The Affordability Debate (3): Regulating beyond its means?
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:-
- Include “validated impact assessments of the costs and benefits of the options being considered….where proposals have an impact on business…”;
- Consider whether “informal iterative consultation is appropriate using….open, collaborative approaches”;
- “Publish responses with 12 weeks of the consultation or provide an explanation why this is not possible.”
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:
- understand and minimise negative economic impacts of their regulatory activities;
- minimising the costs of compliance for those they regulate;
- improve confidence in compliance for those they regulate, by providing greater certainty; and
- encourage and promote compliance.
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.
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 [it] 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:
- people who spend more money and/or time gambling than they want to;
- people who gamble beyond their means;
- people who may not be able to make informed or balanced decisions about gambling, for example because of health problems, learning disability, or substance misuse relating to alcohol or drugs.”
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.