The UK Gambling Commission has published the responses to its "Regulatory data collection" consultation. Amongst the proposed changes that will amend the Licence Conditions and Codes of Practice (LCCP), one stands out as particularly significant: licensees will soon have to notify the Commission of significant or sustained changes in the jurisdictional revenue profile of their group.
The Commission's current information requirements for licensees both at the application stage and through regulatory returns do not currently extend to companies in the same group as UK-based operators. B2C operators have to tell the Commission about any market from which they (the UK-licensed operator) receive 3% or more of their total revenue, or, in the case of smaller operators, where the revenue is more than 10% of their total. Operators are also required to tell the Commission about any markets they (the UK-licensed operator) actively target. For each market disclosed, the Commission expects the operator to have a reasonably coherent legal rationale as to why the provision of their gambling facilities is "not illegal".
In other words, the current data requirements generally specify only the activities of the licence holder submitting the relevant information, and not to any other group company. The only exception to this is the licence condition requiring licensees to notify the Commission on their becoming aware that a group company that is not a licensee is advertising remote gambling facilities to those residing in a jurisdiction in or to which it has not previously advertised (LCCP 15.2.2), where ‘advertising’ includes (inter alia) having a home page directed towards a jurisdiction and written in, or in one of, that jurisdiction’s official language(s). However, if the group company has always advertised to such jurisdiction (or indeed, has since before the LCCP was amended to incorporate LCCP 15.2.2 in May 2015) the UK licensee would appear to be under no obligation to disclose such operations to the Commission.
In its consultation response, the Commission has now proposed to amend LCCP 15.2.2 so notification must be made either when the group begins advertising to a new jurisdiction or a 3% / 10% jurisdiction threshold is passed for the group, meaning that licensees that are part of a group of companies will now need to notify the Commission where the 3% or 10% threshold (as applicable) is passed for the wider group. The proposed change will take effect for regulatory returns submitted from April 2018 onwards.
While the Commission describes its proposal as a "slight change" to the LCCP, for multi-jurisdictional operators it will introduce an increased level of reporting on group activities and the implications will need to be carefully thought through. Gambling businesses are often multi-jurisdictional with a large number of companies within the group, and so this extension of disclosure requirements could be significant and may bring additional scrutiny on unregulated activities.
Although it is understandable that a regulator might wish to scrutinise the activities of companies in the same group as its licensees, the Commission's stated justification for this change is surprising. When the current requirements were introduced in 2014, the Commission cited its obvious interest in ensuring probity, and also expressed an interest in understanding whether the financial stability of a UK-facing operator might be undermined by an over-reliance on unregulated market revenues. In other words, its concerns were based on regulatory risk. However, whilst it does reference its core licensing objectives, we would suggest that it now goes further by saying that the collection of group data is required because revenues from grey markets might give UK-facing operators a commercial advantage. As the Commission states: "Although the licensee itself may not directly trade in other markets – it may benefit from sister companies doing so and for this reason we have to have regard to the point raised by respondents - namely that some groups are complex and interconnected".
We find this troubling because the commonly accepted definition of a "grey" market is one in which the legality of the activity is ambiguous or unclear. This generally means not only that the jurisdiction has not legislated for remote gambling, but also that the existing law does not clearly prohibit the relevant activity. It is therefore relatively common for operators to choose to operate in "grey" markets to bolster their regulated operations, provided that they can do so on the basis of a reasonable legal rationale, until such a time as the legality (or otherwise) of the activity becomes clearer. There can be huge benefits to this approach: it is often possible to provide a wider range of products to a so-called "grey" market and they are generally more profitable, as the operator does not have as high a regulatory or fiscal burden to bear.
However, whilst it is not uncommon for regulators of online gambling to clarify that they are content for licensees to operate in "grey" markets but not in what they consider to be "black" markets (ie, jurisdictions in which the law clearly prohibits the relevant activity), the Commission's recent statement seems to go beyond this. Could the Commission's apparent concern about cross-subsidisation from "grey" markets and its potential commercial advantage suggest that it considers "grey" market activity either illegitimate or otherwise unfair?
If this is the case, how can a compliant licensee determine which jurisdictions the Commission considers to "grey" versus "black"? It may sound like a simple question but given that the New Jersey Department of Gaming Enforcement (DGE), in its famous advisory note of 18 April 2016, cited personal jurisdictional issues and lack of affirmative, concrete actions by the relevant foreign authorities as reasons for uncertainty regarding the legal position in other jurisdictions, the picture is not so clear. The DGE went on to suggest that a "black" market is one where it is clear that the activity is prohibited and government authorities have taken affirmative, concrete action to enforce laws that prohibit remote gambling, or have issued unequivocal official pronouncements that remote gambling is not legal in the jurisdiction. Will the Commission adopt this approach, or another - and at what point will the Commission's position on the legality (or otherwise) of carrying out activities in a particular jurisdiction be communicated to its licensees?
It is worth mentioning that, although the Commission is responsible for regulating gambling and supervising gaming law in Great Britain, the economic activities of a licensee go beyond what the Commission is usually known to concern itself with (save where such activities could potentially cause consumer protection issues). So, in the absence of such risk, why should a group company's activities in unregulated markets not support its regulated activity?
At the time of writing, these questions remain unanswered. However, regardless of the outcome, licensees that are in the same group of companies as entities that operate in "grey" markets should ask themselves now whether they wish to disclose the activities of such companies to the Commission. If the licensee would prefer not to disclose such information, serious consideration could be given to ceasing or even moving unregulated activities outside of the group.
This article was written by Gemma Boore and Nicholas McVeigh of Mishcon de Reya LLP. Gemma is a regulatory and commercial specialist in the Betting and Gaming group within the Corporate department of Mishcon where she advises companies operating in the gambling sector across the full range of product offerings, including sports betting, poker, casinos and slots, eSports, social gaming, bingo, skill games, lotteries and prize draws. Nicholas is a Managing Associate, Professional Support Lawyer in the Corporate department.