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Betting and Gaming horizon scanning: UK regulatory roadmap

Posted on 23 March 2020

In this "UK regulatory roadmap", the first of a regular series of newsletters we intend to publish for our clients, we are looking to the months ahead to identify the key upcoming and ongoing regulatory developments impacting the betting and gaming sector. While some milestones in our roadmap have firm deadlines, for others the timing is less certain and subject to change. The ongoing trend of increasing regulation and compliance requirements shows no sign of slowing down, and the months ahead present both challenges and opportunities for operators and other businesses allied with the sector.

UK regulatory roadmap

A new version of the UK's Money Laundering Regulations, updated to implement the EU's Fifth Money Laundering Directive, came into effect on 10 January 2020. On the same day, the Gambling Commission published the fifth edition of its guidance for remote and non-remote casinos on the prevention of money laundering and combating the financing of terrorism. Although the new guidance came into force immediately, the Commission has acknowledged that it takes time to implement changes. The Commission does, however, expect operators to have acted promptly, invested appropriately (if technology is required to accommodate the changes) and to implement changes with the requisite urgency.

The most notable changes to the Commission's guidance include those relating to customer due diligence and risk profiling (which have not actually been made as a consequence of the new Money Laundering Regulations). The guidance indicates that as part of their risk assessment of a customer,  operators "will need to consider who the customer is, what they do, where they live and do business, and the nature of the product or service they require" and that "full details of the source of funds to be used in the relationship will also need to be established using a risk-based approach". The guidance also states that "higher-risk customers should always be escalated to senior management" and "for those customers rated as high risk…the [operator] will need to conduct mandatory enhanced customer due diligence".

Whilst casino operators should act in accordance with the Commission's guidance (ordinary code provision 2.1.1), we have reservations regarding the Commission's interpretation of the underlying Money Laundering Regulations. In particular, certain aspects of the guidance quoted above represent a departure from the underlying law and casino operators should exercise caution when updating their AML policies, procedures and controls.

The Gambling Commission announced on 14 January 2020 that by 31 March 2020 all online gambling operators must participate in the multi-operator self-exclusion scheme GAMSTOP. The scheme, developed for the online sector, will allow consumers to self-exclude from online operators with one request rather than from each operator individually. The Commission noted in its press release that although the vast majority of operators are already participating in GAMSTOP, the new requirement will make coverage comprehensive.

News broke at the beginning of 2020 that the Gambling Commission was considering banning VIP schemes: Guardian: Regulator considers banning VIP schemes after betting firm data reveals widespread use. The Commission responded that it was already taking action to address poor practice linked to VIP programmes but was prepared to go further. While an outright ban would be at the more draconian end of the spectrum, other options the Commission is considering include putting pressure on operators to adopt a new industry-wide VIP code of conduct and limiting incentives on offer to scheme members. These developments follow the Betting and Gaming Council (BGC)'s announcement in November 2019 that it would introduce a code of practice around the handling of VIP players and operator inducements to gambling in the first half of 2020; the BGC confirmed in January that a wide consultation on the new code will be launched "soon". The Gambling Commission has also confirmed recently that a new working group, working closely with the BGC, will identify how existing rules relating to VIP incentives can be strengthened.

The Gambling Commission is keen to make progress on creating a single industry-wide solution to help reduce gambling harm, in particular where customers have multiple online accounts. Supported by the BGC, the Commission is involving experts from the gambling and technology industries and recently announced that it expects to see progress by March 2020.

Citing an interim report by GambleAware showing that children, young people and vulnerable adults report that they are being exposed to significant levels of online gambling adverts, including via social media, the Gambling Commission has launched an "Advertising Technology challenge" working group. The initiative is intended to "explore and quickly accelerate opportunities to use AdTech to reduce the amount of advertising seen by children, young people and vulnerable adults."

On 14 January 2020, the Gambling Commission announced a ban on remote gambling businesses allowing consumers in Great Britain to use credit cards to gamble. The ban follows the Commission's review of online gambling and a public consultation between August and November 2019.

The Commission's consultation extended to the use of e-wallets and the consultation response confirms that gambling operators would not be able to accept any payment through an e-wallet unless the e-wallet provider could demonstrably prevent the use of credit cards for online gambling through their wallets. Where the e-wallet provider allows funds to be transferred from a card into a "stored value" held in the wallet, the provider may need to have separate "pots" of stored value, e.g. one pot for payments that the consumer declares will be for gambling and one pot for non-gambling payments. Alternatively, there will need to be one pot for funds that are derived from credit cards and a separate pot for funds derived from any other non-credit payment instrument. It is worth noting for the avoidance of doubt that the ban will not extend to debit cards.

The Information Commissioner's Office (ICO) is required to issue a new statutory code of practice on direct marketing, giving practical guidance and best practice recommendations on compliance with the requirements of data protection legislation and PECR. A draft version of the code was published in early January 2020, followed by a two month public consultation phase. A substantial amount of feedback was received during the consultation process, and the ICO currently says that it hopes the code will be finalised by Summer/Autumn 2020.

The draft version of the code addresses various forms of online advertising, including custom audiences and lookalike audiences, as well as profiling and data enrichment. The ICO also flagged the importance of transparency when profiling customers, and indicated that current online advertising techniques are 'highly likely' to trigger the need for a formal data protection impact assessment (DPIA).

The ICO's draft code indicated that consent is likely to be required in order to use custom audiences. When using lookalike audiences, the ICO has indicated that you are likely to be a joint controller alongside the social media platform (and therefore obliged to check whether the social media platform has provided appropriate transparency information to the individuals in question). The ICO did not give any further guidance on the level of checks required, and did not comment on the other implications of becoming a joint controller in respect of a particular advertising project. The ICO has also indicated that if any customers have objected to their personal data being used for direct marketing purposes, then you cannot use their data for the purposes of building lookalike audiences.

The Gambling Commission has launched a working group to product an industry code for responsible product and game design. The Commission has said that the Code will set out how the gambling industry can produce safer products in the future, the techniques to use when designing apps, online games and gaming machine products, the risks associated with each product and how they can be mitigated, and a clear explanation of what is not acceptable.

The Queen's speech in December 2019 confirmed that the Government intends to carry out a review of the 2005 Gambling Act, with a particular focus on tackling issues around online loot boxes and credit card misuse.

As we have seen, credit card use has already been subject to a Gambling Commission prohibition in the remote sector. The Conservative Party, in its manifesto, promised to "legislate to make the UK the safest place in the world to be online". It also committed to new advertising restrictions for gambling and a compulsory levy to fund the research, education and treatment of problem gambling. It remains to be seen whether the review might extend to proposing limits on online gambling stakes, a measure that the Labour Party called for in its manifesto, and VIP schemes and inducements.

To a large extent, opportunities for consolidation depend on where you sit within the industry. For operators, that will continue to be driven by the profile of the P&L, market presence, product and regulatory impact - with regulatory risk being a key motivator in ways not seen before.  With these regulatory pressures in mature markets bearing down on costs and impacting revenue flows, operators will look not only to complementary target businesses but also to other parts of the value chain (e.g. B2B businesses) in an effort to bring costs in-house.

Affiliates and performance marketing companies have enjoyed a flurry of M&A activity over the last four years or so. Many of those deals are still being digested by the super affiliates which has led to a stall in the number of new deals done in the last 12 months or so. Affiliates are not immune to the shifting regulatory environment facing operators and that has also had an impact on their approach to the type and profile of deals earmarked as acceptable targets. Collaboration with tech and media businesses will also continue to be a focus of interest as operators across the sector look for more sustainable and cash generative operating models.

The UK-EU Withdrawal Agreement provides for a period of transition (or "implementation") ending on 31 December 2020, unless it is agreed before 1 July 2020 to extend the period. During the transition period, most EU law will continue to apply to the UK. If a future trade deal between the UK and the EU has not been reached by 31 December 2020, the UK could face a "no deal" scenario, and if only a very basic deal (with more detail to follow) is agreed within the transition period, there would be "no deal" implications for the areas outside the deal's scope.

Back in October 2019, when the UK was last facing a "no deal" exit possibility, the Government issued guidance to help gambling organisations make sure they were prepared. As we discussed in our briefing at the time, Preparing for a "No Deal" Brexit: Government issues checklist for gambling organisations, the Government's checklist is not exhaustive. Given the continued possibility of a "no deal" scenario or at least "no deal" implications in some areas of law and regulation affecting the betting and gaming industry, operators are advised to keep their own "no deal" Brexit plans under review during 2020.

The Gambling Commission has commenced a consultation on amendments to the LCCP and regulatory returns, proposing to reduce the amount of data required to be disclosed by licensed operators in the UK market. The consultation closes on 20 May 2020.

The Gambling Commission has also commenced a consultation pursuant to which it proposes to significantly reduce licensees' obligations to report changes to key equipment. The Commission proposes to remove the requirement for operators to vary their operating licence before using new remote gambling equipment (which can cause significant delays when onboarding new third party games, for example) and a related "key event". The consultation closes on 24 March 2020.

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