On 16 May 2023, Bahar Alaeddini appeared as a panellist on a VIXIO GamblingCompliance webinar titled “The End of the Beginning” together with Dan Waugh from Regulus Partners, in which they discussed some of the key proposals of the White Paper, where we go from here and the impact:
Nearly half a year has passed since the introduction of the “strong appeal” test for gambling advertisements in the United Kingdom, and it has been a whirlwind of a six months for sport:
For betting operators, the resurgence of live sports presents a rich (and well overdue) opportunity to re-engage with existing and attract new customers. However, regulatory restrictions on advertising gambling products in Great Britain have tightened in recent years and operators must be mindful not to fall foul of current advertising rules including the new “strong appeal” test, which came into force on 1 October 2022.
In this article, we explain the strong appeal test, consider the impact of recent rulings by the Advertising Standards Authority (“ASA”) concerning its implementation, and share our top tips for gambling operators, marketing agencies and affiliates that want to ensure they comply with the strong appeal test when advertising sports betting to UK customers.
The strong appeal test – how does it work?
The UK Code of Non-broadcast Advertising and Direct & Promotional Marketing (the “CAP Code”) and the UK Code of Broadcast Advertising (the “BCAP Code”) (collectively, the “UK Advertising Codes”) set out the rules relating to marketing communications in broadcast and non-broadcast media in the UK.
Parts 16 of the CAP Code and 17 of the BCAP Code set out rules bespoke to gambling advertisements. In particular, since 1 October 2022, each section has contained the following requirement (in rules 16.3.12 and 17.4.5 respectively):
“Advertisements for gambling must not be likely to be of strong appeal to children or young persons, especially by reflecting or being associated with youth culture.
They must not include a person or character whose example is likely to be followed by those aged under 18 years or who has a strong appeal to those aged under 18.
Where appropriate steps have been taken to limit the potential for an advertisement to appeal strongly to under-18s, this rule does not prevent the advertising of gambling products associated with activities that are themselves of strong appeal to under-18s (for instance, certain sports or playing video games).”
These ‘strong appeal’ tests effectively prohibit content (including imagery, themes etc.) that has a strong level of appeal to under-18s regardless of how it is viewed by adults. It extends to the use of celebrities (including footballers) to promote sports betting or convey responsible gambling messaging.
The new strong appeal tests replace the ‘particular appeal’ test in the previous edition of the UK Advertising Codes, which generally allowed marketing communications regarding gambling to feature celebrities (including footballers) who were well known to under-18s, provided the vast majority of their fans were adults. A typical barometer used was the proportion of the celebrity or footballer’s fans on social media: if 25% or less of their fans and followers were under 18, it was generally accepted that they did not have a particular appeal to children and could therefore feature. The new “strong appeal” tests are much stricter as they focus only on whether there is strong appeal to children – appeal to adults is irrelevant.
The guidance published by CAP and BCAP relating to the strong appeal tests: “Gambling and lotteries guidance: protecting under-18s” Advertising Guidance (non-broadcast and broadcast) (the “Guidance”) notes that “determining the likely appeal of a marketing communication is not always straightforward and is, to an extent, subjective… …Advertising approaches or pieces of creative content of ‘strong’ appeal to under-18s can take a variety of forms”.
The Guidance goes on to give several examples of approaches that are likely to be problematic, two of which are of particular relevance to sports betting advertisements:
In its Guidance, the ASA confirms that it considers certain subjects and activities to be of inherently strong appeal to under-18s and gambling advertisements relating to these subjects and activities will be prohibited unless they fall under one of the exemptions. Two examples of sports with strong appeal are cited in the Guidance: football and eSports.
Other national sports such as cricket and rugby are also discussed and it is noted that by comparison, these sports have low-to-moderate levels of participation and interest among under-18s. However, the national teams in these sports attract more media interest and are more likely to be considered of inherent strong appeal. Conversely, sports such as horseracing, greyhound racing, darts, snooker, boxing, motorsports and golf are noted to be more adult-orientated and unlikely to be of inherent strong appeal.
In order to advertise betting opportunities concerning sports that strongly appeal to under-18s, gambling operators must ensure that their product falls within one of the exemptions cited in the Guidance, five of which are of relevance to sports betting:
Exemption A: Products in general terms. This permits betting advertisements to promote licensed products in general terms. The Guidance notes that the rules focus principally on imagery, themes and characters that are of strong appeal to under-18s. They are not intended to restrict simple text or audio references to sports, teams or individuals generally held to be popular with under-18s.
Example: An advertisement stating that bets are available on the outcome of a particular football or eSports match would not be prohibited as this falls within Exemption A.
Exemption B: Generic descriptions. This permits generic depictions of or references to the subject of the licensed product. The Guidance notes that the generic depictions must be suitable and not, of themselves, likely to appeal strongly to under-18s.
Example: An advertisement using suitable characters or CGI to depict a sport held to be of strong appeal to under-18s (e.g. football or eSports) or generic items or places associated with the sport (e.g. a ball, goal post, trophy, or stadium) would not be prohibited as this falls within Exemption B provided that the depictions are not stylised to appeal strongly to under-18s (e.g. cartoons).
Exemption C: Logos and other identifiers. This permits the use of logos and other identifiers for the subject of a betting activity.
Example: An advertisement showing that bets are available on the outcome of a particular match, tournament or other event that includes the logo for the event or the teams playing in it would not be prohibited as this falls within Exemption C.
Exemption D: Branding. This permits material relating specifically to an advertiser’s brand identity. The Guidance notes that this exemption does not extend to brand characters, which will need to be assessed under the strong appeal test for persons and characters (discussed below).
Example: An advertisement including the brand or livery of the operator advertising the bet (e.g. an advertisement featuring the logo of Mr Green in green and white colours) would not be prohibited as this falls within Exemption D. However, the use of the character “Mr Green” would need to be assessed separately to see whether it is of strong appeal to under-18s.
Exemption F: Certain persons and characters. This permits the use of persons or characters associated with subjects of strong appeal (e.g. football and eSports) provided marketers are satisfied that they are not, in and of themselves, of strong appeal to under-18s. Again, this will be assessed separately under the strong appeal test for persons and characters.
Example: An advertisement featuring a football player would not be prohibited as this falls under Exemption F provided the football player is not themselves of strong appeal to under-18s. See below for further discussion.
2. Persons and characters who have a strong appeal to under-18s
As set out above, the UK Advertising Codes require that gambling advertisements must not feature any person or character who has a strong appeal to those aged under 18.
Persons and characters generally fall into one of five categories: (a) personalities/celebrities, (b) brand ambassadors, (c) licensed characters (e.g. a movie or video game character), (d) characters played by actors; and (e) brand-generated characters (e.g. characters created by the advertiser).
The ASA makes its assessment of appeal of these persons and characters to under-18s based both on (i) their appearance and behaviour in the advertisement, and (ii) their profile and relevance outside the advertisement for personalities, brand ambassadors and licensed characters (but not characters played by actors and brand-generated characters as these have no external profile).
In determining the extent of a person’s appeal to under-18s, advertisers are encouraged to use as many insights and sources of data as they can. Having determined what a person or character is known for (in terms of activities, roles or associations) marketers can then identify information and data sources that provide insights on the likely level of a person or character’s appeal to under-18s.
For example:
Profiles outside the context of the advertisement. In determining whether a person or character is likely to appeal strongly to under-18s on the basis of their profile, the ASA will consider factors such as: (a) whether they have obvious and direct links to activities for, or highly popular with, under-18s; (b) the general audience for, and popularity of, what the person or character is known for; and (c) the likelihood that their inclusion in an advertisement will strongly attract the attention or interest of under-18s.
Example: Persons and characters with obvious and direct links to under-18s should be avoided (e.g. current or recent children’s TV personalities, popstars associated with youth culture, licensed characters from popular board games and influencers that focus on youth-related themes).
If a person or character does not have an obvious and direct link to under-18s that would render them of ‘strong’ appeal, advertisers must still assess their likely level of appeal. Social and other media audience demographics are an important and quantitative source of data.
Example: Football players in national or other well-known teams such as Manchester United may be viewed in an aspirational or influential way among under-18s and should be avoided. The same principle applies in relation to leading sportspeople in other sports and those involved in World Cups or other high-profile tournaments. Players in lower-level teams and other individuals involved in sports (e.g. managers) are more likely to be acceptable if it can be demonstrated that the individuals have a negligible following of under-18s on social media and/or there is a negligible proportion of under-18s in the audience (either for their sport or other programmes in which they feature).
The ASA notes that more weight should be attached to present and recent activities. Personalities whose appeal has shifted away from under-18s over time are less likely to fail the strong appeal test.
Example: An individual that played in a national sports team in 2002, such as David Beckham, is less likely to appeal to under-18s now compared to an individual that played in a national sports team in 2022, such as Raheem Sterling.
Appearance and behaviour within the advertisement. The second part of the ASA’s assessment of ‘strong’ appeal for persons and characters is how they appear and behave in advertisements.
Marketers must avoid featuring behaviour that is likely to strongly appeal to under-18s. This includes youth culture themes (e.g. disregard for authority, rebelliousness, immature adolescent or childish behaviour and participation in practical jokes), speech and language (e.g. sounding like a child or using slang terms or text abbreviations), humour (e.g. slapstick or juvenile jokes) and other behaviour (e.g. dancing, singing or reciting rhymes).
Example: A person that is behaving in a manner associated with under-18s (such as Simon Bird from The Inbetweeners) is more likely to appeal to under-18s.
In addition, persons and characters played by actors must not be presented in a way that renders them likely to be of ‘strong’ appeal to under-18s. They should not wear clothing, accessories, jewellery, body art, piercings or hair styles that are obviously associated with a current trend or style popular with under-18s.
Example: A person that is wearing clothing associated with teenagers (e.g. a crop top, oversized hoodie, baggy jeans or a bucket cap) should typically be avoided.
Finally, characters that are colourful or have exaggerated features are more likely to be of strong appeal to under-18s and this includes ‘cuddly’ or ‘cute’ animals. Licensed characters (for example, from games and movies) will be assessed based on the popularity of the game or movie with under-18s.
Example: Characters with similarities to soft toys and exaggerated features such as enlarged eyes should typically be avoided. Characters related to stories or themes that are popular among children like pirates, princesses, superheroes, robots and fairy tale characters should also be avoided unless they are from traditional fairy tales, not stylised with exaggerated features and are not otherwise associated with childhood (e.g. characters such as Santa Clause, the tooth fairy and the Easter bunny are cited in the Guidance as being associated with childhood and should therefore be avoided).
There is a helpful checklist at the beginning of the Guidance that summarises the risk-based scenarios of featuring different types of persons in gambling advertisements:
| High risk | o Anyone with direct connections to under-18s through their role like children’s TV presenters or film stars o Anyone with a significant under-18 following on social media o UK footballers who play for top clubs, UK national teams or in high-profile competitions – this would apply also to managers o Non-UK ‘star’ footballers, particularly those at top European clubs – this would apply also to managers o Other prominent sportspeople involved in sports like cricket, tennis and rugby that, at the highest levels, have a significant national profile o Leading eSports players |
| Moderate risk | o Footballers from teams outside the top-flight will be assessed on the basis of their social and other media profile o Footballers with lower profiles at top Euro/world clubs might be acceptable o Retired footballers who have moved into punditry/commentary will be assessed on the basis of their social and other media profile o Other eSports players dependent on their social media and general profile o Sportspeople involved in clearly adult-oriented sports who are notable ‘stars’ with significant social media and general profiles making them well-known to under-18s o A small but notable following of under-18s on social media will be considered alongside the personality’s general profile and could contribute to an ASA decision to categorise the individual as being of ‘strong’ appeal |
| Low risk | o Footballers at lower league and non-league clubs o Footballers at lesser Euro/world clubs o A long-retired footballer now known for punditry/commentary o Sportspeople involved in sports like cricket, tennis and rugby that don’t have a significant role in the sport or general profile o Sportspeople involved in clearly adult-oriented sports (e.g. darts, snooker, golf, horseracing, and motorsports) |
Exception for narrowly targeted advertising
There is one key exception to the strong appeal rules: they do not apply in media where under-18s can, for all intents and purposes, be entirely excluded from the audience.
Principally, this applies in circumstances where the marketer can robustly age-verify the potential recipients of the advertisement as being 18 or older such as:
direct mail, email and SMS communications sent to recipients who have been verified as being 18 or older;
areas of websites and applications that can only be viewed/accessed those who have been verified as 18 or older on sign-up; and
online platforms (such as social networks or publications) that provide advertisers with functionality enabling them to target users that have been age-verified to a very high degree of accuracy.
In the event of challenge, the ASA expects advertisers to provide evidence to demonstrate that the systems used to identify audiences from which under-18s are, for all intents and purposes, excluded are robust. Gambling Commission licensed websites are cited as a good example of a media environment where under-18s are extremely unlikely to form part of the audience. Other sources of marketing data may also be acceptable where robust means of age verifications have been employed (e.g. payment data or credit checking). More general marketing data, such as that inferred from user behaviour, is unlikely to be sufficient.
Recent ASA rulings – what do they tell us?
To date, there have been three ASA rulings regarding the strong appeal tests, each of which provides helpful context – particularly in relation to footballers who, as noted as above, can be potentially low, medium or high-risk depending on the individual.
Philippe Coutinho, Jesse Lingard and Kalidou Koulibaly – of strong appeal
In December 2022, the ASA upheld a complaint for a promoted Tweet featuring the text “Can these big summer signings make the question marks over their performances go away?” and an embedded video that featured three current Premier League footballers: Philippe Coutinho, Jesse Lingard and Kalidou Koulibaly, set against a background of question marks.
The advertiser argued that although football and topflight footballers could strongly appeal to under-18s, targeting and age-gating tools had been used to remove under-18s from the advertisement’s audience. This included self-verification by the audience and targeting techniques designed to ensure the advertisement would only reach users aged 25 or over.
The ASA did not accept these arguments and upheld the complaint. In its view, both football and the players used (who were Premier League and international footballers at the time) were likely to be of strong appeal to under-18s; and the targeting techniques were not sufficiently robust to exclude under-18s from the audience with the highest level of accuracy, as required.
Peter Crouch and Micah Richards – not of strong appeal
In February 2023, the ASA did not uphold two complaints regarding advertisements featuring retired footballers.
The first complaint concerned two TV advertisements featuring Peter Crouch conducting a choir and celebrating (amongst other activities) with the text “COMPLETELY FREE BET BUILDER ON ALL ENGLAND GAMES”. During the advertisement, a voice-over was heard saying, “You hear that? That’s the sound of Christmas and the world cup colliding. So come on all ye faithful, let’s be having ya. Glory to the king of headbutts. Knit those kits. Cross those sprouts. Stuff those turkeys. And attack those carols. Cause from this day we’ll forever ask where were you in twenty-two.”
The second complaint concerned a promoted Tweet featuring the text “Club football returns following the international break… Get £20 IN FREE BETS when you place a £5 bet!” and an image of Micah Richards.
Both Crouch and Richards had retired in 2019 and the ASA took a pragmatic approach that although this meant “not long retired”, the teams and the games in which the players featured during the later years of their career (e.g. Burnley and Stoke City for Crouch, and Aston Villa for Richards) meant that they were unlikely still to be of strong appeal to under-18s. The players were therefore assessed on the basis of their social and other media profiles:
Crouch did not have public accounts on TikTok, Facebook or Twitch at the time the advertisements were broadcast, and his Instagram account had not been updated since 2014. He did have a public account on Twitter that, at the time the advertisements were seen, had almost 1.5 million followers but demographic data from September to December 2022 showed that 0.46% of his followers were aged 13-17 years. Even though Twitter is a media environment where users self-verify, the ASA accepted this as evidence that a very small number of Crouch’s followers on Twitter were aged under 18.
The ASA further noted that the TV programmes in which Crouch appeared (such as BT Sport, the documentary ‘Save Our Beautiful Game’ and Crouch’s own TV shows, ‘Peter Crouch: Save Our Summer’ and ‘Crouchy’s Year Late Euros’) and his podcasts were primarily aimed at adult audiences and not of strong appeal to children. The exception being ‘The Masked Singer’ in which Crouch appeared as a panellist. The ASA noted this to be a family entertainment programme and of appeal to children. However, Crouch appeared as one of four panellists, the programme was of broad demographic appeal and there was no evidence that his role in the programme had led to him being viewed in an aspirational or influential way by under-18s. Accordingly, the ASA concluded that Crouch’s appearance in this programme was unlikely to make him of strong appeal to under-18s.
Richards did not have active public accounts on YouTube, TikTok or Twitch and audience demographics on Instagram and Twitter showed that: 0.07% of Richards’ Instagram followers were aged 0-16 years and 2.19% were aged 17-19 years; and 0.04% of his Twitter followers were aged 0-16 years and 2.15% were aged 17-19 years. Again, the ASA accepted that this data demonstrated that his social media profile was unlikely to make Richards of strong appeal to under-18s.
In terms of TV programmes, the ASA noted that Richards was a regular and well-known pundit on Match of the Day but BARB data in the lead up to the advertisement confirmed that a significant number of children had not watched live. The regulator also noted that Richards appeared as a pundit on Sky’s live coverage of Premier League matches which would be of strong appeal to under-18s, but that the strong appeal did not extend to the pundit-based discussion that took place around the game. Accordingly, Richards’ appearance in this context would be unlikely to hold strong appeal to under-18s.
Aside from his role as a football pundit, Richards had appeared on ‘A League of their Own’ and ‘Gogglebox’. Both programmes were scheduled post 9pm and primarily aimed at an adult audience.
In addition, Richards appeared on a CBBC programme ‘Football Academy’, which was considered likely to be of strong appeal to under-18s but the episode had not aired at the time the advertisement was seen. The ASA noted that if Richards had appeared regularly and prominently on such a programme, it was likely he would have been considered to have strong appeal to under-18s.
Top Tips
Below are our key takeaways for operators, marketing agencies and affiliates that want to comply with the strong appeal rules when advertising sports betting in the UK.
Summary
This article has explained the strong appeal test, considered the impact of recent rulings by the ASA concerning its implementation and outlined key takeaways for gambling operators, marketing agencies and affiliates that want to ensure they comply with the strong appeal test when advertising sports betting to UK customers.
If you would like to discuss any of the matters raised, please do get in touch with us.
The Department for Digital, Culture, Media & Sport Committee (“DCMS”) Committee is examining the Government’s approach to gambling regulation, including investigating the progress made by the Government in addressing the issues raised by Parliament, how to ensure that regulation keeps pace with innovations in online gambling and the links between gambling and broadcasting and sport.
As part of its inquiry, the DCMS Committee is inviting written evidence on the following questions by 5pm on Friday 10 February:
DCMS Committee member, Julie Elliott MP, has stated:
“Gambling acts as an enjoyable pastime for large numbers of players, but regulation is struggling to keep pace with the rapidly changing way in which it happens today. This puts people at risk of the devastating harm it can sometimes cause to lives. The DCMS Committee’s inquiry will look at the scale of gambling-related harm in the UK, what the Government should do about it and how a regulatory regime can best adapt to new forms of online gambling, based both in and outside the UK.”
Figures from the Ernst & Young report (the “EY Report”) commissioned by the Betting and Gaming Council (“BGC”) and published last November, in The economic contribution of the betting and gaming sector: 2021-2022, also reflect gambling as a popular pastime through which the gambling sector contributed £7.1bn to the UK economy between 2021 and 2022. The EY report’s statistics also serve to highlight the wider context of gambling regulation reform, on which BGC CEO, Michael Dugher, commented last month:
“Our members pump billions into the economy, support the treasury with more billions and support over a hundred thousand jobs. But this contribution is never guaranteed. This industry needs to thrive if it is to maintain its status as a global leader.
“We urge the government to find an evidence-led, balanced white paper that protects the vulnerable, allows the vast majority who bet safely to continue to do so and, crucially, allows businesses to thrive.”
Certainly, the Government’s approach to regulation needs to be balanced and proportionate, however, as delays to the publication of the White Paper continue, a factor that remains to be addressed, is the timeliness of action. Question 2 of the Call for Evidence suggests the possibility of further delay of the White Paper, which was promised “in the coming weeks” for much of last year. The latest word on the street is that the White Paper will be published in February. However, we have learned to be somewhat sceptical about any gossip on this topic; certainly, the questions being asked by the DCMS Committee, and especially question 2, might suggest a longer timeline.
Partners, Bahar Alaeddini and Julian Harris, have resumed their roles as Contributing Editors to the Chambers Global Practice Guide, with the latest edition of the Gaming Law 2022 eGuide now available online. Associate, Jessica Wilson, joined this year as a co-author.
Harris Hagan contributed to four parts of the publication
The esteemed publication spans over 30 jurisdictions and provides the latest regulatory information including: the availability and duration of licences; B2C and B2B licences; application requirements; affiliates; white labels; responsible gambling; AML legislation; restrictions on advertising; acquisitions and changes of corporate control; trends in social gaming; eSports; fantasy sports and blockchain; tax; and anticipated reform.
Key trends are covered by jurisdiction under the Trends and Developments section, and the publication also provides users with the opportunity to perform jurisdiction comparisons using the Compare locations tool.
Please use the above links to review their contributions and the rest of the eGuide at your leisure.
A little over two years on from the launch of its consultation and call for evidence on remote customer interaction requirements and affordability checks, the Gambling Commission (the “Commission”) has initiated a new public consultation (the “Consultation”) – this time on the proposed Customer Interaction – Guidance for remote operators (the “Guidance”). While the Consultation has so far not attracted the same attention as the 2020 exercise, the implications are potentially just as profound. In a series of co-authored articles, Harris Hagan and Regulus Partners will explore the key proposals in the Guidance, examining the evidence that underpins them and asking whether they are in fact proportionate, legal and in the best interests of consumers.
We appreciate that some of the more cynical readers of this article may think there is little point in responding to the Consultation as the Commission will take little or no notice of any feedback it receives from licensees. However, we consider it critically important that all licensees, including non-remote licensees, do respond to the Consultation. It is more difficult for the Commission to ignore numerous representations on common concerns, and experience suggests that similar guidance may be produced for non-remote licensees in the future. Recognising that the timeframe for the Consultation will include the holiday period, the Commission has extended the originally proposed six weeks to approximately nine weeks, and it will now close on Monday 23 January 2023.
There are a number of areas of the Guidance which licensees should be concerned about – Harris Hagan included some of these in previous articles in July and September 2022. In this article, the first of the series, we set out a summary of those issues, and analyse the “Introduction” and “General requirements” sections of the Guidance. In subsequent articles we will also consider the central theme of assessing ‘vulnerability to harm’; and how licensees will be expected to take action to address it.
Key areas of concern
Our key areas of concern about the Guidance, many of which we will explore in more detail in this series of articles, are:
Issues not addressed in the Consultation
The Commission makes it clear that the Consultation relates solely to the Guidance which is issued on Social Responsibility Code Provision (“SRCP”) 3.4.3. The requirements of SRCP 3.4.3 itself are not within scope, nor are “matters associated with unaffordable gambling and specific thresholds which should apply”, the “separate consultation on the three key financial risks” the Commission committed to in May 2021 (yet to materialise), or matters associated with “single customer view”.
General requirements
“How to use this guidance”
There are inconsistencies in the Guidance between “aims” and “formal guidance”, and it is difficult to ascertain whether the Commission expects licensees to “take into account” or “address” its aim in setting each requirement.
The impact of this inconsistency can be seen throughout the Guidance. For example, requirement 1 states that “icensees must implement effective customer interaction systems and processes in a way which minimises the risk of customers experiencing harms associated with gambling.” However, aim 1 states that “Licensees must have effective controls to minimise the risk of customers experiencing harms associated with gambling”. There is a clear difference between implementing effective systems and having effective controls, the latter being more easily determined subjectively by the Commission and with hindsight: the assumption likely being that if any customer has suffered or experienced harm (a highly malleable term as we will explain further in our next article), the controls were ineffective.
It is critically important that the Commission ensures uniformity in the Guidance. If ‘aims’ are within scope, then the language used for requirements and aims should be consistent: if ‘aim’ is not within scope, then the “How to use this guidance” section of the Guidance should be amended and reference to licensees being obliged to “address that aim” removed, to ensure that this is abundantly clear.
Formal requirements as guidance?
Harris Hagan has previously set out its view that it is inappropriate, and arguably ultra vires, for the Commission to introduce formal requirements through guidance. The Commission seeks to address such concerns in the Consultation where it states:
“On occasion, the proposed guidance document uses the language of ‘must’ or ‘the Commission expects’. This language is used in contexts where the guidance is intended to reflect the requirements or SR Code Provision 3.4.3. The proposed guidance document also uses the word ‘should’, which denotes an approach or action that is not required by SR Code Provision 3.4.3, but which operators are required to consider. We are interested in stakeholders’ views on the language used in the proposed guidance document in this respect.”
Despite this statement, there are several areas of the Guidance where the language used does not reflect the requirements set out in SRCP 3.4.3, goes beyond those requirements, or is inconsistent with those requirements. This is inappropriate, will cause confusion, and exposes licensees to the risk of broad or inconsistent interpretation by Commission officials during compliance or enforcement action.
By means of an example:
There is a clear distinction between “identifying harm or potential harm” and identifying customers “that may be at risk of harm”: the latter arguably being impossible as it applies to anyone who gambles. We will discuss this in more detail in a subsequent article. The importance of the Guidance being easily distinguished from the prescriptive requirements set out in SRCP 3.4.3, and of ensuring consistency between requirements and aims and formal guidance, must not be overlooked.
“How the Commission will use this guidance”
The Commission refers under this section of the Guidance to its expectation that “licensees demonstrate how their policies, procedures and practices meet the required outcomes”. However, at no point has the Commission set out what those required outcomes are. SRCP 3.4.3 is not outcome-led; it is, at least in part, prescriptive – as is the Guidance. We would therefore suggest that “requirements” rather than “required outcomes” is the more accurate language to be used here.
“Amending this guidance over time”
Under this heading, the Commission sets out that “for the purposes of raising standards, protecting customer interests, and preventing harm to customers, will update and re-issue guidance”. Harris Hagan has previously raised concerns about this approach. We remain of the view that the Commission should consult on any changes to the Guidance, particularly if those changes introduce formal requirements, or if they explain how the Commission may interpret those formal requirements. The Commission is comfortable with short consultation periods; it originally proposed that the Consultation be open for six weeks. To conduct further short consultations before amending the Guidance is hardly an arduous task, particularly given the benefit of doing so, not only to licensees and stakeholders, but to the Commission itself.
In our second article, we will discuss the concepts of “harm” and “vulnerability” that underpin the Guidance.
With thanks to Dan Waugh from Regulus Partners for his invaluable co-authorship.
Partner Bahar Alaeddini acted as the contributing editor, and together with Associate Francesca Burnett-Hall jointly contributed the UK chapter, to The Legal 500: Gambling Law Comparative Guide (the “Guide”).
The esteemed publication (which currently spans 16 jurisdictions) provides an overview of gambling law, regulatory and licensing requirements in the UK, including: key gambling legislation; types of gambling licences with the associated application procedures; prohibited gambling products; gambling advertising; marketing affiliates; penalties for unlawful gambling; Licence Conditions and Codes of Practice; relevant anti-money laundering requirements; responsible gambling requirements; shareholder reporting and approval thresholds; enforcement powers; and tax rates. A critical commentary on key trends affecting the gambling industry is also covered.
The Guide provides readers with the opportunity to compare jurisdiction here.
On 20 September 2022, the Gambling Commission formally awarded the Fourth National Lottery Licence (“Licence”) to Allwyn Entertainment UK (“Allwyn”), which will be the second National Lottery Licence holder since its launch in 1994.
As explained in our previous blog, the Fourth National Lottery Licence Competition (“4NLC”) process got off to a bumpy start when delays were announced as a result of the Covid-19 pandemic. In fact, the whole 4NLC process was not as smooth sailing as perhaps expected, with legal appeals being brought against the Gambling Commission criticising how it ran the 4NLC.
Now that Allwyn has been awarded the Licence formally, due to commence in February 2024, we take a look back on the ups and downs of 4NLC process.
4NLC is launched…finally
The 4NLC was announced in November 2018 and, after a three-month delay, was formally launched on 28 August 2020. In the interim period, the Gambling Commission set up an Expert Advisory Group to help inform and design the 4NLC and carried out global market engagement with all interested parties.
The 4NLC was divided into multiple stages:
Delays to stages 1 to 3 were incurred for several reasons; to “provide additional time for applicants to complete the applications and for the Gambling Commission to feedback”, to “contribute to a fair, open and robust competition by providing applicants with sufficient time”, “to provide opportunity for applicants to further refine their proposals”, and due to the impact of Covid-19 restrictions on the preparation of applications.
Such delays resulted in the third National Lottery Licence (held by Camelot UK Lotteries Ltd (“Camelot”)) to be extended by six months to February 2024.
Allwyn takes the Crown
The Gambling Commission received four final applications: Allwyn, Camelot, Sisal SpA, and The New Lottery Company Ltd.
After rumours of Camelot being the Preferred Applicant again, the Gambling Commission announced Allwyn (a Czech group previously known as Sazka Entertainment) as its preferred applicant on 15 March 2022, almost seven months after the intended announcement date of August 2021. Camelot was named as the Reserve Applicant.
The Gambling Commission stated that “the selection of Allwyn as the Preferred Applicant follows a fair, open and robust competition which received four applications at the final stage. This is the highest number of applications since the first National Lottery licence was awarded in 1994”.
A busy Summer for the Courts
Despite the Gambling Commission’s adamance that the 4NLC was fair, open and robust, in April 2022 the Gambling Commission received legal proceedings from Camelot and its technology provider, International Games Technology PLC (“IGT”), challenging the 4NLC process and appealing the Gambling Commission’s decision of appointing Allwyn as the new licensee.
Proceedings were issued in the High Court, with Camelot claiming that the Gambling Commission got the decision “badly wrong” and demanding a “proper explanation” as to why it was not chosen as the Preferred Applicant. Camelot stated that the Gambling Commission “failed to provide a satisfactory response” leaving Camelot “with no choice but to ask the court to establish what happened”.
The proceedings placed an automatic suspension on the Gambling Commission’s ability to formally aware the Licence to Allwyn. The Gambling Commission appealed the suspension on the basis that it would “present potentially severe consequences for the National Lottery and good causes”. Ruling in favour of the Commission, on 29 June 2022, the High Court lifted the automatic suspension, citing public interest as a strong factor in the Court’s decision:
“…maintaining the suspension until resolution of the dispute will cause delay to the Fourth Licence. In turn, this will cause delay to the benefits of the Fourth Licence, giving rise to reduced contributions to the good causes and delayed introduction of the enhanced game portfolio and new technologies. Balanced against the commercial losses that might be suffered by Camelot and IGT, for which damages would be an adequate remedy, in this case, allowing the Commission and Allwyn to proceed with the Fourth Licence is the course that will produce the least risk of injustice if ultimately it proves to be wrong”.
However, the Gambling Commission’s win was short-lived. On 14 July 2022, the Court of Appeal granted permission for Camelot and IGT to appeal the High Court’s decision, putting the automatic suspension on the Licence back in place…but only until September when both Camelot and IGT withdrew their appeals, deciding instead to pursue damages only.
Allwyn officially takes the crown
On 20 September 2022, the Gambling Commission, no longer bound by the suspension, formally awarded the Licence to Allwyn. The parties have now entered into an Enabling Agreement, confirming the official granting of the Licence to Allwyn, and are in a transitional period with Camelot until the Licence takes effect in February 2024.
What key changes can we expect with the fourth licence?
There is no doubt that the 4NLC process was a rollercoaster for all involved. The Gambling Commission may have learned some lessons along the way, and we hope that the next National Lottery Competition will be a more straightforward and less contentious process.
As Harris Hagan continues its contribution to the Lexology GTDT Gaming publication, we are pleased to share with our subscribers, complimentary access to the full reference guide which is now available online.
Our Associate, Jessica Wilson, remains the author of the United Kingdom report, which covers a range of British regulatory insights including land-based and remote gambling and quasi-gambling activities, including legal definition; anti-money-laundering regulations; director, officer and owner licensing; passive/institutional ownership; responsible gambling; taxes; advertising; supplier licensing and registration; change of control considerations; and recent trends in the industry.
The reference guide also allows for side-by-side comparisons with other local insights from jurisdictions such as Australia, Brazil, Germany, Hong Kong, Japan, Macau, Nigeria, South Africa and the USA.
We invite you to review the reference guide at your leisure.
This is the third in a series of articles considering different aspects of the affordability debate. We have already considered the right to protection, personal responsibility and freedom of choice (in article 1), and recently (in article 2), what the Gambling Commission (“the Commission”) has sought to require of operators at present, with an analysis of the manner in which it has done so. In this article, we turn to the wider powers of the Commission and consider whether they have been exceeded, or at least stretched, in relation to its approach to affordability.
The Customer Interaction Consultation
The Commission launched its ‘Remote customer interaction – Consultation and Call for Evidence’ (the “Consultation”) on 3 November 2020 and the Consultation closed on 9 February 2021. Further to our criticism in our 18 May 2020 article (‘New Gambling Commission Guidance for Online Operators: Changing the Basis of Regulation?’) of the Commission’s introduction of its ‘Customer interaction – Additional formal guidance for remote operators during COVID-19 outbreak’ (the “Covid-19 Guidance”) without consultation, and more generally its use of formal guidance as a means of expanding its Licence Conditions and Codes of Practice (“LCCP”), it was encouraging that on this occasion, the Commission did consult.
Whilst there is no impropriety in the Commission having a review on customer interaction, to include the consideration and gathering of evidence in relation to affordability, we remain concerned about the Commission’s increased use of guidance as a means of adding layers to existing formal requirements, and also about the nature and content of the Consultation. Firstly, whilst there may be cogent arguments in favour of guidance being used to explain and set out reasonable and proportionate expectations of requirements contained in the LCCP, it should not exceed this purpose to the extent that it is difficult to distinguish between requirements outlined in the LCCP and those contained within purported guidance. Secondly, when consulting, it is important that the Commission analyses all information available to it, rather than seemingly interpreting the information in its possession as a means to its ends.
The core proposal in the Consultation in relation to affordability is for the introduction of mandatory financial thresholds for affordability assessments. The evidence on which the need for such assessments is based is flimsy and unconvincing when properly analysed, which the Consultation does not attempt. In addition, the Commission relies on the 2018 Health Survey for England. This the Commission prays in aid of the proposition that “there is evidence to indicate that there is a large-scale issue with remote gamblers betting more than they can afford to lose and experiencing issues with their gambling”. The basis for this sweeping statement is a finding that 21% of respondents stated that they had bet more than they could afford “sometimes” when asked to choose between four options, the other three of which were “never”, “most of the time” and “almost always”. Without further questioning and analysis, this is hardly a basis for swingeing new regulations restricting the liberty of adults to make their own choices without having to prove their financial wellbeing; indeed, it could be that many of those who ticked that box occasionally bet more than they felt was wise, a position that most people would experience with many different kinds of spending: it is certainly not a guaranteed indicator of vulnerability or harm.
Of even greater concern is the scant regard which the Commission appears to have had for the 2018 Consultation Principles. These require, inter alia, that consultations by government authorities:-
It is disappointing that the Commission has in recent times shied away from informal engagement with the industry on matters of interest and importance to it and to its licensees. Whilst there has been some collaboration with the Betting and Gaming Council, this has on occasion been preceded by the threat of action and then followed by negative comments by the Commission. Moreover, collaboration underpinned by threat is not informal engagement. This, and the Commission’s apparent failure to consider the impact of its proposals on the industry and other stakeholders, such as the sports organisations, could once again lead an observer to question its motives, and ask if the consultation is really intended to open a debate and answer certain questions about safer gambling, social responsibility and affordability, or whether the Commission is simply going through the motions to tick the consultation box, with the intention, whatever the evidence produced, of imposing its own agenda. Perhaps it is for this reason that the Commission relies on questionable evidence from the 2018 Health Survey without mentioning that it also found that the incidence of problem gambling had fallen from 0.7% in the 2016 Survey to 0.5%.
As licensees are only too aware, and as we set out in our previous article on this subject, whilst the Commission has not formally imposed the proposals in the Consultation, it has sought to require operators to abide by them, or variants of them, outlined in its Enforcement Reports, by exerting pressure, threatening regulatory action and generally creating a climate of fear. That fear has been exacerbated by the uncertainty as to what the Commission actually requires.
This is the unfortunate consequence when a regulatory authority fails to have proper or sufficient regard for the statutory framework within which it is required to operate. We have already analysed the difficulties faced by the industry in trying to ascertain what is actually and properly required of it by law and regulation. The Commission has the power, and indeed the duty, to prepare codes of practice and impose appropriate licence conditions to regulate the way in which licensees operate. It is required to undertake consultation on such codes of practice. But in the case of affordability, the Commission expects licensees to abide by a series of “requirements” described, not in the LCCP, but in their Enforcement Reports and their existing Customer Interaction Guidance. Breach of a Code under section 24 of the Gambling Act, 2005 may properly be taken into account by the Commission in the exercise of its statutory function, but acting contrary to whatever opinions it expresses in its Enforcement Reports, or in speeches, may not. There can therefore be no basis for the Commission, when raising safer gambling concerns, to refer to those Enforcement Reports in its compliance assessment findings, licence review threats or regulatory actions, as it is increasingly doing.
It follows that similarly there can be no basis for the Commission to claim that affordability assessments are somehow already a requirement of the LCCP. Were that to be true, there would have been no need to write in different terms in the 2020 Enforcement Report from what was said in the 2019 Report, or in its current Customer Interaction Guidance (see article 2 for details), or indeed for the Consultation itself. Yet in reality, at present this is the only way the Commission could argue it properly makes these requirements of licensees.
Statement of Principles
The Commission publishes a ‘Statement of Principles for licensing and regulation’ (the “Statement of Principles”), as is required by section 23 of the Gambling Act 2005 (the “2005 Act”). This is expressed to have had regard to various documents, including the ‘Regulators’ Code (July, 2013: in force from 2014)’ (the “2013 Code”). Whilst the Commission makes reference to the principles included in the 2013 Code in the Statement of Principles, these are more clearly expressed in the 2013 Code, which requires, inter alia, that:-
“1.1 Regulators should avoid imposing unnecessary regulatory burdens through their regulatory activities and should assess whether similar social, environmental and economic outcomes could be achieved by less burdensome means. Regulators should choose proportionate approaches to those they regulate, based on relevant factors including, for example, business size and capacity.
1.2 When designing and reviewing policies, operational procedures and practices, regulators should consider how they might support or enable economic growth for compliant businesses and other regulated entities, for example, by considering how they can best:
5.1 Regulators should provide advice and guidance that is focused on assisting those they regulate to understand and meet their responsibilities. When providing advice and guidance, legal requirements should be distinguished from suggested good practice and the impact of the advice or guidance should be considered so that it does not impose unnecessary burdens in itself”.
We do not know and cannot speculate as to whether the Commission has given careful thought to these obligations when preparing the Consultation. However, we cannot be satisfied that the level of burdensome proposals included in the Consultation and their probable economic impact, are demonstrably considered in the Consultation and this calls into question whether the Commission has had adequate regard to the requirements of the 2013 Code.
The vulnerable
When considering the Commission’s powers, the starting point is the licensing objectives, set out in section 1 of the Gambling Act, 2005 (“the 2005 Act”). These are:
“(a) preventing gambling from being a source of crime or disorder, being associated with crime or disorder, or being used to support crime;
(b) ensuring that gambling is conducted in a fair and open way; and
(c) protecting children and other vulnerable persons from being harmed or exploited by gambling.”
The Commission is required, by virtue of section 22 of the Act:
“(a) to pursue, and wherever appropriate to have regard to, the licensing objectives, and
(b) to permit gambling, in so far as thinks it reasonably consistent with pursuit of the licensing objectives.”
The licensing objectives were not entirely new inclusions in the 2005 Act, having been carried forward from the Gaming Act, 1968, albeit somewhat reworded. The third licensing objective – “protecting children and other vulnerable persons from being harmed or exploited by gambling” is relevant, as the basis for affordability checks. In the Statement of Principles, the Commission at 5.26 states that:
“With regard to ‘vulnerable persons’, whilst the following list is not exhaustive, the Commission considers that this group will include:
The wording of the third licensing objective refers firstly to children, and then to other vulnerable persons. The use of that word “other”, and the position in which it appears in the wording of this licensing objective is significant: it is there for a reason. Children are, by law, incapable of making adult informed decisions. Gambling is an adult activity, again by law, as is the consumption of alcohol or the use of tobacco products. In our view the use of other is to indicate that this is the standard by which vulnerability is to be judged; i.e, that it means people who are unable to make a properly informed, or ‘adult’, decision. Plainly, that would include those referred to in the Commission’s third bullet point above. It might include some in the second, though this is too widely expressed. The same point applies to the first. But both of these would depend upon fact and degree: who amongst us has not at some time spent more than we set out to do, carried away by the moment, in a pub, restaurant, or shop? It does not necessarily follow that we are vulnerable people.
In recent years the Commission has interpreted “vulnerable persons” increasingly broadly in its publications and speeches, to include not just those who demonstrate a problem with gambling, or even those who are at risk of being problem gamblers, but to include those “who may be at risk of harms associated with gambling”. In reality, this could include everyone who indulges in gambling at any level. Despite the fall in the percentage of problem gamblers in recent years, or perhaps because of it, the Commission has expanded the class of people whom it considers to be vulnerable. This is not what the legislation intended. Moreover, it is the exercise of arbitrary power with no Parliamentary oversight. The absence of this oversight is all the more concerning when the progress of the 2005 Act through Parliament is considered.
Volume I of the Joint Committee Report on the Draft Gambling Bill (Session 2003-04) was produced by the Joint Committee on the Draft Gambling Bill, appointed by the House of Commons and the House of Lords to consider and report on any clauses of the draft Gambling Bill. It includes, at Annex 1, a schedule of detailed comments on the draft Bill. It is of note that, in response to a comment made by the Gordon House Association, that “the concept of protecting children and the vulnerable must be extended to include those whose lives are detrimentally affected by problem gambling”, the Department of Culture, Media and Sport (“DCMS”), indicated that it did not expect “vulnerable persons” to be interpreted so broadly when it stated:
“DCMS does not consider that the protection afforded by the Bill needs to extend to this wider group or persons who may be affected by the gambling of others.”
As a result of this ambiguity, the proposal in the Consultation on affordability to amend the Social Responsibility Code to require that licensees “must take account of the Commission’s definition of vulnerability”, amounts to an inappropriate suggestion that the Commission should make legislation, thereby assuming for itself that which is the prerogative of Parliament. The duty of the Commission is to uphold the licensing objectives, not to rewrite them, particularly when this rewriting appears to extend the ambit further than Parliament intended.
It follows that those who are not in fact vulnerable should be free to enjoy their gambling without interference, intrusive interrogation, or, worse still, demands for the provision of highly sensitive private financial information. For the Commission to seek to introduce measures to require such an invasion into the rights of individuals appears to be contrary to their duty to permit gambling where it is consistent with the licensing objectives.
The Gambling Review
Early in December the Government announced the Gambling Review. At the same time, DCMS published its Response to the House of Lords Committee recommendations (the “Response”). In relation to affordability, DCMS commented:
“However, we are not waiting for the Gambling Act Review to take action in this area. The Gambling Commission is, as recommended by the Committee, already consulting and calling for evidence on proposals to strengthen requirements on licensees to identify and interact with customers who may be at risk of harm. Alongside clear expectations on affordability checks, this consultation includes questions for discussion around markers of harm, how to identify and respond to vulnerability and how best to respond to risks for customers in particular situations.”
As we and other commentators, notably Regulus Partners have said, affordability affects every aspect of gambling structure and licensing objectives and potentially profoundly impacts them. In addition, it has massive implications for the cost of compliance and the economic health of the industry, as well as worrying implication for the liberty of consumers. There is therefore a very strong case for the type of affordability measures being proposed by the Commission to be considered as part of the Gambling Review. That affordability requirements were being introduced before the conclusion of the Consultation and before the Gambling Review, potentially renders much of the discussion and evidence irrelevant. By the time that Government and Parliament come to consider new legislation, the Commission will have pre-empted the process, with the consequence that the industry may already have been transformed beyond recognition, and not for the better.
In the Response, the Government – rightly in our view – said that addressing the risk of gamblers spending more than they can afford would involve a number of considerations, “including the need to strike an appropriate balance between player protection and the freedom of individuals to choose how they spend their money”. These are matters which embrace constitutional and human rights questions, which fall outside the statutory remit of the Commission. It is for the Review, and subsequently Parliament, to determine the future course of gambling legislation and regulation, not the Commission. Whilst the duty of the Commission is to regulate, it cannot be within its power to determine the level of regulation.
It seems to us that the Commission, by its commendable but unrealistic desire to abolish all gambling related harm, is at the root of the problem; it has lost sight of what the then Government recognised in developing the Bill which became the 2005 Act, when it stated in paragraph 7.3 of “A Safe Bet for Success”: “It is impossible to do away with problem gambling; and excessive controls could make matters worse by encouraging the growth of illegal gambling.” The Commission is dubious about the second part of that statement, but it certainly needs to accept the first part.
In the light of recent rumours, it is to be hoped that the process will now be halted, pending the Gambling Review. The issues raised are, in our opinion, too fundamental to fall within the purview or power of the Commission. This is not to say that the exercise was wasted; the evidence gathered can form part of the material for consideration as part of the Review.
The first stage on the road to recovery from any addiction, be it gambling, alcohol or drugs, is recognising and admitting the problem. This is a lesson which the Commission, which might be said to be at risk of developing a problem with regulation, would be wise to learn, or it may have to be taught by others: Government, Parliament or the courts.
With thanks to David Whyte for his invaluable co-authorship.
Following the closure of the Gambling Commission’s (the “Commission”) consultation Remote customer interaction – Consultation and Call for Evidence (the “Consultation”), on 9 February 2021, which yielded some 13,000 responses, we are now in the midst of an ‘affordability debate’. However, this debate is largely focused on the future, to the detriment of the present. At a time when licensees are proactively striving to improve their standards and prioritising their approach to safer gambling, it is apparent that licensees are unsure as to precisely what they need to do to remain compliant with present Commission affordability requirements, what those requirements are, and where they are specified.
Tim Miller, in his speech at the CMS Conference in March 2021, stated that “the process of giving detailed consideration to all the evidence is still ongoing with extensive further work and engagement likely to be needed.” Mr Miller went on to state that “clarifying existing rules will be our immediate priority in any next steps.” What Mr Miller does not say, however, is when that will be and what is going to happen in the interim.
A cynic may say that this lack of clarity operates to the benefit of the Commission in its pursuit of its affordability objectives as outlined in the Consultation. Two consequences are clear. Firstly, there are signs that the Commission is subjecting licensees to a series of requirements, none of which are clearly set out in licence conditions, codes of practice, or formal guidance issued by the Commission under its statutory remit.
Secondly, licensees concerned to ensure that they adhere to the Commission’s expectations are likely to interpret the limited formal guidance on affordability cautiously; many in our experience even taking into account the Consultation itself. This can only be to the advancement of the Commission’s affordability objectives. We will deal in a later article with the impact of this precipitate action by the Commission on the Consultation and the Gambling Review.
Current position
Despite what some licensees may have experienced when engaging with the Commission, the measures proposed in the Consultation are not in force. The Commission’s present requirements are instead spread across its last two annual enforcement reports and one formal guidance document, in addition to its published regulatory sanctions and/or settlements.
The Commission takes the view that its enforcement reports serve as indicators to licensees of its expectations, for which licensees can be held to account; these reports therefore arguably contain policy positions that, if enforced, are more akin to licence conditions or code provisions. We have discussed previously our concerns that the Commission may be making indirect changes to licence conditions and/or code provisions through its introduction of requirements to adhere to guidance and this is perhaps another, somewhat broader, example of the same.
We do not agree that the enforcement reports carry the weight of formal guidance. It is clear from the content of the licence conditions and codes of practice (“LCCP”) that in cases where the Commission expects licensees to adhere to formal guidance, it says so. Social Responsibility Code Provisions 2.1 (anti-money laundering – casino) and 3.4 (customer interaction) are examples of the Commission explicitly requiring licensees to adhere to, or take into account, specific formal guidance, the latter requiring that licensees take into account the Commission’s formal guidance on customer interaction. Nowhere in the LCCP is there any reference to the enforcement reports carrying such weight: the closest the Commission comes to this is in licence condition 12.1.1 (3) which, solely in relation to licensees’ obligation to ensure they have appropriate policies, procedures and controls to prevent money laundering and terrorist financing, requires that they:
“… take into account any applicable learning or guidelines published by the Gambling Commission from time to time.”
Putting aside the breadth by which this statement may be interpreted, it is clear that this obligation relates to anti-money laundering and not directly to safer gambling or affordability. This appears to be the cause for ambiguity in this area; an evolution of affordability from its apparent origins as a money laundering concern – historically some licensees’ customers having been identified as having gambled with criminal spend – to it now being central to the Commission’s expectations from a safer gambling perspective.
This is further evident from a consideration of the Commission’s introduction to its section on affordability in Raising Standards for Consumers – Enforcement report 2018-19 (the “Enforcement Report 2019”) where it states:
“Some of these individuals have funded their gambling activity through the misappropriation of monies from businesses, the taking out of unaffordable loans and misappropriating the funds from vulnerable people.”
The obligation, as outlined in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, that licensees who hold casino operating licences obtain evidence of source of funds and source of wealth on a risk-based approach in order to mitigate money laundering risks will of course extend to their consideration of affordability. However, this should be as a risk factor that may, when subjectively assessed, increase the risk of money laundering and the financing of terrorism and trigger further enquiries. It is not at present a requirement at a certain level of spend.
When affordability is considered solely from a safer gambling perspective, a formal requirement to obtain evidence of affordability is impossible to identify and the Commission’s expectations are ambiguous at best, even more so given our contention that the enforcement reports may not operate as formal guidance on this matter. How then, is it reasonable for the Commission to hold licensees to account for failings in this area?
1. Enforcement Report 2019
The Enforcement Report 2019 outlines various open-source data sources that may help licensees to “assess affordability for its GB customer base and improve its risk assessment and customer interventions.” This data focusses largely on Office of National Statistics (ONS) and YouGov data highlighting average annual salary and monthly personal disposable income. The report goes on to state that:
“The above disposable income data identified clear benchmarks that should drive Social Responsibility (SR) triggers which will help to identify gambling-related harm by considering affordability.”
“Benchmark triggers should be a starting point for engaging with customers and are not intended to definitively demonstrate a customer is suffering from gambling related harm – but they can help identify instances when an operator needs to understand more about a customer, their play and affordability.”
“If an operator is going to set specific triggers for a customer base not representative of the general public, various documents sources should be relied upon, but they must contain sufficient information to substantiate the trigger level set.
In conclusion, we would recommend that operators revisit their framework on triggers and consider their customer base and their disposable income levels as a starting point for deciding benchmark triggers.”
It is of note that there is no recommendation in the Enforcement Report 2019 that licensees should obtain evidence of affordability from customers whose losses reach national average incomes. As we have discussed above, this requirement, it seems, comes from the Commission’s interpretation of money laundering legislation and certain licensees’ obligations to obtain, on a risk-based approach, evidence of source of funds and source of wealth. Rather, the Enforcement Report 2019 focusses on disposable income data being used to set “benchmark triggers” as a starting point for engagement.
2. Customer interaction – formal guidance for remote/premises based gambling operators – July 2019 (the “CI Guidance”)
When describing the Commission’s expectations as to how licensees must identify customers who may be at risk of experiencing harms associated with gambling, the CI Guidance refers to affordability and states:
“Operators should aim to identify those experiencing or at risk of harm and intervene to try to reduce harm at the earliest opportunity. Reliance on deposit or loss thresholds that are set too high will result in failing to detect some customers who may be experiencing significant harms associated with their gambling. It is therefore imperative that threshold levels are set appropriately.
Open source data exists which can help operators assess affordability for their GB customer base and improve their risk assessment for customer interactions. Thresholds should be realistic, based on average available income for your customers. This should include Office of National Statistics publications on levels of household income.”
Again, as with the Enforcement Report 2019, there is no suggestion in the CI Guidance that licensees should be obtaining evidence of affordability from customers whose losses reach national averages, rather it suggests that affordability is a factor that should be considered when developing customer interaction policies and aiming to identify customers who may be experiencing or at risk of experiencing harm. There is a significant difference between “ to try to reduce harm at the earliest opportunity” and requiring customers to produce extensive evidence to justify their level of spend when they reach a threshold.
3. Raising standards for consumers – Compliance and Enforcement report 2019-20 (the “Enforcement Report 2020”)
The Enforcement Report 2020 was published three days after the Consultation – a decision that will not have helped licensees to understand what is, and what is not, required. In referring to the recommendations it made in the Enforcement Report 2019, and considering customers who have “demonstrated gambling related harm indicators and been able to continue to gamble without effective engagement”, the Commission states:
“Furthermore, these individuals have funded their gambling without satisfactory affordability checks and appropriate evidence being obtained.”
The Enforcement Report 2020 goes on to outline various open source data sources that can help licensees to “assess affordability for GB customers and improve risk assessment and customer inventions”. Again, the data presented primarily focusses on average annual salary as outlined in the ONS survey of Hours and Earnings. The Commission goes on to state that:
“Open source information is an important element of an affordability framework because it is a parameter to consider when setting benchmark triggers that will drive early engagement with customers.”
“We are concerned licensees are creating complex and convoluted matrices and mappings within their affordability framework to place customers into trigger groups well over the gross earnings stated above, before disposable income is factored in. Of more concern, these trigger groups are set without any sort of customer interaction to influence their true affordability determination.”
“Operators must interact with customers early on to set adequate, informed affordability triggers to protect customers from gambling related harm. Failure to do so could render the operator non-compliant.”
“Customers wishing to spend more than the national average should be asked to provide information to support a higher affordability trigger such as three months’ payslips, P60s, tax returns or bank statements which will both inform the affordability level the customer may believe appropriate with objective evidence whilst enabling the licensee to have better insight into the source of those funds and whether they are legitimate or not.”
Importantly, outside of the Consultation, this is the first occasion on which the Commission makes any reference to licensees requiring customers to provide information or evidence in relation to affordability. This time, suggesting evidence is required only when customers wish to “spend more than the national average”. The obvious question here, and a conundrum which we know licensees have been struggling with, is “to what national average does the Commission refer?”
There is a significant difference between the national average salary (stated as c£30,500) and average weekly gross earnings (stated as c£585.00). Should customers be evidencing affordability for losses exceeding £585 per week, or for losses exceeding £30,000 per year; or is there another average that is relevant?
What is expected now?
In his Speech at the CMS Conference in March 2021, Tim Miller suggested in that he did not expect the Commission to be announcing its plans on affordability imminently. Mr Miller also stated:
“…in our casework and compliance activity we continue to see example after example of operators who have allowed people to gamble amounts that are clearly unaffordable with very limited or no customer interaction until a very late stage. Just to be clear, we are not talking about grey areas here. We are talking about clearly unaffordable levels of gambling.”
Some of the handpicked examples in the enforcement reports demonstrate what almost all would agree are, without evidence of affordability, “clearly unacceptable levels of gambling”, for example a customer losing £187,000 in two days with no regular source of income. However, other examples of which we are aware are not so straightforward and are certainly not at, on any reasonable interpretation, “clearly unacceptable levels”. This is, in practice, most certainly a grey area. The consequence is that licensees who have prioritised safer gambling and, due to their misunderstanding of the Commission’s expectations, are at best criticised, or at worst subjected to regulatory action, because of a failure to meet those expectations in relation to affordability.
Since the publication of the Consultation, we have heard of licensees being criticised during compliance assessments for failing to obtain evidence of affordability from customers who have exhibited no clear signs of problem gambling, are at a low risk of harm, have never raised any concerns themselves, and who have informed licensees that they are comfortable with their gambling spend. This is not to say that licensees should not adhere to the CI Guidance and conduct customer interactions with these customers when and if they reach internally identified thresholds. It is also not to say that licensees should not take affordability into account and discuss the same with customers; but when are they required to evidence affordability?
Ambiguity inevitably leads to inconsistencies. Can “benchmark triggers” or “trigger groups” roll over and/or reset monthly/annually or are they expected to be final? Spend of say £60,000 presents very differently when it has taken place at a consistent rate over 10 years. The same applies to losses of £5,000 in a 3–6-month period when there are no other reasons for concern; yet examples such as these are being raised as concerns by the Commission. These customers are not spending “above the national average”, whatever average to which the Commission means to refer in the Enforcement Report 2020, and therefore it is at least reasonable for licensees, to decide at their discretion that there is no need to require evidence of affordability in these cases.
Licensees’ use of open-source data is also criticised for being inadequate, even in cases where this data more than adequately mitigates risk by demonstrating income at or above the national average, despite reference in the Enforcement Report 2020 to the same being “an important element of an affordability framework”.
The result of this ambiguity is that in our experience Commission activity demonstrates a much lower tolerated threshold than the CI Guidance and enforcement reports suggest; a threshold more aligned with the Consultation. In the current climate, this not only exposes licensees to unreasonable criticism from the Commission, but also places those licensees who are unlucky enough to undergo a compliance assessment at a time of such uncertainty, at a commercial disadvantage; a diligent response to criticism being to reduce thresholds and require evidence of affordability sooner, even if this is neither deemed necessary nor yet a formal requirement. One may question whether the Commission has overlooked its statutory obligation to “permit gambling, in so far as thinks it reasonably consistent with the pursuit of the licensing objectives”.
The impact
It is no secret that licensees are frustrated and confused, and understandably so. Discretion has given way to prudence; licensees are in the unenviable position of having to second guess what the Commission really expects and compliance assessments are becoming one-sided affairs where, in the main, Commission employees attend with an almost preconceived view as to what is and is not acceptable application of discretion. Nobody is perfect and, due to ambiguity, it is easy enough to call into question individual cases. This is not to say, however, that the vulnerable are not being protected. A very large proportion of the customers whose accounts are reviewed by the Commission never have and never will identify as problem gamblers; they are simply spending their money as they wish, even if at a level that Commission considers inappropriate.
Of course, the regulatory framework permits licensees to challenge the Commission’s findings. The reality, however, is that few choose to do so. Commercial realities, protracted Commission investigations, publicity considerations, cost and perhaps shareholder influence, result in most licensees entering into regulatory settlements with the Commission or accepting its findings. This is often their decision whatever the merits of their case. It would not be unreasonable to suggest that a general consensus amongst licensees is that the ultimate sanction will likely be the same anyway, particularly given the ambiguous guidance, so why incur further costs and prolong the inevitable?
Rather than regulate an industry that operates in fear: not the fear of deserved punishment, but fear of a being chosen and inevitably sanctioned for failing to do something it did not fully understand, the Commission would be better placed regulating an industry that is clear on what is expected of it. The present regulatory expectations in relation to affordability are grey and unclear. The Commission has acknowledged as much by consulting on prescriptive requirements. That Consultation now appears stymied, and it is incumbent upon the Commission to back up Tim Miller’s positive acknowledgement that “clarifying existing rules will be immediate priority” and act with urgency to clarify the existing requirements against which it is enforcing. The Commission had no reservation in moving quickly to issue additional formal guidance for remote operators during the Covid-19 outbreak last year, albeit without consultation, so it is capable of acting in haste.
Better understanding will raise standards and could easily be achieved through clarity in guidance. Informal engagement and discussion with the industry, and even possibly training (both internally and externally) controlled, prepared or delivered by the Commission would also be of benefit. How better to put effectively to use some of the £30 million paid in financial penalties and regulatory settlements in the past 12 months? In the meantime, what is absolutely not acceptable is for the Commission to wield its powers through compliance assessments to impose affordability requirements upon licensees which it has so far failed to implement through statutory consultation.
With thanks to Julian Harris for his invaluable co-authorship.