Last week the Gambling Commission announced a further series of reforms to its Licence Conditions and Codes of Practice (LCCP) which will come into effect in Autumn 2016. The reforms follow a consultation paper which the Commission published in September 2015, and will introduce a series of enhanced AML compliance obligations for all operators. Some of the most significant changes are discussed below.
1. Formal assessment of AML risks
A key requirement is that operators must conduct regular assessments of the risks that their business may be exploited for money laundering and terrorist financing:
- These assessments must be conducted at least annually (or more regularly if there are key changes, such as new products or technology, new payment methods, or changes in customer demographics).
- The assessments will need to identify whether there are any types of customers who present a higher risk of money laundering.
- Operators should also consider whether to require customers to withdraw winnings using the same mechanism as was used to pay the stake.
- The Commission has confirmed that it will publish an AML risk assessment document later this year, which may help operators to understand what is expected of them. The Commission also says it will update its advice and guidance notes on AML and POCA shortly.
- Interestingly, the Commission says that, over time, it expects to see greater use by operators of data management strategies and the deployment of technology as a way of identifying and managing their AML/CTF risks, in particular to track customer activity across different products and platforms.
2. Reporting Criminal Investigations
The LCCP will be changed to require gambling operators to report to the Commission any criminal investigations where: (a) the operator is involved in the investigation (including where the operator was itself the victim of the crime) and (b) the circumstances are such that the Commission might reasonably be expected to question whether the operator's measures to keep crime out of gambling had failed.
When making a report to the Commission, the operator will be expected to explain what controls it had in place to keep crime out of gambling, and why they had failed. If the operator decides not to report the relevant matters to the Commission (e.g. because the operator is satisfied that the circumstances are such that they would not lead to the Commission questioning whether controls and systems had failed), then the operator should keep a written record of the reasons for its decision.
It appears that AML/KYC is the area of most interest to the Commission. For example, if there is a police investigation into a customer who has been funding his gambling activities using the proceeds of crime, then it appears that the Commission would expect the operator to report this to the Commission, so that the Commission can then review what KYC steps the operator had taken to establish the source of funds.
3. Advertising on copyright infringing websites
The Commission expects operators to take more responsibility for ensuring that digital adverts placed by operators themselves (or affiliates on their behalf) do not appear on websites which provide unauthorised access to copyrighted content. A new licence condition will be introduced to achieve this, and the Commission will launch a supplementary consultation on the exact nature of this condition. A key focus of this consultation will be whether operators are obliged to use potentially expensive commercial content verification software to ensure that the adverts are not appearing on content infringing websites.
4. Changes to employment contracts and T&Cs
Operators should also impose terms and conditions in employment contracts to require employees to report any indicators of irregular and/or suspicious betting patterns to their employer, and to prevent employees from placing bets based on those patterns (either with their employer or with any other operator).
Customer terms and conditions will have to be amended to provide that customers may not place bets which are in breach of the rules of a sports governing body or other professional body of which the customer is a member, or which would be in breach of a customer's employment contract. If a breach of these conditions is identified the operators will be expected to void the bet.
These changes to the LCCP form part of a much wider review of AML issues that is currently taking place in the UK.
Last month, the government published an "Action Plan for anti-money laundering and counter-terrorist finance", which sets out key priorities on AML law enforcement. The Action Plan emphasises the need for a new way of working with the private sector and focusing more on tackling financial crime risk rather than regulatory compliance. The Gambling Commission considers that its outcomes-based approach to the LCCP aligns with this goal in the wider AML regulatory environment.
We also await changes to the UK's Money Laundering Regulations (MLRs). These will be required in order to implement the Fourth Money Laundering Directive (4MLD). There is an expectation that all providers of "gambling services" will be subject to these new rules (whereas the current EU directive only applies to casino operators).
Despite 4MLD's 26 June 2017 transposition deadline, the European Commission and Council have called on member states to implement 4MLD by the end of 2016, and the UK Government has indicated its intention to consult on necessary changes to the MLRs during this year.
The changes to the LCCP will come into effect in Autumn 2016. With new EU-based AML requirements perhaps being implemented by the end of the year (or at least by June 2017), operators (and particularly online gambling operators to whom the EU requirements will apply for the first time) will be faced with a barrage of regulatory change in this area.