Posted by Woods Whur | Gambling, General, Licensing Law

A regular client contacted me last week, wanting to know how the latest changes to the Gambling Commission’s (“GC”) Licence Conditions and Codes of Practice (“LCCP”) might affect them. As they are a lottery operator, the answer to the question was “not at all”. The January 2017 version of the LCCP is expected to come into force in April this year, when the Department for Culture, Media and Sport lays secondary legislation before Parliament to provide for new categories of “host” operating licences which will be granted by the GC.

 

The GC has repeatedly said that the LCCP is not a static document: it is revised from time to time, as law and practice change. The only changes reflected in this latest version concern the application of the LCCP to the new remote betting host and game host operating licenses.

 

These new categories of operating licence stem from the joint consultation by DCMS and the GC which ran between 8 July and 9 September last year and which considered the GC’s fees. They will apply to gambling software licensees who also provide facilities for gambling by making their games available directly to customers of another remote casino or bingo operator directly, or who provide facilities for betting to customers of a B2C operator, but do not contract directly with customers themselves. The new betting host licence will apply both to betting on real events (sportsbook) and to betting on virtual events. The new operating licences will only be available to gambling software licensees and only on the condition that they do not contract with customers directly.

At present, where at such operators engage in any operational activity other than simply supplying software (for example, operating the random number generator), they are obliged to apply for a full remote operating licence of the relevant category, be it casino or betting. In my experience, this has led to various difficulties during the application process, with many of the requirements associated with a full application simply not being relevant to a business that has no B2C element.

The new categories of operating licence will attract significantly lower application and annual fees. Remote casino application fees will range from £2,640 to £57,304 and remote betting operating licence application fees will range from £2,933 (real events) or £2,640 (virtual events) to £25,777 or £57,304, respectively. For the new “host” licences, these figures will fall to £1,980 to £42,978 (casino and betting virtual events) and £2,200 to £19,333 (betting real events). Annual fees will fall from a range of £2,709 to £387,083 plus £125,000 for every £500m of gross gambling yield (“GGY”) above £1b (casino and betting-virtual events) to £2,027 to £289,652 plus £100,000 for every £500m of GGY above £1b and from £3,408 to £494,856 plus £200,000 for every £500m of GGY above £1b to £2,556 to £371,142 plus £100,000 for every £500m of GGY above £1b. These reductions represent a significant benefit and reflect the reduced regulatory burden where businesses do not have any B2C element.

 

All fees will continue to be determined by reference to GGY. The calculation for this is A +B-C, where:

A = the total of any amounts paid to the licensee by way of stakes in the relevant period in connection with activities authorised by the licence.

B = the total of any other amounts (exclusive of VAT) that will otherwise accrue to the licensee in the relevant period directly in connection with the activities authorised by the licence.

C = the total of any amounts that will be deducted by the licensee for the provision of prizes or winnings in the relevant period in connection with activities authorised by the licence.

In order to prevent double counting, the GC will expect each party (B2C and host) to record the amounts that it actually receives from the transactions permitted by the licence. In the case of a hosted game, the B2C will need to record whatever amount is left after payment to the B2B, whether that payment is a fixed sum or a revenue share. The host in turn will report the amount it actually receives from the B2C, so that 100% of GGY is recorded overall for the game. If, by contract, an operator hosts all of the games it supplies, then it will be required to report all of its revenue on its host licence regulatory return. Any revenue from direct sales of software that it does not host directly to customers should, instead, be captured on its gambling software regulatory return.

 

The GC’s Remote Technical Standards, Testing Strategy and security audit requirements will continue to apply to the new categories of “host” licensees. However, the latest version of the LCCP disapplies many of the provisions associated with customer-facing activities insofar as they are concerned. These changes are to be welcomed by comparison with the current situation, whereby it is necessary to satisfy the GC on a case-by case-basis that those requirements are simply not relevant to the particular operator. Examples of some of the obligations that will no longer apply include those surrounding the segregation of customer funds, policies for handling cash and cash equivalents, age verification, the provision of responsible gambling information and responsible gambling tools such as “time-out” facilities, customer interaction, self-exclusion, the identification of individual customers and the provision of credit. It is noteworthy that the obligation to report any suspicious transactions, together with all the other provisions of the LCCP, will continue to apply to “host” licensees.

The GC has undertaken to keep the LCCP under review, to ensure that the appropriate provisions do apply to the new categories of licensee. We will continue to monitor the situation and will report further, should any other changes be brought about. Should you have any queries in relation to the proposed changes to the operating licence structure, please contact one of the team.