in anticipation of the Gambling Act 2005 and the expected growth of the gambling industry in Great Britain. It was a bold and inspired decision at a time when niche law firms were rare in the City of London.

Upon receiving this distinguished award, Julian commented:

“I am greatly honoured and humbled by this award. I have felt privileged to have enjoyed being a part of this exciting industry for some 40 years, working with industry, fellow advisers and regulators internationally.
To receive this award from such a distinguished panel of judges and from the most respected global regulatory awards is particularly gratifying.”

The 2023 Global Regulatory Awards will take place on 29 November 2023.

03Aug

White Paper Series: Direct marketing and cross-selling in the crossfire

3rd August 2023 Gemma Boore 267

Welcome back to Harris Hagan’s White Paper Series of articles.

We have previously discussed the UK Government’s proposals relating to gambling sponsorship (see our previous White Paper Series article on sponsorship).

In this article, we outline changes proposed in the Gambling Commission’s Summer 2023 consultation regarding direct marketing and cross-selling (the “DM Consultation”), which was published on 26 July 2023 and will remain open for 12 weeks, closing 18 October 2023. We then contrast these proposals with the UK Government’s recommendations in the White Paper: High stakes: gambling reform for the digital age regarding direct marketing and cross-selling. Finally, we explain how, if implemented, the Gambling Commission’s proposals would change current privacy and direct marketing laws, and how they apply to the gambling industry as a whole.

1. Background

In Chapter 2 of the White Paper, which deals with marketing and advertising, tougher restrictions on bonuses and direct marketing are one of the key reforms proposed by the Government. In the introduction to the chapter, the Government confirms that it recognises that online bonus offers can present risk, particularly for those experiencing gambling harm. In order to mitigate this risk, one of the key recommendations in Chapter 2 is that the Gambling Commission consult on strengthening consent for direct marketing, with the aim to give customers more choice in terms of the marketing they receive and how.

According to the White Paper, the proposal to strengthen consent for direct marketing is in addition to what the White Paper refers to as (emphasis added):

“the forthcoming introduction of requirements to not target any direct marketing at those showing strong indicators of risk, as outlined in the Gambling Commission’s requirement 10.”

For those in the know, this rather cryptic/confusing reference is to Requirement 10 of social responsibility code provision (“SRCP”) 3.4.3 of the Licence Conditions and Codes of Practice (“LCCP”), which reads as follows (emphasis added again):

“Licensees must prevent marketing and the take up of new bonus offers where strong indicators of harm, as defined within the licensee’s processes, have been identified.”

Requirement 10, which is now in force, was originally due to come into effect on 12 September 2022 alongside the Gambling Commission’s revised Remote Customer Interaction Guidance (“RCI Guidance”). However, to widespread surprise, the Gambling Commission delayed the implementation of Requirement 10 to 12 February 2023 and decided at the last minute to consult on the RCI Guidance before it came into effect.

The subsequent Consultation on Remote Customer Interaction (the “RCI Consultation”) was launched on 22 November 2022 and open for only six weeks (subsequently extended to nine) instead of the traditional 12. Eight months later, the RCI Guidance is still not in effect and the Gambling Commission has yet to publish a response to the RCI Consultation.

It is therefore confusing that the White Paper (published on 27 April 2023):

links to the not-yet introduced RCI Guidance when it refers to Requirement 10;
refers to the Requirement 10 as “forthcoming”; and
suggests that Requirement 10 applies where there are “strong indicators of risk” (not “strong indicators of harm”, the latter being the language of both SRCP 3.4.3 and the RCI Guidance).

It is also perplexing that the Gambling Commission has chosen to publish the DM Consultation before the RCI Consultation, despite promising the contrary at IAGA’s 40^th Annual Gaming Summit in Belfast.

For further analysis on the RCI Consultation (which we now have no idea when the response to which will be received), please see our five-part series of articles with Regulus Partners. available here: Part 1; Part 2; Part 3; Part 4 and Part 5.

Back to the topic at hand: Direct marketing. In the White Paper, the Government sets out a number of proposed principles for the Gambling Commission to explore through the DM Consultation, set out below:

At first blush, these appear on balance to be sensible suggestions that broadly build upon principles in existing privacy and direct marketing laws; we discuss this in further detail below.

More recently, in a pre-briefing to selected industry stakeholders on 5 July 2023, the Gambling Commission used its own terminology/short hand to describe the areas upon which the DM Consultation would focus:

Finally, on 26 July 2023, the Gambling Commission published its first summer consultation, a copy of which is available here:

Download the DM Consultation

Below, we:

explain the current legal position in relation to each of the principles identified by the Government in the White Paper as requiring reform;
(attempt to) link the White Paper principles to the Gambling Commission’s proposal, as set out in the DM Consultation, to add a new SRCP to the LCCP regarding direct marketing preferences (“SRCP 5.1.12”); and
finally, share our views on possible implementation issues, timelines, practicalities and direct costs that may impact the industry should SRCP 5.1.12 come into force in its current form – with the aim to help respondents shape their own responses to the DM Consultation.

For ease of reference, the proposed wording for SRCP 5.1.12 is set out below:

“Applies to: All licences
SR Code – 5.1.12 – Direct marketing preferences
Licensees must provide customers with options to opt-in to direct marketing on a per product and per channel basis. The options must cover all products and channels provided by the licensee and be set to opt-out by default. These options must be offered as part of the registration process and be updateable should customers’ change their preference. This requirement applies to all new and existing customers.
Channel options must include email, SMS, notification, social media (direct messages), post, phone call and a category for any other direct communication method, as applicable.
Product options must include betting, casino, bingo, and lottery, as applicable. Operators must make clear to customers which products they offer are covered under relevant categories.
Where an operator seeks an additional step for consumers to confirm their chosen marketing preferences, the structure and wording of that step must be presented in a manner which only asks for confirmation to progress those choices with one click to proceed. There must be no encouragement or option to change selection; only the option to accept or decline their selection.
Customers must not receive direct marketing that contravenes their channel or product preferences.”

If you would like our assistance responding to the DM Consultation, please contact Gemma Boore or your usual contact in the Harris Hagan team.

2. Analysis

Principle A in the White Paper: Opt-in to marketing and offers should be clear and separate options at sign‑up, not bundled with other consent such as broader terms and conditions and privacy policy.

What is the current legal position?

As rightly noted in the White Paper, there are already clear requirements that operators must seek informed and specific consent to send direct marketing to consumers. These are outlined in the Privacy and Electronic Communications (EC Directive) Regulations 2003 (“PECR”) and UK General Data Protection Regulation, as implemented by the Data Protection Act 2018 (“UK GDPR”) – both enforced by the Information Commissioner’s Office (“ICO”).

The current legal position can be broken down as follows:

PECR requires that, subject to limited exceptions, specific prior consent must be obtained to send direct marketing to individuals by electronic communication (e.g. emails, calls and texts – NB. this does not include non-electronic methods of communication, this will be important later on).
According to ICO guidance, the best way to obtain valid consent is to ask customers to tick opt-in boxes confirming they are happy to receive marketing calls, texts or emails from you.
Consent is defined in the EU General Data Protection Regulation (“EU GDPR”) (which was transposed into national law by UK GDPR following Brexit) as “any freely given, specific, informed and unambiguous indication of the data subject’s wishes by which he or she, by a statement or by a clear affirmative action, signifies agreement to the processing of personal data relating to him or her” .
To put things simply, the implementation of EU GDPR significantly strengthened the concept of consent for the purposes of PECR and meant that many companies needed to refresh consents previously obtained for direct marketing as they did not meet EU GDPR’s new higher threshold of consent. This was typically because existing consents had not been freely given (e.g. they were obtained in order to gain an incentive, such as an entry into a competition); were not specific enough (e.g. they did not specify who would send the marketing, or what type of marketing would be sent); or had been obtained by means of a pre-ticked box during sign up (which does not involve an affirmative action by the customer – rather, it requires inaction).
There is however, one key exception in PECR to the requirement to obtain consent to direct electronic marketing and this is known as the “soft opt-in”.
Broadly, the soft opt-in means that you do not need to obtain consent when you’re sending marketing emails or texts to offer similar goods or services to your customers or prospective customers. The example given in the ICO guidance is that “if a customer buys a car from you and gives you their contact details, you’d only be able to market to them things that relate to the car eg offering services or MOTs”.
To rely on the soft opt-in, you must give the customer a simple opportunity to refuse or opt out of the marketing, both when first collecting the details and in every message after that.

As can be seen from the above, there is an argument that the second limb of Principle A (i.e. consent should not be bundled with other consent such as broader terms and conditions and privacy policies) does not alter the current legal position. The higher threshold of consent to direct electronic marketing is already required and has been since 25 May 2018 (when EU GDPR came into force). It would be very difficult to argue that marketing consents bundled with consent to, for example, terms & conditions or privacy notices are “freely given, specific, informed or unambiguous” – and any gambling operators engaging in this practice are already at risk of enforcement action from the ICO. So, what did the Government want the Gambling Commission to change?

What is proposed in the DM Consultation?

SRCP 5.1.12 proposes new specific requirements for licensees to offer all customers (not just new) more granular consent options (per channel and per product) – with consent options set to opt-out by default (i.e. not pre-ticked). There is no exception to this rule, i.e. gambling companies will no longer be able to rely upon the soft opt-in. Arguably, this does not change the high bar of consent that is already required under UK GDPR and PECR (as intimated by the Gambling Commission’s pre-briefing); rather, it removes an exception to the high bar of consent which otherwise applies to all other commercial businesses in the UK.

Turning to the first limb of Principle A (i.e. opt-in to marketing and offers being clear and separate options at sign-up), this indicated that the Government wanted to give consumers more choice in terms of whether they receive (i) marketing and/or (ii) offers.

The Government’s commentary regarding submissions in the call for evidence from people suffering from gambling harms sheds some light on what was intended here:

“Submissions from people with personal experience of gambling harms elaborated on the negative effects which can come from… …direct marketing and inducements. These ranged from feeling ‘spammed’ by the volume of marketing, including in forms such as push notifications that they had not intentionally agreed to; to continuing to receive marketing even after an operator had removed them from offers due to the risk of harm and receiving promotions via email during periods of abstinence which triggered a relapse.”

It appears the Government is distinguishing between marketing of a service, on one hand (for example, provision on odds for sporting events or new casino games by email, text or push notification); from the provision of incentives such as free bets or bonus offers, on the other.

Surprisingly, there is no equivalent reference to this distinction in the DM Consultation.

What could possibly go wrong?

If operators can no longer rely upon the soft opt-in exception, this would:

significantly alter current practices whereby operators and affiliates have to date, in line with current rules, sent (e.g.) marketing emails and texts to customers offering similar services;
result in operators and affiliates needing to seek fresh consent from millions of individuals that have not actively opted-out to marketing – potentially losing huge tranches of customer databases in the process; and
mean gambling would stand alone – in terms of being the only commercial industry in which express consent is always required in order to send electronic marketing.

These changes are likely to have a huge impact on big and small operators alike, as well as the affiliates that send direct marketing on their behalf – each of which are likely to have spent significant time and money curating their customer databases lawfully since EU GDPR, often by relying on the soft opt-in.

And when would this momentous change take place? The Gambling Commission notes that preferences to receive offers would need to “be reconfirmed in a new format”, implying that fresh consent must be obtained in order to be able to continue marketing to customer databases after a certain date. Will this be the case from a hard-stop date, or will an operator be permitted to send marketing until its customer is next presented with the option to reconfirm preferences (e.g. the next time they sign in) – meaning that some customers will forever lie in limbo, receiving marketing but never confirming that they no longer wish to receive it?

The Gambling Commission’s commentary in the DM Consultation regarding the process for existing customers suggests that the latter option may indeed be the case:

“We are proposing that, if introduced, licensees must direct customers to the webpage or area of the site/app where they can decide whether to opt in to offers or not at the first opportunity after implementation date, for example upon next login.”

Either way, refreshing consent for all soft opted-in customers (or, in the worst-case scenario, all customers), will undeniably result in a huge number of customers that are currently receiving marketing with no objections, suddenly being suppressed from marketing lists – and consequential loss of revenue for operators and affiliates.

How many of those customers will expressly opt back in with each operator, for each product and for each channel – surely only a proportion…. was this what is intended? A clean start for the population as a whole – so those who wish to receive gambling marketing can, once again, choose to receive the (metaphorical) filth and the remaining population (who must have either gambled or opted into marketing at some point if they are currently receiving marketing – after all, EU GDPR did happen) can be spared? Was this really what the Government intended in the White Paper or the Gambling Commission’s way of quashing gambling advertising to the greatest extent possible, despite the Government’s conclusion that it could not find a causal link between advertising and gambling harms or the development of a gambling disorder?

Finally – although those in the pro-gambling camp may not wish to highlight this in their response – no commentary on the DM Consultation would be complete without acknowledging the lack of mention of the Government’s recommendation that opt-ins to marketing and offers should be clear and separate options at sign‑up. Although this may be a relief for the industry (who might want to distinguish consent for incentives vs generic marketing), what does it say about the Gambling Commission’s ability to transpose the UK Government’s recommendations into enforceable, realistic and practical requirements? Playing devil’s advocate, it is of course, possible that the Gambling Commission plans to save this final treat for its forthcoming consultation on free bets and bonus offers, which is due later this year.

We can but “watch this space”.

Principle B in the White Paper: Customers should be able to change preferences at any time through their account settings.

What is the current legal position?

The right to withdraw consent is entrenched under EU GDPR. Article 7(3) provides that the “data subject shall have the right to withdraw his or her consent at any time” and “It shall be as easy to withdraw as to give consent”.

Similarly, and as noted above, those seeking to send direct electronic marketing without obtaining consent under the soft opt-in must be given a simple opportunity to refuse or opt out of the marketing, both when first collecting the details and in every message after that.

The question is therefore how the DM Consultation was intended to build on current legal requirements.

Some light is shed on the issue by the following commentary in the White Paper:

“…a recent behavioural audit of popular online gambling operators found there was usually extra friction associated with unsubscribing from communications, including ‘scarcity messages’ to discourage consumers from doing so.”

This audit, which was conducted by the Behaviour Insights Team (“BIT”), cited various examples of ‘dark patterns’ used by gambling operators. Dark patterns are techniques used to encourage or compel users into taking certain actions, potentially against their wishes.

From a marketing perspective, the dark patterns identified in BIT’s audit included emotional messaging (e.g. making the customer feel guilty about wanting to unsubscribe) and false hierarchies (e.g. making buttons that the operator wants the customer to press brighter, more colourful, or easier to find, than for example, an unsubscribe button).

What is proposed in the DM Consultation?

SRCP 5.1.12 requires that options to opt-in for direct marketing must be offered to customers as part of the registration process and be “updateable” if customers want to change their preferences.

In addition, the Gambling Commission acknowledges the results of the BIT audit in the preamble to the DM Consultation and cites an example of one operator seeking confirmation when a customer opted-out of marketing in a way which appeared designed to introduce a fear of missing out on offers. In its commentary, the Gambling Commission notes that:

“While seeking a confirmation could be useful to ensure preferences haven’t been accidentally altered, any accompanying message shouldn’t be aimed at discouraging the player’s choice.”

This led to the following (slightly long-winded and very specific) requirement in SRCP 5.1.12:

“Where an operator seeks an additional step for consumers to confirm their chosen marketing preferences, the structure and wording of that step must be presented in a manner which only asks for confirmation to progress those choices with one click to proceed. There must be no encouragement or option to change selection; only the option to accept or decline their selection.”

What could possibly go wrong?

The first requirement for preferences to be “updateable” is of course, an extension of the White Paper’s explicit suggestion that customers should be able to change marketing preferences at any time via account settings. This practice of course, already being common within the industry (not least because the right to withdraw consent is a fundamental concept of EU and UK GDPR) – but not a specific requirement under the LCCP. By incorporating such a requirement into the LCCP as a SRCP, compliance will be a condition of licences and in the event of breach, the Gambling Commission will have the right to take enforcement action, as well as the ICO.

The second requirement, introduced to prevent operators from encouraging customers not to unsubscribe from marketing, in our view, feels a little short-sighted. Rather than limiting such a restriction to additional steps in the unsubscription process, the Gambling Commission could have sought to prohibit the use of dark patterns in direct marketing completely, potentially by publishing new guidance.

By side stepping the issue, SRCP 5.1.12 addresses only one of the problems identified by BIT in its audit. This means that the use of other dark patterns may continue to permeate gambling marketing following the implementation of the White Paper and beyond. For example, in terms of emotional messaging or false hierarchies in other parts of the customer consent journey or within direct marketing messages themselves (rather than just on one page that confirms a customer’s request to unsubscribe).

Principle C in the White Paper. Operators must offer the opportunity to opt-in and out of different forms of communication (e.g. text vs email vs push notifications).

What is the current legal position?

The position under PECR is best summarised in the ICO’s Direct Marketing Guidance, which states (emphasis added) that:

“When using opt-in boxes, organisations should remember that to comply with PECR they should provide opt-in boxes to obtain specific consent for each type of electronic marketing they want to undertake (eg automated calls, faxes, texts or emails). Best practice would be to also provide similar opt-in boxes for marketing calls and mail.”

The ICO goes on to give the following example of good practice:

Push notifications and direct messages on social media are not mentioned in the ICO’s Direct Marketing Guidance, but it follows that specific consent should also be obtained to these channels as they are examples of electronic marketing.

According to the White Paper, the Government is not convinced that the granular level of channel consent required by PECR is being obtained across the industry as a whole:

“When signing up, many major operators offer only an ‘all or nothing’ approach where a user is either unsubscribed from all marketing or provides consent to all communications.”

It follows that the DM Consultation would explore the need to reiterate current PECR requirements, by mandating that specific consent is obtained to each channel that will be used for direct electronic marketing.

What is proposed in the DM Consultation?

As drafted, SRCP 5.1.12 requires that licensees must provide customers with options to opt-in to direct marketing on a per-channel basis. Specifically:

“Channel options must include email, SMS, notification, social media (direct messages), post, phone call and a category for any other direct communication method, as applicable.”

What could possibly go wrong?

While we knew it was very likely (if not a certainty) that the DM Consultation would consult on requiring the industry to obtain specific, granular consent for electronic marketing channels such as email, SMS and by extension, push notifications and direct messages on social media; we are surprised that the Gambling Commission is also considering requiring prior consent to marketing by telephone or post. It is surprising because neither of these channels are currently subject to consent requirements in PECR – rather, the ICO refers to options to opt out of these channels as being “best practice”.

As is the case with the removal of the soft opt-in, this change will mean the gambling industry stands alone in the UK as the only commercial industry in which consent is required to send marketing by post or live phone call. Is this not perhaps, a step beyond what was intended by the Government in the White Paper? If we turn back to Principle C in the White Paper, it is notable that this mentions text, email and push notifications only. Did the Government really think new restrictions should also apply to live phone calls and post – or is this another example of the Gambling Commission exceeding its remit and seeking to further suppress gambling advertising even when the Government has concluded there is a lack of conclusive evidence of a relationship between gambling advertising and harm?

Finally, respondents will note that there is a question in the DM Consultation regarding whether the category “any other direct communication method” future proofs SRCP 5.1.12. In our view, this does indeed have the effect of future proofing the provision but, in the same way as the references to “post” and “phone call” in SRCP 5.1.12 extend consent requirements beyond PECR, the catch-all category will also extend it to all other present and future non-electronic methods of communication. For example, a face-to-face conversation with a gambler in a casino, bingo hall, betting shop, racecourse – or even on the street.

Once again, is this really what is intended and if it is, how does one obtain consent to having a conversation with someone without any communication in the first place? In our view, in order to be practical, prevent inadvertent breach by licensees and reduce the current (perhaps unintended?) regulatory creep, SRCP 5.1.12 should be restricted to the types of electronic communication for which prior consent to direct marketing is already required under PECR (e.g. texts, fax, emails, automated phone calls etc).

Principle D in the White Paper. Customers should be given the option to opt-in to bonuses and promotional offers separately from other marketing, and to set controls regarding which products they receive offers on. Specifically, there should be no ‘cross-selling’ without user opt-in.

What is the current legal position?

Please see our analysis of Principle A above, for a discussion regarding the distinction between incentives and generic marketing – and conclusion that Government’s recommendation to these two forms of marketing be distinguished for consumers has not come to fruition in the DM Consultation.

With regard to cross-selling (which is the practice of marketing a product (e.g. casino) to a customer that is actively participating in another product (e.g. bingo)), it is important to remember that consent under UK GDPR must be freely given, specific, informed, and unambiguous.

The “specific” and “informed” aspects of this definition suggest that the practice of cross-selling different products and services could prove difficult when express consent is relied upon. If an individual has agreed to receive marketing regarding online bingo, they would not expect to receive marketing regarding sports betting opportunities, for example.

The soft opt-in exception to PECR however, is more permissive. In this case, marketing emails or texts regarding similar goods or services can be sent to customers without express consent being obtained in advance. According to the ICO’s Direct Marketing Guidance, the key question when determining whether products are similar is whether the customer would reasonably expect messages about the product or service in question.

In the White Paper, the Government revealed that it was particularly concerned regarding cross-selling practices in the industry. It noted that although causality between problem gambling and gambling on multiple products was not clear, various pieces of evidence presented to it revealed troubling findings:

“the number of different gambling activities individuals participate in is a risk factor for harmful gambling in young people, and that participating in seven or more gambling activities was associated with harmful gambling in adults.”

“engagement with multiple activities is associated with harm, raising important questions about the appropriateness of operators actively encouraging customers to expand their repertoire, particularly to those products associated with a higher problem gambling rate such as online slots.”

The White Paper goes on to recommend that there should be an increased level of customer choice around whether customers receive promotional offers and if so, what kind of offers and for which products.

The key question for the Gambling Commission to consider was therefore, how granular should any such requirement be? Marketing of (i) online slots to horse racing bettors; or (ii) online bingo to sports bettors (being the two examples given in the White Paper) are obvious examples that are likely to require separate consent going forward. But what about marketing online slots to land-based slots customers or marketing online poker to customers that play other card games online?

What is proposed in the DM Consultation?

The Gambling Commission appears to have gone for the easy option here. It has proposed, in new SRCP 5.1.12, that licensees provide customers with options to opt-in to direct marketing on a per product basis. Specifically:

“Product options must include betting, casino, bingo, and lottery, as applicable. Operators must make clear to customers which products they offer are covered under relevant categories.”

For clarity, examples of products that fall into these broad categories are set out in the preamble to the proposal:

“…the betting option includes virtual betting, gambling on betting exchanges, betting on lottery products as well as all real event betting. Casino includes slots, live casino, poker and all casino games. Bingo includes only games offered in reliance on a bingo licence e.g., not casino products. Lottery covers any lottery product offered in reliance on a lottery licence.”

What could possibly go wrong?

The Gambling Commission’s decision to broadly categorise all gambling products into four pots: (i) betting, (ii) casino, (iii) bingo and (iv) lottery, will be welcome news for marketing teams. By grouping the wide array of potential gambling products so broadly, there will still be many opportunities for cross-selling within each stand-alone category.

To provide some colour – although it will no longer be possible to market slot games to sports bettors – operators with diverse product offerings will still be able to cross-sell a wide range of products. For example:

someone receiving marketing about sports betting could be sent opportunities to bet fixed odds on the weather, politics, lotteries or virtual events – or even match bet other users on a betting exchange;
someone receiving marketing about slot games could be shown games such as keno, poker, roulette, baccarat or any of the other wide array of games in the casino family;
someone receiving marketing about lotteries could be offered scratch cards to raise money for the same, or a similar, good cause.

In each case, these communications could be sent without prior specific consent – provided the customer consented to receive direct marketing regarding the wider category of products. Arguably, such consent may have been given in the first place, with the expectation that direct marketing would be sent regarding products that the customer was already actively using only (e.g. sports betting offers for sports bettors; free stakes for slot game players etc.) – this will no longer be the case.

We query whether in fact, this change chips away at – rather than extends – the high bar of consent currently required by PECR.

3. Conclusion

In this article, we have delved into the proposals in the DM Consultation regarding direct marketing and given you, the reader, our high-level observations on some of the issues that may arise if SRCP 5.1.12 is introduced in its current form, without amendment. This is, however, just the consultation phase and the Gambling Commission has released the proposed wording for SRCP 5.1.12 with the stated intention (whether or not honourable) of collating feedback from interested stakeholders before making a final decision on how to proceed.

In the short time before the consultation closes on 18 October 2023, we urge you to consider (and if possible, investigate) the impact that SRCP 5.1.12 would, as drafted, have on your business. If the industry is to positively influence the consultation process, it is imperative that it engages by submitting evidence-based and fully considered responses. The more voices that are heard, the more likely the Gambling Commission is to take into account feedback on its proposals and, if appropriate, adjust them to better reflect the recommendations made by the Government in the White Paper and hopefully, reduce the likelihood of unintended consequences.

The time has officially come to speak now – or forever hold your peace. Please get in touch with us if you would like assistance responding to any of the Gambling Commission or DCMS consultations.

04Jul

White Paper Series: The Gambling Commission’s powers – more to come?

4th July 2023 David Whyte 255

As all stakeholders seek to get to grips with the White Paper and their focus is drawn to its high-profile proposals such as financial risk checks and stake limits, they might be forgiven for overlooking the potential aftereffects apparent from some of the more inconspicuous proposals, particularly when those proposals are considered in the context of the Gambling Commission’s Advice to Government – Review of the Gambling Act 2005 (the “Advice to Government”).

When referring to the Gambling Commission’s powers and resources in the White Paper, the Government states in its summary (our emphasis added):

“The Commission has a broad range of powers that enable it to regulate the industry effectively but there are some small changes that could be made around its ability to investigate operators, including improving the Commission’s responsiveness to changes of corporate control.”

There is limited information contained in the White Paper about what those “small changes” might be. Points of note are:

“The government and the Commission are clear that an enhanced approach to compliance enforcement is required to effectively monitor the industry and ensure that operators are abiding by the rules.”
The Gambling Commission has advised that “some of its powers concerning investigations could be enhanced to better protect consumers and hold operators to account”. In particular, “it is concerned that licence holders are able to take action that can hinder or frustrate an investigation, including surrendering their licence during the course of the investigation.”

The Government concludes:

“When Parliamentary time allows, we will legislate to give the Commission additional powers to assess and regulate new business owners, reflecting the increased complexity of the entities that it regulates. We will also look at the case for providing further powers to ensure that licensees are not able to interfere with the Commission’s ability to conclude its investigations or move their finances to reduce the size of their fine.”

To understand fully the extent of the “small changes” or “further powers” that the Government may decide are appropriate, it is necessary to consider the Advice to Government, within which the Gambling Commission proposes amendments to the Gambling Act 2005 (the “2005 Act”) “to allow for streamlined regulatory action in a number of areas”. This article focusses on three of those areas: (a) the process for change of corporate control (“CoCC”) applications; (b) options for investigations and licence surrender; and (c) flexibility for penalties that can be imposed on licensees.

Change of corporate control

Under section 102 of the 2005 Act, a change of corporate control (“CoCC”) takes place when a new person or other legal entity becomes a new “controller” of a licensee (more information on a CoCC can be found in our previous blog). When a CoCC occurs, licensees must notify the Gambling Commission, via eServices by means of a key event, as soon as reasonably practicable and in any event within five working days of them becoming aware. Licensees must then submit a CoCC application within five weeks of the event occurring or the Gambling Commission is obliged to revoke the licence, although it may, at its discretion, extend the five-week period. Presently, in determining a CoCC application, the Gambling Commission has a binary choice, it may, in law, only grant the application or refuse it. If the latter, the licence is revoked.

The complexity of corporate structures and financing have increased the burden on both the Gambling Commission and licensees to investigate and/or evidence proof of ownership and source of funds related to CoCC applications and this, along with suitability considerations, means increasingly prolonged investigations. The Gambling Commission recommends: (a) the removal of the binary nature of the CoCC decision, to allow for the possibility of it granting the application subject to its imposition of conditions on the licence; (b) an amendment to allow for the appeal by a licensee against the Gambling Commission’s decision not to grant an extension of the five-week period for the submission of a CoCC application, which at present can only be appealed by means of judicial review; and (c) that it be given the ability to apply a financial penalty for the submission of CoCC applications outside the five-week reporting window.

In the main, these proposals are proportionate and reasonable. The removal of the binary nature of the CoCC decision will benefit both licensees and the Gambling Commission, as will the introduction of the proposed appeal process. The Gambling Commission has become increasingly strict in relation to the late submission of CoCC applications, so licensees will be unsurprised that it is now proposing the imposition of a financial penalty in those circumstances. Whilst a financial penalty is certainly better than the alternative of revocation, licensees may wish to seek clarification in relation to how the quantum of the proposed financial penalty will be calculated. A fixed fee would most certainly be preferable to the application of the Statement of principles for determining financial penaltie s (the “FP Statement”), which incudes no formula for calculating quantum, allows for uncapped financial penalties, and contains various criteria that may be not be appropriate to the late submission of a CoCC application.

Refusal of licence surrender

The Gambling Commission recommends that the Government considers amending the 2005 Act to permit it to refuse a licence surrender under certain circumstances when an investigation is taking place, so that it retains “regulatory authority” over licensees, post surrender, primarily with a view to it imposing a financial penalty. The implication from the Gambling Commission’s proposal, which is supported by little more than reference to “vidence from casework” is that, in its view, licensees may be utilising surrender as a means of avoiding a financial penalty, and that they may “move finances during, or in anticipation of, an investigation” to avoid the same.

Potential options proposed by the Gambling Commission are: (a) requiring its consent before the surrender of a licence in circumstances where enforcement action has been commenced; (b) extending the application of the relevant sections of the 2005 Act that provide the power for the Gambling Commission to impose a financial penalty, such that for a specified period they apply to a licence that has lapsed or been surrendered; and (c) amending the 2005 Act to prevent licensees from triggering a mandatory licence revocation by failing to pay their annual licence fee.

We have several concerns about this proposal and the Gambling Commission’s justification for it:

Licences are valuable assets that are difficult to obtain. Reputable licensees subject to enforcement action will: (a) wish to continue to operate in the British market, clear their name and protect their asset; and/or (b) be very concerned at having to disclose their surrender to regulators in other jurisdictions without having defended the alleged licence condition breach to a conclusion; and/or (c) be aware their previous standing will be taken into account in the context of any new licence application, as will that of the PML holders and controllers involved. Surrender is much more likely to be due to a desire to exit the market in Great Britain, likely influenced by ever-increasing regulatory requirements, the inordinate length of time taken by the Gambling Commission to carry out a licence review, or by other commercial or economic factors. Some licensees who do surrender might not even have considered doing so, but for the reminder included by the Gambling Commission in much of its enforcement related correspondence that a licence can be surrendered at any time. The implication of widespread manipulative intent in the Advice to Government is therefore wrong and perhaps provides valuable insight into how the Gambling Commission perceives the integrity of its licensees.
Very exceptionally, an unscrupulous licensee may surrender their licence deliberately to avoid a financial penalty. In those very rare instances, those who do so might better be dealt with by means of criminal prosecution and the consequence and protection that brings, rather than be subject to sanction by what will, at that stage, be an exacerbated Gambling Commission.
One of the reasons given by the Gambling Commission for its recommendation is that “a surrendered license leaves unable to protect consumers or take regulatory action to hold the licensee accountable for their actions.” We struggle to understand how imposing a financial penalty on a licensee that has surrendered their licence will further protect consumers. The surrender itself, prompted by the Gambling Commission’s action, must surely both protect consumers and hold licensees accountable.
Punitive sanctions form an important part of the Gambling Commission’s regulatory toolkit but when a licence surrender has already removed all risk, are not critical to its upholding of the licensing objectives set out at section 1 of the 2005 Act. We question whether it is appropriate for the Gambling Commission, or any other regulatory body, to retain regulatory authority over a former licensee in those circumstances, when the sole objective is to facilitate the imposition of a punitive financial sanction. If, as the Gambling Commission suggests, licensees have moved finances deliberately to avoid a financial penalty, the refusal of surrender is not going to guarantee a different outcome.
A financial penalty can only be imposed if there has been a breach of a licence condition, which, by virtue of section 33 of the 2005 Act, is a criminal offence. The Gambling Commission is therefore able to prosecute should it wish to seek to impose a punitive sanction. However, the Gambling Commission may be less inclined to take this approach because: (a) it would be obliged to prove the offence beyond reasonable doubt, rather than to the lower burden of proof of balance of probabilities applicable to its imposition of a financial penalty; (b) it would likely be held to higher investigative standards and more restrictive time limits by the criminal courts; and (c) unlike a financial penalty which is unlimited and paid into the Consolidated Fund, the quantum of court fines is restricted by statute and fines are paid to the courts.

Licensees would be wise to monitor the Gambling Commission’s next steps in this area so that they may challenge the logic of this recommendation when it is revisited by either the Gambling Commission or the Government in consultation.

Flexibility for penalties that can be imposed on licensees

Statutory time limits

In the Advice to Government, the Gambling Commission refers to the 12-month time limit for laying criminal charges and the 24-month time limit for imposing a financial penalty prescribed by the 2005 Act. It suggests that these time limits have restricted its ability to prosecute or impose a financial penalty in cases where “establishing a breach” is “very complicated” and proposes amendments to the 2005 Act to: (a) introduce greater flexibility in the time limits for bringing prosecutions; and (b) explore extending the cut-off period for the imposition of a financial penalty.

Although the Gambling Commission states that it has “sound evidence from regulatory experiential knowledge and casework” that underpins its recommendations, the examples used by the Gambling Commission as justification are very broad and insufficiently detailed. As most licensees who have been involved in Gambling Commission enforcement action have experienced, the primary reason for the delay is not that “the increasing complexities of gambling businesses make establishing a breach in some cases very complicated” but rather the Gambling Commission’s inefficiency.

Licensees subject to the Gambling Commission’s enforcement process are often required to adhere to relatively short deadlines, whereas the Gambling Commission operates to much longer deadlines. Some licensees have had to wait six months or more to receive a response or update from the Gambling Commission, often only to receive a preliminary findings or findings letter that largely repeats the content of its previous correspondence. It is this inefficiency that leads to the expiration of statutory time limits. A significant factor that has led to the increasing complexity of the Gambling Commission’s investigations will likely be its inconsistent application of its regulatory requirements or a lack of clarity about the same, particularly given its increasing introduction of formal requirements through guidance, and the lack of clarity as to its expectations in relation to affordability.

Furthermore, it is not, as the Gambling Commission states in the Advice to Government, its charge to “establish a breach”: this is again an indication of its mindset. As a regulator it is obliged to investigate suspected breaches on a fair, reasonable and proportionate basis, and to reach a conclusion on the facts. A cynic might suggest that it is this determination to “establish a breach” that is prolonging its investigations. This is particularly so when Licensees’ have raised their standards significantly in recent years and therefore, despite published enforcement action, breaches may be harder to come by.

Long, process driven, delays do not only impact statutory time limits. They have a commercial impact on licensees, detract valuable resource from day-to-day compliance activities, and when related to individuals, impact their wellbeing. It is in all parties’ best interests that matters are dealt with expeditiously. Before amending primary legislation, the Government might wish to consider a careful and fact-based examination of the Gambling Commission’s productivity, including in relation to past enforcement cases. Efficient, proportionate, reasonable, and timely investigations are the very reason for the statutory time limits being imposed in the first place.

Extending the scope of financial penalties

The Gambling Commission sets out in the Advice to Government that extending the scope of financial penalties (which currently only apply to breaches of licence conditions) to encompass suitability concerns, would give it more opportunity to take action. It goes on to state that every case of a financial penalty “has also included suitability concerns which we have been unable to take into account when imposing the penalty” in inference being that if suitability concerns were to have been in scope, the financial penalties it has issued would have been greater.

We agree with the Gambling Commission’s statement: most of its cases of a financial penalty do include reference to it having suitability concerns. However, those suitability concerns are almost always directly linked to a breach of a licence condition. We therefore question whether extending the scope in the manner proposed is necessary, as a financial penalty can be imposed in those cases anyway.

If the Gambling Commission wishes to increase the quantum of the financial penalties it imposes, it has the ability to amend its FP Statement. At present, the FP Statement does not include a formula for calculating the quantum of financial penalties, much to the frustration of licensees and advisors alike. The FP Statement does, however, set out the criteria that is considered by the Gambling Commission when imposing a financial penalty. Much of those criteria could just as easily be relevant to any consideration of a licensee’s suitability: it could therefore be argued that the Gambling Commission is already taking suitability into account. Furthermore, should the Gambling Commission have serious concerns about a licensee’s suitability, it has the ability to suspend or revoke their licence. Licensees may again wish to challenge the necessity of this proposal, if it is introduced in future consultations.

Please get in touch with us if you would like assistance with any compliance or enforcement matters.

31May

White Paper Series: “Hurry up and wait”

31st May 2023 John Hagan 301

As the dust settles (at least temporarily) following the publication of the White Paper, we have “take time to think” so that we may share our insights in a series of blogs and vlogs on the many and varied aspects of the proposed gambling reforms. With the Gambling Commission already seeking to manage expectations by saying that the implementation of the White Paper “will likely take a number of years to fully complete” and urging “more haste, less speed”, this may be a long running series… We will focus on what we consider is important or interesting, ideally both, and our content will be concise and hopefully thought provoking.

Speaking about the White Paper recently in the House of Lords, Lord Grade referred to a saying in the film industry – “hurry up and wait” (also a song by Stereophonics and a military motto) – describing where you get to the location after being forced to spend a lot of time waiting, everybody is standing around, ready, but nothing happens. Having waited nearly 30 months for the publication of the White Paper, coupled with the latest (estimated) indication from the Gambling Commission that the first wave of consultations will not be seen until mid-July, this saying seems apt.

1. Spirit and intention of the White Paper

Throughout our White Paper Series, we will have as our touchstone the aim of the Gambling Review when it was published on 8 December 2020:

“The Government wants all those who choose to gamble in Great Britain to be able to do so in a safe way. The sector should have up to date legislation and protections, with a strong regulator with the powers and resources needed to oversee a responsible industry that offers customer choice, protects players, provides employment, and contributes to the economy.”

The White Paper is true to that laudable aim. As the Secretary of State says in her Ministerial Foreword, at the heart of the Government’s Review is making sure it has the balance right between consumer freedoms and choice on the one hand, and protection from harm on the other. The Government seeks to achieve this balance through an extensive package of measures across all facets of gambling regulation. If it is to be successful, the Government – and Gambling Commission – will need to retain an unerring focus on this balance, essentially the spirit and intention of the White Paper, as it is inevitably buffeted by vested interests through consultation, regulation, and legislation.

2. All things to all people

The first thing to say about the White Paper is that it has been 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. This was equally broadly unexpected, given the acrimony and divergence of views between stakeholders during the “hurry up” phase, so why has the White Paper been such a resounding success? At the risk of oversimplifying, but not wishing to overlook the obvious (including the lack of detail and long grass kicking), it is precisely because the Government has achieved a healthy balance in its proposed reforms, for which it deserves enormous credit, and it is because there is something valuable in the White Paper for everyone.

Responding to its publication, and demonstrating some of the “wins” for the respective stakeholders, comments on the White Paper included:

“Given the correct powers and resources, the Gambling Commission can continue to make gambling safer, fairer and crime free. This White Paper is a coherent package of proposals which we believe can significantly support and protect consumers, and improve overall standards in the industry.” Gambling Commission CEO, Andrew Rhodes.
“BGC members will now work with Government and the Gambling Commission to deliver targeted and genuinely ‘frictionless’ enhanced spending checks to further protect the vulnerable, a new Ombudsman to improve consumer redress, and overdue plans to modernise the regulation of UK casinos.” Betting & Gaming Council CEO, Michael Dugher.
“..it should not be left to the health service to pick up the pieces left behind by a billion-pound industry profiting on vulnerable people, so I fully endorse the statutory levy set out in today’s White Paper and look forward to reading the proposals in detail.” NHS Mental Health Director, Claire Murdoch.
“At GamCare, our priority is making sure that people who need help receive it as quickly as possible. We therefore welcome the clarity the Government has provided on how research, education and treatment will be funded.” Gamcare CEO, Anna Hemmings.
“As chair of the all-party parliamentary group on gambling related harm, I welcome this long overdue White Paper. In the APPG’s 2019 interim report, we asked for affordability checks, parity between land-based and online stakes, an independent ombudsman, a curb on advertising and, most importantly, a statutory levy. Job done.” Carolyn Harris MP.

The introduction of a statutory levy paid by licensees and collected and distributed by the Gambling Commission under the direction and approval of the Treasury and DCMS ministers, is a flagship reform. The long debate as to whether there should be a statutory levy is at an end, there will be a DCMS consultation on the details of its design and, critically, the total amount to be raised. The statutory levy will fund research, education and treatment of gambling harms and is a load-bearing pillar of the reforms for those advocating the “polluter pays” principle.

Financial risk checks, maximum stakes for online slots and the creation of an independent gambling ombudsman have also been very warmly received by key stakeholders and will all be consulted upon by DCMS. The new non-statutory ombudsman will be the subject of our next blog in this White Paper Series.

The Gambling Commission most certainly did not get everything its own way, with Government not religiously following the advice from the regulator, but the Gambling Commission will be the recipient of powers and resources intended to make sure that all gambling is overseen by a “beefed up, better funded and more proactive” regulator. Licence fees will be reviewed (upwards of course) to ensure it has the resources to deliver the commitments across the White Paper. When Parliamentary time allows, it will even get greater power to set its own fees. Detailed analysis of the Gambling Commission’s additional enforcement powers will be the subject of one of our early blogs in this White Paper Series, including some which may have passed below the radar in all the excitement.

The industry positives from the White Paper are more nuanced. The land-based industry can certainly look forward to the long overdue modernisation of casinos and bingo clubs – including greater machine entitlements, credit in casinos for non-UK resident customers, sports betting in all casinos, and additional opportunities for customers to win on the main stage bingo game – and cashless payments across all land-based gambling sectors (following consultation by the Gambling Commission on the player protections which would be required).

From an online industry perspective, the White Paper is arguably as good as could reasonably have been expected in the present political, media and regulatory environment. The Government has resisted calls for bans on advertising, rejected demands for blanket and intrusive low-level affordability checks, and will consult on maximum stakes for online slots at higher levels than leaked previously. However, in outlining the Government’s vision for the future of gambling in moderately business-friendly terms, the White Paper does provide policy direction to which to hold the Gambling Commission accountable, the beginnings of some certainty and a glimpse of what political and regulatory stability might look like, not to mention the hope that the next gambling review might be a generation away.

3. The upcoming consultations

Yes of course everyone wishes the White Paper had gone further (in their direction, naturally). Yes of course there is a lot of work to be done to implement the reforms, once we are no longer “waiting”. Yes of course the devil will be in the detail. But as even the Gambling Commission and the Betting and Gaming Council (the “BGC”) agree in their welcoming press releases, the White Paper is a “once in a generation” opportunity for change. All the key stakeholders will now be seeking to secure their respective prize and imploring Government to prioritise their interests and deliver on its promises at the earliest opportunity, not least through Government and Gambling Commission consultations.

If the risk of the reform process descending into warring factions and reaching a standstill is to be mitigated, and this would not be in anybody’s interests, it is imperative that the process itself remains balanced and that all the key stakeholders see comparable progress in relation to their interests. From an industry perspective, this means engaging positively, constructively, and wholeheartedly with the upcoming consultations, proposing pragmatic and sensible solutions to the difficult challenges the Government and the Gambling Commission face, not least in relation to cashless solutions and frictionless checks, substantiated by evidence wherever possible. It also means holding the Gambling Commission to account on what is expected of it by the Government in the White Paper, with fair prioritisation of its (no doubt stretched) resources and no reforms being left far behind, even when the Gambling Commission is not in favour of them. It means focusing on its prize and not seeking to “re-litigate” settled issues or actively seeking to frustrate other stakeholders, or indeed otherwise antagonising Government which has delivered upon a balanced vision.

The proposed reforms are going to take longer than any of the stakeholders want as they seek to claim their prizes, but they are worth waiting for, the consultation phase will be critical, with both Government and the Gambling Commission under immense pressure to listen, and we will of course be happy to assist clients with their responses where that would be helpful, as we did in the last once in a generation opportunity in 2005!