The Affordability Debate (4): The Commission Unmasked
Readers may recall the three articles we have previously written analysing the Gambling Commission’s (the “Commission”) covert operation to introduce a requirement on operators to conduct evidenced affordability checks. Whilst we cannot claim that it is as a result of those publications, it is encouraging that the Commission has finally and “officially” been taken to task on this controversial issue by no less a body than the Digital, Culture, Media and Sport (the “DCMS”) Committee of the House of Commons (the “Committee”). On the penultimate day of the Committee’s Inquiry on What next for the National Lottery? (30 June 2022), the Committee heard evidence from Commission CEO, Andrew Rhodes and its Executive Director, John Tanner. Whilst much of the questioning by the Committee related to the subject matter suggested by the title of the Inquiry, the Committee then turned to the subject of affordability checks and then customer interaction.
We can all sympathise with being taken off guard by unanticipated questioning, but less so with Mr Rhodes’ apparent denial of responsibility for, or even knowledge of, matters that occurred before his appointment, especially in relation to such a critical issue for consumers and the industry.
Even less worthy of sympathy was his apparent inability to explain the relationship between the newly published Customer interaction guidance – for remote gambling licensees, the November 2020 Consultation and call for evidence – Remote customer interaction (the “Consultation”) on which the Committee interrogated Mr Rhodes, and the issue of affordability which was the basis for the questioning. This is particularly the case given that the core and most contentious of the Commission’s ever evolving proposals in relation to affordability, the introduction of mandatory financial thresholds for affordability checks, was introduced in the Consultation.
Secrecy v transparency
To quote Jeremy Bentham, “secrecy, being an instrument of conspiracy, ought never to be the system of a regular government.” summarises neatly the Committee’s displeasure – to put it mildly – at the Commission’s failure to publish the results of its Consultation. As the Chair, Julian Knight MP, put it:
“This is important work. Affordability and affordability checks are of great public interest. It seems to be very strange that this has not been made publicly available. I do not know what is so secret about it that it needs to be handed over covertly to DCMS and then inform the White Paper. We have a right to see it as well and so does the general public, because we pay for you.”
Mr Rhodes denied knowledge of the reasons, on the basis that it pre-dated his appointment. Now that he has been the CEO for a year, one would expect that he knew, or ought to have known, about the Commission’s handling of an important document relating to a key Commission policy that has been disclosed to DCMS, which has been the subject of numerous licence reviews conducted by the Commission, is of critical importance to those whom the Commission regulates and to consumers, and which has been the subject of very substantial commentary. As the Chair commented:
“It does seem to be very strange that you should announce a consultation in November 2020 on such an important area, which frankly does need scrutiny more widely than just DCMS and the Department, and that was not released publicly. I thought that would be of interest to parliamentarians, rather than for it just to be handed covertly to officials at DCMS. That seems a very strange approach and lacking in transparency, frankly.”
Strange indeed. A lack of transparency on the part of the Commission has unfortunately permeated this issue; coupled with the Commission’s sleight of hand in introducing affordability requirements outside due process, this has left operators confused by the relationship between their regulatory obligations in law and the Commission’s expectations, as explained in more depth in our second article (The Affordability Debate (2): Ambiguous Regulatory requirements). Mr Rhodes again pleaded ignorance:
“I was not at the Commission at the time, so I am very happy to look at what the reasoning was for it not being published. My understanding since I have joined the Commission is that we have fed into the White Paper that affordability checks will be considered as part of the White Paper’s recommendations, rather than have essentially two bites at that.”
More disappointing is that he did not explain what the Commission is doing now in relation to affordability. Given that the Committee referred to this as being “such an important issue”, we consider this to be somewhat disingenuous: it does not reflect the degree of transparency which the Committee felt entitled to expect, nor to the level which the Commission expects of its licensees.
As operators are painfully aware, the Commission has for some three years done rather more than, in the word of Mr Rhodes, “…fed into the White Paper…”. The Consultation was followed just three days later by the Compliance and Enforcement Report 2019 to 2020 (6 November 2020) (the “2020 Enforcement Report”). In fact, even earlier – in its Compliance and Enforcement Report 2018 to 2019 (27 June 2019) (the “2019 Enforcement Report”) – the Commission outlined various open-source data that may help licensees to “assess affordability for its GB customer base and improve its risk assessment and customer interventions.” In referring to the recommendations it made in the 2019 Enforcement Report, and considering customers who have “demonstrated gambling related harm indicators and been able to continue to gamble without effective engagement”, the Commission opined that: “Furthermore, these individuals have funded their gambling without satisfactory affordability checks and appropriate evidence being obtained.” [Emphasis added]. The 2020 Enforcement Report proceeded to outline various open-source data that can help licensees to “assess affordability for GB customers and improve [its] risk assessment and customer inventions”. Similar to the 2019 Enforcement Report, this data primarily focuses on average annual salary as outlined in the ONS survey of Hours and Earnings.
The core, critical “requirement” is that:
“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.” [Emphasis added]
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 that. Aside from the fact that the Commission is not adopting a risk based and proportionate approach, the evidential basis for the Consultation included research in which customers admit to having sometimes lost more than they can afford, rather than their gambling being unaffordable. The Commission cite the Enforcement Reports as evidence in support of their proposed measures, when in fact the Enforcement Reports deal with “clearly unaffordable” gambling, whilst the proposed affordability constraints go far beyond customers losing tens of thousands, extending to affordability checks after lifetime losses of as little as hundreds of pounds; a point not missed by the Committee, when the Chair referred to “consumers potentially having to submit bank statements or tax returns to bet as little as £100 a month.”
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 (the “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 account of, specific formal guidance. Nowhere in the LCCP is there any reference to the Enforcement Reports carrying such weight, as we have previously explained (The Affordability Debate (2): Ambiguous Regulatory requirements).
So, in the case of affordability, the Commission expects licensees to abide by 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, but in their Enforcement Reports and the existing Customer Interaction Guidance and more broadly the Consultation. 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.
A Bridge Too Far
As licensees know from sometimes bitter experience, and as we explained in our second 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, referred to in its Enforcement Reports, by exerting pressure and threatening regulatory action for failing to implement affordability checks. This is clearly inconsistent, unfair and possibly exceeds its powers. Operators subjected to regulatory action have been pressured by the Commission to adopt affordability checks as if they were a legal requirement. The consequence, aside from placing them at a disadvantage to competitors, has been to create a climate of fear.
This has been exacerbated by confusion as to what the Commission actually requires. Moreover, despite the fact that the Consultation contains proposals for such checks to be applied solely to the online industry, the Commission is requiring such checks also from the land-based industry. The Commission has not merely pre-empted the Government’s decision, it has taken upon itself the role of Government and Parliament, i.e. that of lawmaker.
The whole truth
Mr Rhodes was unambiguous in saying that the issues relating to affordability checks “are something for the White Paper.”
Against the background explained above, it is reasonable to ask how he found himself able to make this statement. He was certainly correct in his pithy summary of how the Commission should have addressed affordability. However, he failed to explain that the Commission has been acting on many of the proposals on which it purported to consult for some three years, without reference to any higher authority. We find this strange indeed, not least given the Committee’s obvious interest and concern about the subject and the Chair’s statement that “affordability and affordability checks are of great public interest.” Given this “public interest” in the issue and the Committee’s concern as to lack of transparency on the part of the Commission, the Committee should have been informed of the Commission’s existing enforcement on the whole industry of affordability checks.
There is little point in speculating as to the reason for this absence, but it is reasonable to question whether (1) Mr Rhodes did not consider it relevant; (2) he was unaware of it and of the numerous licence reviews in which affordability has been an important feature; or (3) he chose not to mention it. If (1) obviously his view was misconceived; if (2) this would be a cause to question his grasp of the Commission’s work; and if (3) one wonders why not.
In the first article on affordability (The Affordability Debate: Protection, Responsibility and the Right to Choose), we commented that in disregarding the Consultation and pre-empting the results, the Commission had become the emperor that had no clothes. He has now been defrocked.
A question of trust
In conclusion, the Committee Chair asked Mr Rhodes if the Commission “have any measures or metrics in place to decide exactly how you are trusted by your licensees, for instance? Is there an overarching survey of that?” His answer was: “Not presently, no. There isn’t.” The answer from Mr Rhodes was correct: an answer that the Committee probably found disappointing.The fact of the question being asked hints at the possibility that the Committee considered there could be a negative response to such a survey.
There are stronger remarks that leave little doubt as to the Committee’s opinion; in questioning on metrics to determine whether the National Strategy to Reduce Gambling harms works, the Chair described the approach set out by Mr Rhodes as “very slipshod”. Having then heard Mr Rhodes admit there were no metrics to determine whether the £40 million spent does any good, the Chair concluded the hearing by saying:
“What do you do? There seems to be money going out the door and no accountability for that money, apart from when you make the award. This money just splashes out there and you have no idea in terms of what this impacts [sic] with the licensees. I am struggling to think precisely as an organisation how you are doing your job, because these seem to be key measures and indicators of whether you are successful.”
It is not for us to speculate on the views of licensees, who are quite able to make their views known themselves, but this withering criticism from the Committee reflects what was said by the All-Party Parliamentary Group on Betting and Gaming: there is reason to suppose it may well be shared by others.
As we know from experience, the degree of engagement between the Commission, those whom it regulates and even independent advisers, is negligible. The Commission seems interested in canvassing the views of those whom it knows to be anti-gambling or have reason to dislike the industry. This has been demonstrated by its formation of a group of people with “lived experience”, which meant only those who had suffered a problem with gambling. The Commission has never, to the best of our knowledge sought views from the vast majority who enjoy gambling as an adult leisure activity. For most licensees, the only real engagement with the regulator is through regulatory reviews or other confrontational issues.
In short, this issue demonstrates the need for the Commission to go on an “improvement journey”, be put into “special measures”, or even the equivalent of a “licence review” to establish whether it is fit, able and prepared to carry out the function with which it is charged under the Gambling Act, 2005 and not to make law according to its own whims.