On Friday 6 November 2020, the Gambling Commission published its first ever National Strategic Assessment (NSA) alongside its third annual enforcement report.
What is the NSA?
The NSA is the Commission's assessment of the risks gambling poses to consumers and the public.
In preparing the NSA, the Commission has drawn on data obtained from its compliance and enforcement work, advice from the Advisory Board for Safer Gambling, its Digital Advisory Panel and the Interim Experts by Experience Group. The Commission has also engaged industry representatives and taken account of the findings of recent Parliamentary reports into gambling and its regulation. The NSA also takes account of the impact of the Covid-19 pandemic.
The NSA will be used as the basis upon which the Commission will prioritise its actions over the coming months and years and should be read alongside the National Strategy to Reduce Gambling Harms (which was published in April 2019).
What does the NSA say?
In the NSA's executive summary, the Commission calls on the industry to do more to understand their customers and to "end the distinction between regulatory and commercial considerations" by engaging on big topics such as developing credible affordability solutions, making products safer by design and building dynamic player-centric safeguards. The most recent opportunity for the industry to engage in this way is the Commission's recently launched 'remote customer interaction consultation and call for evidence'.
The executive summary concludes with a commitment by the Commission to publish clear metrics to measure the effectiveness and impact of its regulatory interventions. This commitment aims to ensure that the public are better informed about how gambling regulation is shaping the products, services and safeguards they receive from licensees and to proactively influence the conduct of licensees by making certain regulatory data available to the public. For more details, see chapter five of the NSA.
The main body of the NSA is built on four pillars linked to the person gambling (chapter one), the place gambling occurs (chapter two), the products available to customers (chapter three) and the provider of facilities for gambling (chapter four).
On the one hand, the NSA acknowledges that gambling participation rates are not increasing (rates have remained stable in recent years), the majority of people who gamble do so without experiencing harm and problem gambling rates are not increasing.
On the other hand, the NSA suggests that the combination of lower levels of participation and increases in industry GGY means that average gambling losses per customer have increased and it makes clear that the approximate number of problem gamblers in Great Britain needs to be drastically reduced. The Commission states that vigilance and risk should never be far from consideration and it is against this backdrop that the Commission has identified five key issues:
- Ineffective ‘know your customer’ approaches including affordability checks
What is the issue? The NSA states that licensees do not know enough about their customers including how much a customer can afford to gamble. It also states that licensees are not sufficiently equipped to support and, in some cases, protect consumers to mitigate against the risk of gambling beyond their means. At the same time, the Commission acknowledges that customers may be reluctant to share personal information.
What can we expect? The Commission will review and then publish the results of its consultation and call for evidence in relation to customer interaction (see our recent article here). The Commission's compliance teams will also continue to investigate operators and their adherence to the Social Responsibility code provisions, as well as commitments made by operators in their Assurance Statements. There will also be an evaluation of the change in consumer behaviour resulting from the ban on gambling using credit cards (which came into effect in April 2020).
- Early identification and effective responses to at-risk behaviours
What is the issue? The Commission has concerns that monitoring and oversight of customers to enable early identification of changes in behaviour that may indicate harm is currently ineffective and that licensees are missing opportunities to take account of vulnerability. In particular, it has concerns that licensees are not consistently taking account of information that may indicate vulnerability which they receive as part of customer service, information about source of funds or in dealing with complaints.
What can we expect? New guidance in response to the Commission's consultation on high value customers came into effect on 31 October 2020 (see our article here). Going forward, licensees can expect the Commission to publish a statement setting out the principles and key areas of its work in its approach to vulnerability.
- Gamblers who participate in multiple products across different providers
What is the issue? Data suggests that 56% of online gamblers have more than one gambling account and that on average they have three accounts. This presents a challenge to the licensing objectives as individuals can circumvent individual operator-led controls by gambling with several different companies.
What can we expect? Although the multi-operator self-exclusion scheme and other gambling management tools have allowed some progress to be made, this will continue to be an area of regulatory focus. The Commission will continue to press the industry to use technology to overcome the challenge of keeping customers who gamble with multiple operators safe and cites this as the reason for developing solutions to provide a 'single customer view'.
- Underage gambling
What is the issue? With some limited exceptions, gambling activities regulated under the Gambling Act 2005 are restricted to over 18s. Central to a licensee’s permission to provide facilities for gambling is that they prevent underage access.
What can we expect? From an online perspective, the Commission will use its compliance and enforcement powers to ensure that the changes to Social Responsibility code provision 3.2.11 (introduced on 7 May 2019) are being complied with.
- Gaps in the evidence and understanding of gambling-related harms
What is the issue? The Commission acknowledges that building and maintaining a first-rate evidence base on gambling harms is essential to inform effective regulation and that there are limitations to its current sources of data.
What can we expect? The Commission will review its approach to tracking participation in gambling and the prevalence of at-risk and problem gambling and intends to publish a consultation in relation to the same later in 2020 (with a view to implementing the outcomes in 2021). The NSA also confirms that a permanent 'Experts by Evidence' advisory group will be established (to build on the input provided by the interim group) and that the Commission is piloting new questions in its quarterly online omnibus study to understand the public's experience of gambling-related harms. Subject to appropriate validation of the data, the Commission expects the responses to provide valuable insight into the type, severity and extent of gambling harm and will scope the feasibility of a longitudinal study of gambling behaviours and problem gambling to inform next steps on improving research in this area.
The NSA suggests that the place where a person gambles is an important factor in the management of risks to the licensing objectives. Data referenced in the NSA suggests that gambling participation in licensed gambling premises is declining and that this has coincided with an increase in online gambling. It is against this backdrop that the Commission has identified three key issues:
- Accessibility of online gambling
What is the issue? The 24/7 availability of online gambling has changed how and when consumers gamble. The NSA identifies that risks exist at each stage of a consumer's experience with online gambling.
What can we expect? Licensees can expect the Commission to continue to use its regulatory powers to make online gambling safer through action to improve standards. The Commission will also use the expertise of its Digital Advisory Panel to consider emerging technologies and ensure that regulation remains fit for purpose and responds to new and emerging risks.
- Anonymity within premises-based gambling
What is the issue? The NSA suggests that most premises-based gambling can be undertaken anonymously (unless the casino requires customers to open an account prior to gambling). The Commission asserts that anonymity within premises-based gambling, combined with the use of cash, poses inherent challenges to identifying and acting on suspicious gambling activity.
What can we expect? The Commission promises further engagement with premises-based gambling operators to deliver a programme of initiatives to raise standards. Notwithstanding the significant financial impact on premises-based gambling caused by the Covid-19 pandemic, the Commission considers there to be an opportunity for creative solutions to enhance non-remote gambling products and services which incorporate enhanced consumer protections. The Commission undertakes to drive this forward by continuing to challenge the industry to implement consumer protections through the product design working group.
What is the issue? Gambling advertising is an area that is constantly evolving and in its report, the Commission reiterates that all advertising of gambling must be socially responsible, must not be targeted at under 18s, and should not include content that would encourage irresponsible gambling behaviour.
What can we expect? Licensees have already been encouraged to use ad-tech to proactively target online gambling away from children, young people and those who are vulnerable to harms. The Commission will monitor the effectiveness of the 6th edition of the Gambling Industry Code for Socially Responsible Advertising which came into effect on 1 October 2020 (read our commentary on the new code in our Autumn 2020 regulatory roadmap here) and gather evidence on how best to prevent bonuses being offered to customers displaying indicators of harm, building on its interim guidance issued at the outset of the Covid-19 pandemic (see our article on the interim guidance here).
The Commission knows that problem gambling rates associated with online slots, casino or bingo games are higher than the land-based equivalents. The Commission has therefore focused on the drivers behind these products and how they can be made safer for consumers and identified four key issues:
- Online game and platform design
What is the issue? Understanding product characteristics and their links to harm should inform how games and platforms can be made safer by design. The Commission expects rates of problem gambling across different gambling products to inform how licensees identify and mitigate the risks associated with their product range.
What can we expect? Interested parties can expect further research in this area to be published including the findings of randomised controlled trials with three operators into anchoring and commitment devices and the largescale GambleAware-funded project into online patterns of play led by NatCen. The Commission will also publish its response to the consultation on safer game design, which included a proposal to permanently ban reverse withdrawals (read our commentary on the online game design consultation in our Autumn 2020 regulatory roadmap here).
- Gaming machines
What is the issue? The Commission is of the view that the characteristics of gaming machines, combined with the environments in which they are made available, present regulatory risks.
What can we expect? Expect a review of the regulatory framework to ensure players of gaming machines are safe, treated fairly and informed about how machines operate. The enhanced test house framework (described here) will also be implemented.
- Higher risk products
What is the issue? Core product characteristics such as speed of play, frequency, staking options, return to player and accessibility impacts on risks to players and should guide how operators apply appropriate controls.
What can we expect? The Commission highlights in-play betting as an area of particular concern and reminds licensees that it is important to ensure that appropriate consumer protections are put in place to prevent excessive gambling, high risk products are advertised and promoted in a responsible way and clear player information is made available on how in-play markets work, including cash-out features and the impact of delays in video streams or data feeds.
- Product innovation
What is the issue? The Commission's view is that some product innovation has not given due consideration to the possible impact on the licensing objectives. Betting exchanges (due to their peer to peer nature and the drawing of customers from jurisdictions outside the UK), pool betting (due to the introduction of "notional co-mingling" of customer funds in a bid to reinvigorate pool betting products) and products that risk "blurring the lines" between betting (regulated by the Commission) and spread-betting or other instruments regulated by the FCA are specifically highlighted as innovations that may pose risks to the licensing objectives.
What can we expect? The Commission expects operators of betting exchanges to apply critical risk-based thinking in advance to address the challenges posed by their product. The Commission undertakes to continue to engage with the Department for Digital, Culture Media and Sport (DCMS) to provide advice on the resources required to regulate these areas effectively, to understand new technologies, and to improve its understanding of new products, delivery mechanisms and payment methods.
The NCA states that public trust in gambling has fallen from 49% in 2008 to 29% in 2019. The Commission's view is that further research and customer insight are needed to understand the factors behind the public's perception and expects licensees to actively support this by sharing data they hold on consumer surveys in relation to their products and services. The Commission has promised to improve its data systems and capacity to ensure that consumer issues are identified and acted upon quickly. In addition, it has identified three key issues in this area:
- Ownership and governance of gambling providers
What is the issue? The NSA states that the Commission's casework in relation to changes of corporate control has revealed that some applicants have not provided complete information to the Commission. No doubt this is, at least in part, due to the shifting expectations of the Commission in terms of the nature and extent of information it requires from licensees in the event of a change of control (and a lack of clear guidance).
What can we expect? The Commission promises to continue to apply stringent processes to ensure applicants are suitable to hold a licence, to undertake a programme of compliance work to test licensees remain suitable to hold a licence and to take swift enforcement action in cases of non-compliance. Licensees can also expect the Commission to continue to act against accountable individuals. In the NSA, the Commission makes clear that it expects board members and senior executives to ask questions, scrutinise regulatory outcomes and intervene to ensure compliance with the LCCP. Page 50 of the NSA sets out the steps that the Commission expects individuals occupying senior positions (including board members whether or not they hold personal management licences (PMLs) to take.
- Unlicensed gambling
What is the issue? The Commission is focussed on identifying and disrupting illegal websites, and particularly those that target young and vulnerable gamblers (including individuals that are being targeting because they have self-excluded using the Gamstop scheme). The report also highlights risks perceived by the Commission in terms of: (a) unlicensed operators using white label arrangements to circumvent licensing requirements; and (b) the recent rise in commercial social media lotteries.
What can we expect? The Commission pledges to continue to tackle illegal gambling by increasing its understanding of the scale of the problem and its capacity (through the use of accredited online investigators) expanding the availability of necessary software tools and exploring greater use of disruption techniques.
- Tackling suspicious gambling activity
What is the issue? The Commission highlights operators' duty to keep economic crime out of gambling and identifies areas where operators "fail often" in this duty. The Commission's view is that one of the reasons operators fail in this area is having insufficient depth of knowledge demonstrated by PML holders, adopting a one size fits all approach to their risk assessment when it should be tailored to their business. Operators also fail to adequately demonstrate that their risk assessment has due regard to the Commission's own risk assessment of the industry and that they are keeping up to date with fluctuating standards in other jurisdictions while rigorously meeting UK standards. Other areas identified by the Commission include failing to learn lessons from published compliance and enforcement activity, failing to provide regular, quality training to staff including their money laundering reporting officer (MLRO)/nominated officer and demonstrating a static and ineffective approach to customer risk proofing and enhanced customer due diligence when it should be dynamic and capable of identifying current and developing risks.
What can we expect? Licensees can expect further enforcement action in this area as the Commission continues to apply what it describes as "international best practice" through the implementation of the Fifth Money Laundering Regulation and by updating its own risk assessment of the industry.
We encourage operators to review the NSA carefully and consider what (if any) impact it has on how they currently prioritise their compliance activities and/or risk mitigation efforts and whether any changes need to be made to how they allocate resources in the relevant areas.
The NSA is a long and detailed document and within it the Commission sets out its expectations of licensees, a number of which we have identified within this article. There is no substitute for reading the document in full and ensuring that all board members, PML holders and senior managers consider it in detail (and record that they have considered it and what actions have arisen as a result of their consideration of it).
If you have any questions on the NSA or would like to discuss its contents, please do not hesitate to speak to your usual contact within the Betting & Gaming team.