On 6 November 2020, the Gambling Commission published its third annual enforcement report: "Raising standards for consumers: Compliance and Enforcement report 2019 to 2020".
The enforcement report will be of significant interest to UK licensees and individuals holding personal management licences (PMLs). It is more than just a report on the Commission's actions over the past year. It is laced with indications of what the Commission expects from licensees (notwithstanding that a number are not yet set out in regulation or formal guidance) and calls for action.
We encourage board members, PML holders and senior managers to read the report in full, record that they have considered it (and what actions have arisen from their consideration of it) and make sure that any necessary updates are made to policies, procedures and controls and training programs in light of it.
This year's report covers the period from April 2019 to March 2020, and is slightly belated due to Covid-19 impacts. While the report covers similar ground to last year's, there are some important differences in content and emphasis. PMLs, white labels and betting exchanges are all now covered in dedicated chapters of the report and, interestingly, marketing and advertising no longer feature in a standalone chapter (instead, relevant guidance is included within other chapters of the report). We have highlighted some further examples below:
The Chief Executive's message
- This year, the Chief Executive's message refers to the suspension and revocation of licences where licensees fail to meet the standards expected. This is consistent with the outcomes of a number of recent enforcement cases and is indicative of the Commission's continued commitment to take tough action in a bid to raise standards.
- Whilst acknowledging that regulatory settlements are a way of resolving enforcement cases, Neil McArthur also comments that "…there are too many occasions where settlement proposals are made at a late stage of our investigation process or approached as if a licence review is a commercial dispute to be negotiated. That is not acceptable". He goes on to say that "Our Statement of Principles for Licensing and Regulation makes it clear that settlements are only suitable where a licensee is open and transparent, makes timely disclosures of the material facts, demonstrates insight into apparent failings and is able to suggest actions that would prevent the need for formal action by the Commission. Only licensees who meet those criteria need make settlement offers; licensees who choose to contest the facts before conceding at a later stage need not make offers of settlement."
- These considerations will no doubt be at the forefront of any licensee's mind if they become subject to formal action by the Commission but it is worth noting the tone of them.
Triggers and customer affordability
- There has been a slight shift in emphasis in that triggers and customer affordability are now covered together in a dedicated chapter. Unsurprisingly, the Commission emphasises that the consideration of affordability should be a significant factor in customer risk assessments. It also calls on operators to learn the lessons outlined in the report and to already start preparing for any new requirements that may emerge from their recently launched consultation on remote customer interaction (which seems a little premature).
- Some of the casework and compliance assessment examples cited on page 5 of the report would benefit from a more detailed explanation of the context and nature of the perceived breach(es) so that licensees can learn lessons from the Commission's compliance and enforcement activity. In particular, it would be helpful to understand why the Commission took the view that the inheritance money and redeposited winnings used by the customer with no regular source of income was considered unacceptable (for example by making clear what proportion of the deposits were inheritance money/redposited winnings) and the operator who did not conduct checks to establish a customer's source of funds as they had not yet hit any triggers, was considered to be in breach.
- The Commission's suggestion that customers who wish to spend more than the national average should be asked to provide documentary evidence to support a higher affordability trigger is likely to raise a few eyebrows and further highlights the apparent direction of travel towards triggers that are more representative of Office for National Statistics (ONS) data. The Commission also suggests that operators undertake a form of remediation exercise whereby triggers representative of the ONS data are implemented now in respect of any existing customers in a loss position irrespective of historical deposits and withdrawals and to move these customers to higher affordability triggers once appropriate affordability evidence is received. For customers in a profit position, the Commission acknowledges that operators may have adopted a framework that allows triggers to be moved up from the national average without affordability evidence because their winnings are evidence of what these customers can afford. With this type of customer, the Commission expects operators to still be considering affordability whilst also monitoring the customer's play to be satisfied that they are not exhibiting signs of gambling-related harm. This especially applies to large one-off winners such as jackpot winners.
- On the other hand, the Commission's call for operators to interact with customers early on in the relationship in order to set adequate, informed affordability triggers to protect the consumer from gambling related harm is more understandable.
Customer Interaction and Social Responsibility failings
- These are familiar themes. We recommend that licensees review the healthcheck and case studies carefully and consider whether their policies, procedures and controls would prevent the same or similar fact patterns arising within their own business.
Anti-Money Laundering and Counter Terrorist Financing
- The report places specific emphasis on risk assessments and sets out a number of areas where the Commission considers licensees are falling down. Areas of concern include where operators adopt a "one size fits all" approach to their risk assessment (when it should be tailored to the specific money laundering and terrorist financing risks pertinent to their business) and failures to demonstrate that the operator is keeping up to date with fluctuating standards in alternative jurisdictions whilst also rigorously meeting Great British legislation and standards. These concerns were also highlighted in the recently published National Strategic Assessment (see our recent briefing, Gambling Commission publishes first ever National Strategic Assessment).
- We recommend that licensees review the extensive healthcheck and case studies carefully and consider whether their policies, procedures and controls would prevent the same or similar fact patterns arising within their own business.
Personal Management Licence (PML) reviews
- As a result of the Commission's increasing focus on the role played by PML holders when undertaking compliance and enforcement proceedings, the report confirms that between April 2019 and March 2020 the Commission commenced section 116 reviews on 49 PML holders.
- The report reminds PML holders that the Commission's Statement of Principles for Licensing and Regulation (June 2017) sets out its expectations of those occupying senior positions, whether or not they hold PMLs. In the report, the Commission reiterates that it will continue to hold PML holders to account in circumstances where there are regulatory failings within operators and those PML holders fail to take appropriate and reasonable steps in a timely manner to halt the breaches.
- Those in senior positions and PML holders must ensure they have a good working knowledge of the UK regulatory framework (including reporting requirements) and seek training in any areas where they feel they would benefit from refresher training. .
- The chapter on illegal gambling is more detailed this year. In particular, the Commission urges licensees to remain vigilant to the risk of illegal sites using their software without authorisation and to report any instances to the Commission immediately. In addition, the report acknowledges the growth in social media lotteries and makes clear that the Commission will take strong and proportionate action when unlicensed websites or illegal lotteries are seen to be targeting vulnerable customers who are most at risk of experiencing harm. The Commission cites the promotion of gambling services to persons who had self-excluded from GAMSTOP as an example.
White label partnerships
- The Commission is concerned that unlicensed operators who would potentially not pass the Commission's initial licensing suitability checks are looking to use white label arrangements to provide gambling services in Great Britain. As such, the Commission reminds licence holders to conduct appropriate due diligence on potential white label partners before entering into a business relationship (including checks to address money laundering risks and risks associated with any politically exposed persons) and that responsibility for compliance sits with the licence holder.
- Licensees must ensure that they maintain:
- effective oversight of customer interactions to ensure that they can continue to meet their social responsibility obligations;
- live access to customer interaction records; the ability to monitor customer behaviour (including spend and length of play) across all their partner sites;
- effective AML controls (with individual partners and across all partner sites);
- control over marketing and promotional offers published by their partners (in particular, to ensure that material does not appear on copyright infringing websites); and
- effective due diligence on partners.
- Licensees are also reminded to file a key event each time they enter into a white label arrangement (see paragraph 18 of licence condition 15.2.1 of the licence conditions and codes of practice). Further steps that licensees should take are outlined on page 29 of the report.
- The report highlights that there has been increased regulatory activity relating to betting exchanges due to their growing complexity and the number of jurisdictions from which they draw their customers (to improve liquidity).
- The Commission calls on betting exchanges to apply critical risk-based thinking to address the challenges the Commission perceives to be posed by those business models in ensuring compliance with the Gambling Act 2005 and the social responsibility and anti-money laundering provisions of the licence conditions and codes of practice.
If you have any questions on the Compliance and Enforcement Report or if you are interested in the training we can offer to senior management and PML holders, please do not hesitate to speak to your usual contact within the Betting & Gaming team.