Where is the harm? Implications of regulatory revisionism for customer interactions
In this – the second in a series of articles on the Gambling Commission’s (the “Commission”) consultation (the “Consultation”) on the proposed Customer Interaction – Guidance for remote operators (the “Guidance”) – Harris Hagan and Regulus Partners consider the concept of ‘vulnerability to harm’ that underpins the Guidance. The Commission proposes that licensees be required to identify “harm”, “potential harm” and “vulnerable states” by monitoring customer behaviour, scrutinising private information and making assessments based on a range of demographic characteristics. While licensees should always be sensitive to customer wellbeing, the Commission’s attempt to translate common sense into a bureaucratic checklist appears to be at odds with the intent of the Gambling Act 2005 (the “2005 Act”), regulatory coherence and the best interests of consumers.
Vulnerability and harm
The Guidance requires licensees to identify customers exhibiting “indicators of harm” as well as those who – for a wide variety of reasons – may be “vulnerable” to gambling harms. For these terms to be meaningful, it is important first to understand what the regulator wishes to convey by the term “harm”. While the Guidance itself is silent on this matter, the Commission has defined gambling harms in its Update: Pilot of survey questions to understand gambling-related harm as “the adverse impacts from gambling on the health and wellbeing of individuals, families, communities and society.” Emphasising the breadth of the concept, it adds that “these harms are diverse, affecting resources, relationships and health, and may reflect an interplay between individual, family and community processes. The harmful effects from gambling may be short-lived but can persist, having longer-term and enduring consequences that can exacerbate existing inequalities.”
To hammer home the scale of the problem, the Commission enumerates 27 “harms” experienced by gambling consumers and a further 13 “harms” to “affected others”. Some of these adverse impacts are incontrovertible – financial consequences such as problematic debt being the least ambiguous – but others are less clear-cut. The Commission, for example, defines having less money to go to the cinema or “other forms of entertainment” as a harm from gambling. Spending money on one pastime in preference to another – as the Australian academic, Professor Paul Delfabbro has pointed out – is “more akin to opportunity costs than true harm”. Its inclusion in the ‘Index’ suggests a moral judgement on those people who prefer to spend their own money on betting in preference to the movies or a meal out. Among the Commission’s other “harms”, we also encounter “feeling like a failure” which in its weakest form is a potential corollary of all unsuccessful wagers and “spending less time with people you care about”, a test that many activities, including going to work or attending a school or college, would fall foul of.
Are these the “harms” or “potential harms” that the Commission expects its licensees to identify? If so, how does it expect them to do so? Will licensees, for example, be required to scrutinise bank statements in order to understand whether or not customers are movie-goers? With what degree of regularity must customers be going to the flicks in order to satisfy the regulator? This may be a case of reductio ad absurdum – but it illustrates the fact that the Commission has in fact set some fairly absurd tests for what should be considered harmful. In the absence of clearer direction, operators are expected to make their own judgements about which of the “harms” listed by the Commission they should be attempting to identify.
A list of 21 prescribed “indicators of harm” are provided in the Guidance as a minimum – but not exhaustive – set of standards. The basis for the selection of these indicators is not made clear, supporting evidence is often not cited, and generally they lack all but the most conceptual definitions. For licensees, this presents a significant challenge in terms of operationalising the indicators. How, for example, should a licensee create a rule for “amount of money spent on gambling compared with other customers”? Is this intended to suggest that anyone spending above the mean (or median) is displaying an indicator of harm? As written, it could be used to describe anyone wagering more than the lowest-spending decile, which would be more than “other customers”. Another example is the “use of multiple products”, without any definition of what constitutes a “product”. Are football betting and tennis betting different “products” or a single product (i.e. sports betting)? Is a ‘Rainbow Riches’ slot game a different product to ‘Cleopatra’, as manufacturers would certainly contend? Where certain activities are concerned, any participation at all is considered potentially problematic. In-play betting is classified as an automatic indicator of harm. Although, as we will explain in a further blog, this appears to be based on the Commission’s misreading of its own evidence.
So much for harm; but what about “vulnerability”? Here, the Guidance does at least provide some kind of definition of what a “vulnerable person” is: “somebody who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care”.
Harris Hagan has raised previously its concerns about the transformation of what the Commission considers to be “vulnerability” and its inclusion of a definition of the term in guidance. It is for Parliament, not the Commission to define a statutory term that is included in the 2005 Act and which Parliament did not find it necessary to define, having clearly considered the interpretation of vulnerability a straightforward matter. Reference in the third licensing objective firstly to children, and then to other vulnerable persons adequately sets out Parliament’s intention that the licensing objectives apply to those people not able to make properly informed or ‘adult’ decisions.
The operative phrase in the definition in the Guidance – “especially susceptible to harm” – implies that vulnerability is a rare or exceptional condition rather than a state shared by the majority. This conceptualisation is however, undermined by the Commission’s use of illustrative examples. “Young adults” are categorised as vulnerable (around 12% of the population are between the ages of 18 and 24 years); but so are “older adults” (23% of the population are 65 or older). Poor physical health denotes vulnerability (43% of adults have a long-standing medical condition); as does poor mental health; (17% have a common mental health disorder; 16% have an eating disorder). One is vulnerable if one is bereaved (15% of us each year), has caring responsibilities (13%) or has dyslexia (10%). Most perplexing of all, a “higher than standard level of trust or appetite for risk” – a quality that might be said to be a defining characteristic of any gambler – is also sufficient to qualify an individual as vulnerable.
The Guidance refers to the Financial Conduct Authority’s (“FCA”) observation that 46% of adults “display one or more characteristics of vulnerability” and indeed, the Commission’s definition of vulnerability is identical to that used by the FCA in its Guidance for firms on the fair treatment of vulnerable customers – February 2021 (the “FCA Guidance”). The FCA Guidance is, however, prepared to serve an entirely different purpose. It is issued under s139A of the Financial Services and Markets Act 2000 (legislation which, unlike the 2005 Act, makes no reference to vulnerability) and provides guidance on the FCA’s Principles for Business, which state that, “a firm must pay regards to the interests of its customers and treat them fairly”. Principle-based regulation of this nature almost certainly requires guidance and the FCA is justified in defining vulnerability in that context; that the Commission seeks to take an identical approach to the FCA, in an entirely different context, is not.
There is a difference between the FCA’s intention that regulated firms identify “characteristics of vulnerability” to ensure they treat their customers fairly and in accordance with their needs, and the Commission’s duty under the 2005 Act to permit gambling in so far as it thinks it reasonably consistent with, the licensing objective of “protecting children and other vulnerable persons from being harmed or exploited by gambling”. The Commission’s reinterpretation of “vulnerability” as a universal rather than exceptional state risks distorting and undermining the legislation that it is required to enforce – replacing parliamentary sovereignty with regulatory fiat. Furthermore, the Commission prescribes a requirement in SRCP 3.4.3. It therefore had the opportunity, following consultation, to set out precisely its definition of vulnerability when introducing that requirement. That it now seeks to widen the parameters of that requirement in the Guidance, is plainly wrong.
The concept of vulnerability
The suggestion that we are all vulnerable may be true at a certain banal level – but it is inconsistent with the intent of the legislation and also the Commission’s own conception of ‘especial susceptibility to harm’. A system of customer monitoring predicated on the idea of universal vulnerability risks failing those in genuine need of protection. There are a number of other practical considerations which the Guidance fails to address. For instance, it suggests, by way of reference to past enforcement cases, that operators must routinely scrutinise customer bank statements in order to harvest medical information, or risk facing sanctions for failing to do so. This raises complex ethical issues of discrimination and data protection. Should operators, for example, treat customers differently on the basis of a perceived medical condition (which they are expected to glean from banking data)? How might customers feel about betting companies holding information (however obtained and however accurate) about their health?
To illustrate the scale of the challenge presented by the Guidance, consider the following fictitious scenario. A 24-year-old with dyslexia who bets in-play on football and cricket and spends slightly above the average for his age group could plausibly be said to raise three ‘vulnerability’ flags and three ‘indicators of harm’. As we observe in the next in this series of articles, a licensee would be required to determine for itself whether or not the presence of six ‘indicators’ would necessitate an interaction, and if so of what variety. It is inevitable that operators will adopt widely divergent interpretations in such instances, with implications for market distortion. Perhaps more significantly, the Guidance creates ample scope for disagreement between licensees and the Commission about whether a customer is vulnerable or displaying genuine indicators of harm.
That “vulnerability” is to be determined by whether a “firm”, which we understand to mean a licensed operator (again the use of “firm” a reflection of the Commission’s use of the FCA’s definition), is “acting with appropriate levels of care”. The decision as to whether a licensee has acted with appropriate levels of care must ultimately rest with the Commission and therefore it seems that vulnerability will be determined subjectively by the Commission, almost certainly in hindsight. Further, by suggesting, incorrectly, that licensees have a duty of care at law to prevent customers from gambling if they are or might meet the Commission’s definition of vulnerability, the Commission risks improperly introducing such a duty in law, or at least exposing licensees to such a challenge. This is dangerous territory for any regulator, and for licensees.
Autonomy – a wider debate
Finally, there are some genuine ‘slippery slope’ consequences for the wider economy, privacy and personal freedom. One of the Commission’s key items of evidence for the proposed interactions regime is a survey carried out in 2020 by the Money and Mental Health Policy Institute (‘MMHPI’) included in the report A Safer Bet. The Commission states that 24% of people with mental health problems experienced financial problems in consequence of online gambling and 32% said that they had bet more than they could afford to lose. This representation of the findings is misleading (the survey was of people with mental health problems who had gambled online and not all people with mental health problems – an important distinction); as is the Commission’s repeated misuse of the Problem Gambling Severity Index item “bet more than afford to lose”, which is a risky behaviour rather than a harm.
Quite aside from matters of precision, there is an important omission of context. In the same year, the MMHPI also published the results of a survey on online shopping by people with mental health problems – with very similar, and in some cases more alarming, results. The MMHPI report, Convenience at a cost found that 29% of respondents had spent more than they could afford when shopping online while 63% “had cut back on essentials” and 56% “had fallen seriously behind on payments for bills or debt repayments as a result of not being able to control their spending.” In short, the basis for regulatory intervention on remote gambling could just as easily be applied to shopping with Amazon or Tesco. Context is important because it helps us understand whether state action in one domain is consistent with broader societal ‘rules’ – and so deters unfair discrimination against particular groups (in this case, people who enjoy gambling). The Commission’s deliberate exclusion of this information, which was brought to its attention as part of the original consultation, is unhelpful and reinforces the idea that the regulator is not in earnest in its use of public consultations.
The Commission’s obsession with vulnerability suggests a rather hopeless outlook on life. To the extent that we are all, to some extent vulnerable, we are all resilient too and possessed of broad powers of self-regulation. An exclusive focus on what makes us weak with no recognition of what makes us strong is distortive and may lead to negative consequences – most obviously through undermining individual agency, which is an essential ingredient for wellbeing.
The identification of harm and vulnerability set out in the Guidance is the basis for ramping up operator interactions with customers, which may in some cases be warranted. The practical implications of the requirements to interact, and to evaluate the effect of those interactions, is the subject of our next article.
With thanks to Dan Waugh from Regulus Partners for his invaluable co-authorship.