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Gambling Commission Focusing On Gambling Consumers

October has seen the Gambling Commission engage in an initiative to champion consumers in gambling transactions.

On 3 October it announced that it was “starting a two-way conversation”, publishing what it calls “a Plan for communicating with customers” and inviting comments on the Plan from both individuals and organisations representing consumers. The Plan has been welcomed by both Gamcare and the Citizens’ Advice Bureau, who believe the engagement will enable a better understanding of consumer behaviour and of how gambling affects them.

Launching the Plan in a video blog, the Commission chief executive Sarah Harrison said:

We want gambling companies to do much more to put consumers at the heart of the business – we’re doing this via the regulations we set and the way in which we go about enforcing them.”

To what extent this hints at additional regulation and more stringent enforcement is currently unclear and much may depend on the feedback the Commission receives. There is no deadline for responding to the Plan – indeed, it appears that the Commission sees this as an open-ended process, with the publication of the Plan being merely the first step. In its foreword, the Plan states:

We see this document as the start of a conversation. It’s not something that we will publish and leave to gather dust. The things people tell us after reading it will help us build on it over time. It may also change as we learn what works and, equally importantly, what doesn’t.”

The Plan is aimed at communicating with all interested members of the public, not merely active customers of a gambling company or consumers for whom gambling might be, or become, a problem. I see no reason why gambling operators should not themselves contribute to the debate, although the Plan does not specifically invite this.

The Commission wants the Plan to improve its own focus on putting consumers at the heart of its work in two ways – getting information from consumers, so that their voices are heard and better inform policy, and giving information to them to help them to solve any problems that they might encounter, or to avoid harm in the first place. The Commission says that, whilst it already spends much of its time looking after consumers’ interests, and stressing their importance to operators, it also needs to build on this, to look at itself and to up its game if it is to keep pace with the rapid innovation and product development taking place in the gambling sector.

The Plan is based on three principal themes – transparency and clarity, responsiveness and forming partnerships.

The Commission as regulator, somewhat unsurprisingly, sees transparency in what it does and how it makes decisions as key. It plans to carry out a “customer interest assessment” to look at how it currently publishes information and how to make it clearer and more accessible, in a number of ways: committing to plain English, summarising lengthier documents and sharing information in a more visual way so that it is more easily shared via social media. All of these moves are to be welcomed.

The responsiveness theme focuses on better enabling the Commission to keep up with a rapidly evolving sector. It plans to provide better signposting for consumers on how to deal themselves with problems associated with gambling transactions and how to complain and access Alternative Dispute Resolution. It is also looking at expanding and improving its research into consumer behaviour and at improving the performance of its Contact Centre and the way in which its staff work with the Commission’s specialist teams to ensure that increasingly complex enquiries are dealt with quickly and effectively. Again, this is to be welcomed.

The Plan announces the Commission’s intention to build new partnerships with consumer organisations. It is seeking views as to whom it should be partnering with. It is also set to review the remit of its Community Liaison Group which is currently attended by a variety of consumer organisations, academics and others, and to look at other ways of gaining insight into consumer behaviour, such as by setting up an online forum.

The Plan reveals that the Commission is working on its new website and also reviewing its social media strategy to improve the way in which it provides information to, and gathers feedback from, consumers. It will be interesting to see what the outcome of these projects is and how the Plan evolves over time.

In the meantime the Commission has already put the “partnerships” theme of the Plan into action this month, by backing an investigation launched by the Competition and Markets Authority on 21 October into the fairness of gambling operators’ terms and conditions.

The CMA has issued Information Notices under Part 3 of Schedule 5 to the Consumer Rights Act 2015 to a range of gambling operators. These Notices are just one tool that the CMA has to enable it to exercise its enforcement powers under the Enterprise Act 2002, legislation empowering it to bring cases to court for an adjudication as to whether a particular practice or contractual term is fair.

At this stage the CMA has not made any decision as to whether gambling operators are, indeed, breaching consumer protection law in their terms or practices but these Information Notices are designed to get to the bottom of whether concerns about misleading promotions and the like are founded. If it considers that they are, then this will lead to it taking enforcement action under the CRA 2015 and the Consumer Protection from Unfair Trading Regulations 2008.

This investigation is the result of the Commission approaching the CMA with concerns about potential breaches of consumer law by gambling firms, including misleading terms and conditions, promotions that are difficult to understand or that may be unachievable, players being blocked from collecting their winnings, bets being cancelled or odds altered, and terms unreasonably restricting players’ rights to challenge operators’ decisions.

As a result of the Commission’s approach, a joint programme of work has been agreed with the CMA, designed to ensure that terms and practices in the sector are fair. Nisha Arora, Senior Director for Consumer Enforcement at the CMA, said:

Gambling inevitably evolves taking a risk, but it shouldn’t be a con. We’re worried players are losing out because gambling sites are making it too difficult for them to understand the terms on which they’re playing, and may not be giving them a fair deal.”

For her part, Sarah Harrison stressed that:

We expect the gambling industry to ensure terms and conditions are not unfair. However, operators are still not doing enough. I continue to have concerns that many of these appear to bamboozle rather than help the customer make informed choices.

No doubt some in the industry will be concerned about this initiative, the increased degree of scrutiny, threat of enforcement action and the importance of responding appropriately to Information Notices. If you have received a Notice and need our assistance, please contact one of the team.

We will continue to monitor the CMA investigation, and the evolution of the Commission’s consumer Plan, and will report further on both of these in future editions of this newsletter.

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The Enhanced Due Diligence Debate Continues and now Reaches Las Vegas

I know that I have written about enhanced due diligence previously but at present it is the one topic that causes me a great deal of concern as far as the industry is concerned and I think it is essential to keep debating this matter. I am not concerned that the industry is not carrying out some form of enhanced due diligence. I am concerned that it is still not clear to the industry what the Gambling Commission will be satisfied with which always leaves the industry open to threats of investigations and reviews. There is of course an argument that the Gambling Commission should not need to tell the industry and that the industry must regulate and risk assess itself based on the Anti-Money Laundering Regulations and I understand this point. There must come a stage however when the Commission set down some basic principles on enhanced due diligence even if it is merely a “general steer” as to what is satisfactory.

Anna and I attended a very interesting and helpful morning seminar on 17 October 2016 in London which was led by Mike Rothwell and Deloittes. Mike put forward some very persuasive arguments that any form of enhanced due diligence must be “principle based” with some form of set criteria in place to implement any policy. There were many questions raised at the seminar and several different points put forward as to what would constitute enhanced due diligence and it does seem to me that it will be down to an individual venues risk assessment based on the principles that Mike referred to which will determine the extent of enhanced due diligence at the premises. The challenge the industry faces was reflected in some of the questions put forward. Is it right that the financial trigger for enhance due diligence (i.e. the amount a customer gambles before enhanced due diligence is required) is the same for a Mayfair Casino as it is in a casino in Hull. (I am from Hull so I am allowed to use Hull as an example!). Is it also right that an extremely well known and wealthy person should have enhanced due diligence done on them when you have the documents to know who they are and know exactly where their wealth is coming from? How does this compare to an unknown person walking in to a Hull casino with £3,000 in cash? There are so many different alternatives to consider that I agree entirely with Mike Rothwell when he says that it must be a principle based decision and in effect a risk assessment on a case by case matter. The difficulty of course is that unless there are clear guidelines in place and a definite policy for each unit then you are leaving that decision down to somebody at the cash desk in a casino or behind the counter in a betting office or at the reception desk of a bingo hall. Surely those people are not expected to contact the Money Laundering Officer each time somebody comes in to the premises.

Some of us are due to attend a conference organised by the Gambling Commission in Birmingham on 8 November 2016 which is being fronted by Sarah Harrison and I know Mike is also speaking at this conference. I am hoping that we may be able to discuss this point further and see what the Gambling Commission’s position is on this particular point. I have to say however that I am incredibly disappointed to note that some of my clients and in particular one person who is the Money Laundering Officer in a Mayfair Casino has not been allowed to attend this conference because it is full! There is no point in having a conference if we cannot arrange for everybody to attend.

I was interested to note on a recent newsflash from Reuters that the Nevada State Gaming Regulator is investigating the Las Vegas Sands Corporation Casinos in relation to high stake Chinese players and the allegation that they are gambling through front men who would sign the credit paperwork. On 30 September 2016 Reuters were alone in alleging that a case involving the Sands Casino showed how “Shill” players and backroom loans are often part of the game as the casino found out when they tried to collect $6.4 Million Dollars in gambling debts. Lawyers for the two women who allegedly owed the money wrote to the casino confirming that the two ladies were local housekeepers “Allegedly recruited with the cooperation of Sands Personnel to take out millions of Dollars in credit in their names and sit near the players as they gambled with the borrowed chips”. The lawyers further argued that since everybody knew the debts were a sham then those debts should be null and void. The Sands spokesman made it clear that the company had “No clear evidence” that these women were recruited by Sands employees.

As well as reporting this case Reuters also comment that the episode shows how crucial Chinese money has become to Las Vegas at a time when Macau has overtaken Las Vegas as the worlds biggest gambling centre. Vegas responded by increasing their exclusive VIP rooms featuring the décor of Macau and as a result of this baccarat winnings has doubled over the past decade. Reuters report the Asian market accounts for as much as 90% of the baccarat gambling in Las Vegas. The question of course is whether this comes at a cost and US Law Enforcement Officials have become increasingly concerned that there is “Inadequate vetting of customers” and that “Huge cash transactions could make Las Vegas a target for money launderers”.

I suppose I should complete this article by confirming exactly what the money laundering regulations state with regard to enhanced due diligence. Regulation 14 which deals with enhanced due diligence confirms the following:

Enhanced due diligence and enhanced ongoing monitoring must be carried out in the following certain circumstances

A relevant person must apply in a risk sensitive basis enhance customer due diligence measures and enhanced ongoing monitoring:

  • In accordance with paragraphs 2-4;
  • In any other situation which by its nature can present a high risk of money laundering or terrorist financing;

Regulation 14 (1) (a) requires a relevant person to apply EDD in the following circumstances:

  • Customer not physically present;
  • Relevant person is a credit institution;
  • Relevant person proposes to have a business relationship or carry out an occasional transaction with a PEP;

Regulation 14 (1) (b) places an important duty on relevant persons to assess and manage the risk of money laundering and terrorist financing by requiring the relevant person to apply on a risk sensitive basis enhanced CDD measures and enhanced ongoing monitoring…in any other situation which by its nature can present a high risk of money laundering or terrorist financing.

Regulation 14 (2) deals with a situation with a customer not present.

Regulation 14 (5) sets out a definition of a politically exposed person. This term was introduced by article 13 of the third money laundering directive. It should not be forgotten that there is a requirement not just to carry out enhanced due diligence but also enhanced ongoing monitoring of customers.

I am hoping to be able to report further after the Gambling Commission conference on 8 November 2016.

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New Licence Condition on Gambling Advertising comes into force at the end of this month

The Gambling Commission has decided to introduce a new licence condition to curb the advertisement of gambling products on websites showing unauthorised content. The new condition will come into force on 31 October and will apply to all operators licensed by the Commission, whether remote or non-remote.

This development has come about as a result of the Commission’s consultation between 30 September and 30 December last year on the wider issue of the prevention of crime associated with gambling. Whilst that consultation’s primary focus was on measures to prevent money laundering, it also set out the Commission’s concerns about gambling advertising appearing on pirate websites providing unauthorised access to copyrighted content. Research has established that advertising for gambling products features disproportionately heavily on such websites, to such an extent that the main culprits, in the sense of allowing their advertising to appear on websites functioning illegally, are gambling companies.

Why should the Commission be so concerned about this issue? The answer lies in the fact that it considers gambling operators to be supporting these illegal websites by placing their advertisements there. This means that, in the Commission’s view, they are effectively funding crime. This, clearly, is in direct conflict with the first licensing objective under the Gambling Act.

The Commission therefore issued a short supplementary consultation to look at dealing with this issue, which ran from 9 May to 20 June this year, off the back of the initial, wider, consultation.

During the course of the supplementary consultation process, the Commission did acknowledge that gambling operators had already been working with organisations such as the City of London’s Police Intellectual Property Crime Unit (PIPCU) and the Federation Against Copyright Theft (FACT), using tools already at their disposal such as commercial content verification software, and already taking action against their affiliates who were found to be breaching the rules. However it considered the action taken thus far to be inadequate and unsustainable. It described the current approach as merely reactive, arising largely from the Commission itself bring to major operators’ attention the fact that their advertising is appearing on illicit websites. Despite this, the Commission noted, such advertisements continue to appear and hence it has concluded that additional measures are required to tackle the issue.

The Commission published its response to the consultation in July, in which it noted respondents’ concerns that it was seeking to proceed by way of a new licence condition, rather than by a new ordinary or social responsibility code provision. Nevertheless, the Commission has decided to press on with its plans for a new condition: it does not consider an ordinary code provision to carry sufficient weight commensurate with the seriousness and persistent nature of the problem and further thinks a social responsibility code provision inappropriate, because these are designed to ensure consumer protection, rather than to combat crime. These factors have led it to the conclusion that a new condition is the correct way to proceed.

The Commission has, however, taken on board respondents’ alarm surrounding the difficulty in controlling the actions of third party affiliates. Of course, there is already a social responsibility code in the LCCP requiring operators to take responsibility generally for the actions of third parties with whom they contract for the provision of any aspect of their business related to the licensed activities. However the Commission still sees the need to introduce a specific requirement relating to advertising on pirate websites by affiliates. That said, it has acknowledged the concerns raised by some respondents to the consultation, who flagged up the speed with which advertisements often appear and the very large number – sometimes running into the tens of thousands – of affiliates they use.

As a result, the new condition will introduce an absolute requirement on operators to ensure that they do not, themselves, place digital advertisements on websites that provide unauthorised access to copyrighted content, but the obligations for operators surrounding the actions of third parties will, by contrast, only extend to taking all reasonable steps to ensure that they do not do so and to taking the appropriate steps if they do, including providing within their agreements with third parties the right promptly to terminate the agreement, subject always to the relevant dispute resolution provisions, in such an event.

Operators will be concerned as to how they will ensure that they comply with the new requirement from the end of this month in a “real life” environment. There are various practical steps that they can take to ensure that they do.

PIPCU maintains, and regularly updates, the so-called Infringing Websites List (IWL). This can be obtained via their website: https://www.cityoflondon.police.uk/advice-and-support/fraud-and-economic-crime/pipcu/Pages/Operation-creative.aspx

Operators should obtain access to this and monitor it on a regular basis to ensure that they themselves do not place any advertisements on the sites listed. In addition there exists, as mentioned above, various commercial content verification software that they can use. Needless to say, if operators discover that advertisements for their services have been placed on illicit websites, they should take immediate action to have them removed. Not only that, but they should ascertain how it was that this came about and keep a record of their investigations, findings and remedial steps taken. Operators should also review their agreements with affiliates before the new licence condition comes into force to make sure that they do include a provision permitting them to terminate the agreement in cases where the affiliate does place an advertisement on a pirate website, and introduce, document and implement a clear policy on how they will deal with breaches. Of course, affiliates should themselves regularly and carefully monitor the IWL and they should be encouraged to do so.

If you have any concerns about compliance with the new condition, please do not hesitate to contact me or one of the team.

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ASA Admonishes Ladbrokes Over Iron Man Ad

The Advertising Standards Authority hasn’t been putting its feet up during the summer holidays: instead, it spent August flexing its muscles over various advertising campaigns launched by gambling operators, the most significant ruling being against Ladbrokes for targeting, as the ASA sees it, the underage, in contravention of the Committee of Advertising Practice’s Codes of Practice.

The offending advertisement was sent to registered customers only, so only to individuals who had already been verified as being of age – which is something that makes the ASA’s ruling somewhat puzzling.

Added to this, the ASA’s investigation was triggered by a solitary complainant.

The advertisement in question offered 10 free spins plus 90 spins extra. It was emailed to registered customers featuring an image of Iron Man, an iconic character from the Marvel Comic, with the text: “IRON MAN 3 … Enjoy this exclusive Ladbrokes welcome offer with Iron Man 3”.

The complainant alleged that the advertisement breached the CAP because it was likely to be of particular appeal to children, in breach of rule 16.3 covering gambling, and specifically of rule 16.3.12, which states:

16.3 Marketing communications must not:

16.3.2 exploit the susceptibilities, aspirations, credulity, inexperience or lack of knowledge of children, young persons or other vulnerable persons.

Ladbrokes sought to argue that the advertisement was adult-themed and was reflective of popular culture, evidence about which established that the fans of Marvel were predominantly adults. In support of this argument, they relied upon data on attendance at Comic Con events and from Facebook, the latter showing that only 6.39% of the Marvel fan-base is aged under 18, with the vast majority being aged between 18 and 37.

The ASA was having none of it. It found fault with the Facebook data on the basis that those under 13 cannot open an account, thereby skewing those results. Whilst accepting that Iron Man is a popular character that appeals to many adults, it concluded that the advertisement was likely to be of particular appeal to children, by virtue of its comic book nature and also because of the widespread availability of toys associated with the character.

It didn’t matter that the advertisement had only been sent to individuals who had already successfully completed the registration process: the ASA concluded that the advertisement breached the relevant provisions of the CAP.

Although the ASA merely ruled that the advertisement must not appear again in its current form, and instructed Ladbrokes not to use images that might be of particular appeal to children or young people in future, without taking any further action, the decision is instructive and points to the high level of vigilance on the ASA’s part.

The Authority is clearly taking a strict line on any advertisements that might be appealing to the underage, regardless of the extremely small likelihood of such advertisements reaching that audience: after all, in this case, the advertisement would have had to be shared by an adult with a child or young person in order for them to become exposed to it, given that it was sent out only to customers who had already registered, and therefore been checked to ensure that they were aged over 18.

Operators should therefore take note.

I have recently been asked, by a major UK charity, to advise on their latest promotional campaign and, in particular, on their use of a cartoon character. Some of you may be aware of the different rules surrounding lotteries, particularly of the fact that the minimum age for participation is 16, rather than 18. Nevertheless, the CAP also has rules governing these. Rule 17 deals with these products, stipulating that marketing communications should not be directed at under 16s, whether through the selection of media or context in which they appear. That said, the rules surrounding lotteries are somewhat more relaxed than those that apply to “harder” gambling products – underage people may be featured to portray the “good cause” beneficiary, as long as they are not associated with gambling or invited to purchase a lottery ticket.

In many cases, not just in the lotteries sector, but across the industry, it is difficult to know where to draw the line – and the ASA has just shown that it will expose operators who get it wrong. If you have any doubts about your latest marketing campaign, please get in touch with me at anna@woodswhur.co.uk, or with your usual contact.

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Gambling Commission continues to take action and introduce further changes

On the 31st October 2016 a new version of the LCCP comes into force to implement changes which are being brought in on the back of recent consultations. The Gambling Commission is keen to point out on its website that the LCCP are not static but “evolve over time” which I suspect is similar to the way that operational policies evolve and develop at gambling establishments throughout the UK. It is interesting to note on the Gambling Commission’s website that the LCCP evolve so as to take into account developments in the industry, emerging evidence or the most effective means of promoting socially responsible gambling. I am of the firm view that this also applies to operators and their operational policies, which have to continually change to take into account recent developments. I do not subscribe to the argument that just because policies have to change all the time means that they were not fit for purpose prior to the policies being changed. I suspect there will be more on this topic in later articles!!

The Autumn 2016 amendments are based on the recent consultations and relate to the following: the prevention of crime associated with gambling, placing digital adverts responsibly, extending the requirement to assess and manage money laundering risk to non-remote lotteries and controlling where gaming machines may be played in betting, bingo and casino premises.

The Gambling Commission website also reports the results of various cases in which enforcement action has been taken recently. Smart TV Broadcasting Limited had its Operating Licence made the subject of a review under Section 116 of the Gambling Act 2005 and under Section 118 of the Act the Gambling Commission decided to suspend it because it suspected that Smart TV was unsuitable to carry on the licensed activities. At the time of the suspension there were customers who had outstanding balances in their accounts and subsequent to the suspension Smart TV Broadcasting Limited surrendered its licences. The Gambling Commission have confirmed that this does not prevent the settling of outstanding winning bets.

It was also confirmed on the 10th of August 2016 that the Gambling Commission has supported South Wales Police in an operation which led to ten people being arrested as part of an investigation into match fixing. The match fixing related to betting patterns on a match between Port Talbot Town and Rhyl on the 9th of April. No further information is available due to the ongoing nature of the criminal investigation.

The implementation of the new LCCP coupled with the Gambling Commission continuing to take enforcement action, should serve to reinforce the fact that all operators in the UK must keep fully up to date with all changes and be fully aware of exactly what is required in terms of their operational policies.

 

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Gambling Commission fines Camelot

On 28 July, the Gambling Commission announced that it had fined Camelot, the operator of the National Lottery, £300,000 for undermining public confidence.

The Commission has been responsible for licensing and regulating the National Lottery since 1 October 2013, when it merged with the National Lottery Commission. No change to the legislation under which the Lottery is regulated occurred, however, and this remains the Lottery Acts of 1993, 1998 and 2006, the Horserace Betting and Olympic Lottery Act 2004 and various Statutory Instruments made under those pieces of legislation.

The National Lottery’s regulator was initially the Director General of the Office of the National Lottery, or OFLT. However, this changed in 1998, with the dissolution of that body and the establishment of the National Lotteries Commission. It has been the intention, since the drafting of the Gambling Act 2005, that the Gambling Commission would take over its powers and responsibilities.

A full record of all breaches by, and regulatory action taken in respect of, the National Lottery is available to view from a link on the Commission’s website, and makes for an interesting read: http://www.natlotcomm.gov.uk/regulating-the-lottery/enforcement/licence-breaches.html

Records are kept going back to 2002, during the currency of the second licence granted, and are broken down into individual financial years. The current licence is the third, and there have been some eleven breaches since it was awarded: three in 2009/2010, two in 2010/2011, two in 2013/2014, one in 2014/2015 and three so far in 2016/2017. They relate to matters as diverse as numbers on tickets not being consistent with those entered into a draw, prizes being incorrectly attributed to tickets, prizes being miscalculated, failures in updating the Prize Payment Security System, incorrect draw results featuring on the website, errors in scratchcards and interactive instant win games, and inadequate information being given on promotional material.

The Gambling Commission has taken over the same regulatory priorities and imperatives previously applied by the National Lotteries Commission. Protecting players is central. The Commission oversees the procedures used by Camelot to ensure the integrity of games and the security of scratchcards. It conducts independent research to confirm that there is no evidence of non-randomness of games, and monitors the reliability, security and efficiency of the National Lottery’s central computer systems and national network of terminals. The Commission also conducts “fit and proper vetting” of Camelot’s suppliers and oversees the transfer of funds to good causes.

In relation to all licence breaches dating back to 2009, this is only the second time that a financial penalty has been imposed – the other was in respect of a licence breach recorded on 26 August 2014, which arose because Camelot incorrectly calculated the Lotto jackpot prize tier such that the three winners of the jackpot prize in the draw held on Saturday 19 October 2013 shared £4.8m instead of the originally broadcast sum of £6.2m – a significant discrepancy. On that occasion, Camelot was fined £100,000.

In every other case, the Commission has been satisfied that Camelot’s policies, procedures and systems had been updated or fixed so as to prevent any recurrence of the problem, and therefore contented itself with recording a licence breach and taking no further action.

The recent findings relate to three separate incidents. First, following the Lotto draw on 10 October 2015, Camelot published the incorrect Millionaire Maker Raffle results on its website for an hour. This resulted in over 100,00 players who viewed them being misled. Then, on 5 November 2015, an incorrect jackpot advertisement was placed on the EuroMillions results checker page, stating that there were ten prizes of £1 million available, instead of one. Later, on 27 December 2015, the incorrect prize information for the Lotto Raffle top tier prize winners was published on the EuroMillions website, including a reference to “5 prizes at £20,000” which should have read “5 prizes at £1 million”. Again, on both of these occasions, players had been misled.

It would appear from the Commission’s recording and reporting of these breaches that the £300,000 fine has been imposed in respect of the first of them only, the one that occurred on 10 October 2015. For the others, the Commission has merely recorded a breach.

Camelot must now pay the £300,000 to good causes. Both incidences of financial penalties being imposed during the currency of the third licence have occurred since the Gambling Commission took over responsibility for regulating the National Lottery operator, and for breaches that were committed since that date. Only an examination of future years’ data will reveal whether or not this represents a harsher line being taken than was the case previously.

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How far do Gambling Companies need to Investigate Customers Funds

There have been some recent high profile cases where the Gambling Commission have investigated operators who have accepted huge sums of money in stakes from customers who have stolen the funds used for the gambling. The most recent case of this type was where the bookmaker Betfred was ordered to pay £800,000 as a settlement to the Gambling Commission’s investigation after accepting stolen cash from a “VIP Customer”. He had been allegedly offered free drinks and day trips to encourage him to keep betting. As a result of the Gambling Commission investigation Betfred were found to have failed to meet their obligation on social responsibility and the prevention of money laundering – two key conditions of their operating licence in the UK.

In this case it was shown they had taken thousands of pounds from a convicted thief without properly checking the customers wherewithal to pay or engage in it’s social responsibility obligations. The Gambling Commission stated that Betfred would pay more than £800,000 in “Compensation and in a contribution towards social responsibility causes” after it’s operating licence had been reviewed. The company was ordered to pay £443,000 to the victims of the criminal activities and a further £344,500 to social responsibility causes. The Gambling Commission also ordered Betfred to pay it’s investigation costs and perform an independent third party review of it’s anti-money laundering and social responsibility policies and procedures.

This highlights a significant issue for gambling companies who have strict obligations placed on them through the operating licences given to them by the Gambling Commission in the UK. In the instant case a significant proportion of the £850,000 that was stolen from an employer by the accountant was gambled with Betfred. The individual concerned had huge debts between 2013 and 2015 with Betfred who continued to give him free bets, days out and inducements to carry on betting. Betfred admitted that the customer was in their top five percent of customers in terms of spend and profit and was therefore treated as a VIP customer.

There is a clear anomaly for these betting companies who will want to preserve favour with VIP customers but must ensure that they undertake stringent money laundering and social responsibility checks on all of their customers. There will need to be close control over any inducements that are offered to VIP customers particularly where customers have asked to be self excluded or have clearly made contact with the gambling company to say that they are taking a break from gambling.

This case follows on the heels of Gala Coral who were ordered to pay £880,000 worth of compensation after a VIP problem gambler used the proceeds of theft to gamble with the company. In this case the Gambling Commission stated that Gala Coral had failed in its duty to prevent money laundering and problem gambling adding that it safeguards against both were inadequate. It was suggested that there were “Systemic faults” in the company’s approach to problem gambling and money laundering. In this case the company had relied on uncorroborated suggestions that the gambler was independently wealthy when in fact he had stolen £800,000 from a vulnerable person. This case again highlights the high level of compliance placed on gambling companies as the Commission stated: “Gala Coral had failed to conduct adequate enquiries about the source of funds the customer used to gamble in store and online and placed overreliance on the fact that the relevant payments were all made through one UK clearing bank account”.

The company was also criticised for failing to spot the signs that the man was a gambling addict. In this case the company agreed to pay £846,664 to the victim of the theft and his family as well as making a £30,000 payment to reflect the costs of the Commissions investigation.

These two cases show that there is a significant onus placed on the gambling companies to continue to monitor high rolling customers and be satisfied with the money laundering and social responsibility / problem gambling policies they have are robust and working in individual cases.

We are certain that these cases will not be the last of their type and are timely warnings that gambling companies must ensure that the policies they have in place are not merely written policies but are practically effective.

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Enforcement Action now going to Focus on PML Holders

Since the Gambling Act 2005 came in to effect on 1 September 2007 I have regularly commented on the style and approach of enforcement action taken by the Gambling Commission under the Gambling Act 2005. The first four or five years were not the most interesting of articles as it appeared little or no enforcement action was being taken, even in circumstances which quite clearly required some investigation or action.

There was undoubtedly a change of approach around 2011/2012 , since then we have seen numerous high profile investigations leading to major operators being the subject of public statements and making financial payments. Regulatory action has been commenced under Section 116 Gambling Act 2005 which permits the Commission to review an operating licence. The regulatory powers given to the Commission are set out in Section 117 and the ultimate sanction of revocation is dealt with in Section 119. I do not propose to go through the numerous cases which have been dealt with in the last four years but it is clear the vast majority of those cases relate to action being taken against the company who is the holder of the operating licence. What we have not seen (apart from in exceptional circumstances) is action being taken against individual Personal Management Licence Holders but it now appears from recent Gambling Commission publications that this is now being undertaken.

There has of course always been the power to deal with individuals who hold Personal Management Licences. Rob Burkitt from the Commission has quite rightly pointed out there always has been a power to take action against PML Holders, and those in senior positions, and that the Commission were always looking at taking the correct and appropriate action. Whilst Rob’s answer was of course completely correct it did not cover whether or not there had been a definite decision taken by the Commission in recent months to now take action against PML Holders and I doubt we will ever find out whether there was a round the table meeting when this decision was taken although I am in no doubt myself that this has happened. It seems to me inconceivable that in some of the high profile cases during the last four years no mention of any PML is made and yet in recent cases, which are clearly not on the same scale as others, the Commission are looking at taking action against PML Holders.

The Gambling Commission Statement of Principles for Licensing and Regulation March 2015 confirms at Paragraph 4.3 that the Commission expects those occupying senior positions whether or not they hold Personal Management Licences to:

  • uphold the licensing objectives and ensure compliance of operators with the LCCP
  • organise and control their affairs responsibly and effectively
  • have adequate systems and controls to keep gambling fair and safe
  • conduct their business with integrity
  • act with due care skill and diligence
  • maintain adequate financial resources
  • have due regard to the interest of customers and treat them fairly
  • have due regard to the information needs of customers and communicate with them in a way that is clear and not misleading and allows them to make an informed judgement about whether to gamble
  • manage conflicts of interest fairly
  • disclose to the Commission anything which the Commission would reasonably expect to know
  • work with the Commission in an open and co-operative way

A further Gambling Commission document “Licensing Compliance and Enforcement under the Gambling Act 2005: Policy Statement” March 2015 also deals with the Gambling Commission approach. At paragraph 5.3 “Where concerns have been raised about a licensee, the Commission may commence an investigation but it will not necessarily commence a licence review unless and until it appears likely that the Commission will need to exercise its formal powers under Section 117 of the Act”. In deciding whether enhanced compliance is required the Commission list a number of matters that they will take in to account and this list which is not exhausted includes: The nature and extent of the concerns, whether concerns have been raised about the licensee in the past, the extent of any attempt to conceal any failure, the impact on customers and the absence of internal controls and procedures.

Paragraph 5.19 sets out the procedure for reviewing an individual licence and makes it clear that before commencing a review of an individual personal licence the Commission must notify the licensee and inform him or her of the procedure to be followed in the conduct of the review. In most cases the Commission will fulfil this obligation by issuing a notice to the licensee which sets out: The ground floor commencing a review, the procedure to be followed, confirmation of the licensee’s right to make representations and when those representations should be made.

The powers have always been there to take action against Personal Management Licences. Having looked through the Gambling Commission website it does appear that, apart from the odd fairly exceptional case, the Commission has not taken action against Personal Management Licence Holders. It certainly does not appear to have taken any action against Personal Management Licence Holders for major companies and yet it now seems clear that this is to be the Commission approach. My personal view is such an approach needs to be handled with great care. Where there is criminality or serious and significant breaches of the LCCP or other matters then such an approach may be appropriate. Where a view has been taken that certain policies and procedures need updating and amending and there is no serious criminality / bad money being laundered / customers being defrauded then the Personal Management Licence review has to be a final step for the Commission.

The Commission should look to individuals to work with them and act on their advice or concerns and I have no doubt that the Commission will find the vast majority of PML Holders would only be pleased to do so. There are some excellent PML Holders in the UK with extensive knowledge of the industry and supporting legislation and guidance and to start a course of action which may impact upon a personal management licensee without serious and exceptional circumstances starts to set a dangerous precedent. The Commission should not forget that the imposition of conditions or even a warning on a Personal Management Licence will have a major impact on that individual and their ability to continue to work within the industry. No one questions that it is essential but the regulators in the industry should work together and the Commission should avoid Personal Management Licence reviews except in the most serious of cases.

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GC Consults on New Licence Fees to Take Effect in 2017

The Gambling Commission is consulting on proposed new licensing fees set to come into force next spring.

This consultation follows on from the publication by the Commission of its fees discussion paper on 1 September 2015 and a workshop for stakeholders on 24 September. The Commission sees a review of its fees structure as timely after the implementation of the Gambling (Licensing and Advertising) Act 2014 increased the volume of gambling it regulates (excluding the National Lottery) from around £6.7bn to approximately £9.3bn.

The consultation is open until 9 September and full details may be found here: http://www.gamblingcommission.gov.uk/Publications-consultations/Consultations/Open-consultations/Proposals-for-Gambling-Commission-fees-from-April-2017.aspx?utm_source=ebulletin%20&utm_medium=email&utm_campaign=11.7.16-Fees-consult

It should be noted that responses must be sent to both the Commission and the DCMS.

The main proposals, in summary:

  • Take into account the changes in the Commission’s costs and income following the coming into force of the 2014 Act;
  • Would result in a reduction of 10% in fees, £1.7m, across the gambling sector as a whole;
  • Tweak the fees applicable to various sizes and types of operator to ensure, the Commission says, proportionate recovery;
  • Replace number of premises with gross gambling yield (“GGY”) for various types of non-remote operator as the means of calculating fees;
  • Re-align cost recovery more proportionately, in the Commission’s view, with reference to GGY;
  • Sub-divide various fee categories into smaller sub-categories to promote fairness; and
  • Address other issues that have been identified in the current fees structure.

The Commission expects the proposed changes to come into effect on 6 April 2017. It will be holding a workshop for trade associations in Birmingham in September.

The Commission estimates that, as a result of the changes, around 1900 operators will benefit from a fees reduction, 1,000 will see fees held at current levels, while fewer than 100 will face an increase.

The GC has found that its fees income is, and will continue to be, in excess of its operational costs and this contravenes the principle of reasonable costs recovery enshrined in HM Treasury’s July 2013 Managing Public Money. These proposals therefore seek to address this imbalance by decreasing revenues (on the GC’s estimates) by around 10%.

One key proposal is to move several additional sectors across to GGY as the metric for determining both application and annual fees. It is suggested that this will apply to non-remote bingo, general betting (standard), adult gaming and family entertainment centres, as well as to 2005 Act casinos (which are currently charged by reason of the licence they hold, namely small or large). The Commission considers that it now has more reliable GGY data from operators than when the licence fees were originally set and that the new basis for calculation will be fairer, and more accurately reflect operators’ regulatory risk and cost burden.

The Commission also proposes sub-dividing a number of fee bands, in particular those for smaller operators, to “smooth out” the transition from one fee band to the next, thus enabling gambling businesses to grow without seeing a huge “hike” in fees. This is obviously a welcome move. Similarly, there is a suggestion that some of the largest fee bands will be sub-divided and that “fee formulae” will be introduced, based on turnover, for certain of the highest fee categories, such as machine technical and gambling software licences. This, the Commission say, will ensure an equitable recovery of costs when larger operators expand or merge with, or acquire, smaller businesses. It also plans to address the fees for general betting standard (real events) and remote betting intermediary operators, so that the smaller players pay less, whilst the bigger operators pay more.

Other proposed changes include slashing the variation fee for operators when they move up a fee band to a fixed fee of £25, rather than the current payment of 20% of the usual payment for the activity in question. This represents a very significant reduction in many cases. The Commission is also proposing reducing the charge for a change of corporate control declaration application where shares are transferred to a family member by a small, family-owned company from the current fee of 75% of the usual application fee for the activities authorised by the licence to a fixed fee of £100. Again, this would bring about a significant discount. The current requirement to pay £25 when a licensee changes his, her or its name is proposed to be scrapped and this, in the future, will attract no charge. This will particularly benefit female holders of operating licences who are obliged to apply for a change of name when they marry or divorce.

Many gambling software providers would benefit from the proposal to introduce a new category of remote operating licence for B2B providers who host their own remote casino and bingo games through another remote casino or bingo operator, but do not, themselves, transact with customers. Under the new arrangements, such operators would continue to need to hold a gambling software licence, but would only need the new operating licence, rather than a full bingo or casino operating licence, as is currently the case. This seems sensible to me given that most of the requirements relating to social responsibility, cash handling, protection of customer funds and so on that apply to B2C businesses simply are not relevant in the case of B2B businesses. I have long thought that the requirement to hold a full licence does not sit well with those entities and on several occasions this has resulted in simply responding “not applicable” to requests from the Commission for policies and procedures when making operating licence applications on behalf of the clients concerned.

Scrutiny of the Commission’s figures reveals a decrease in fees for just about every category of operator. The notable exception is the lottery sector, so the Commission’s view on that bears some further scrutiny.

The proposal for over 500 society lottery operators and ELMs is to hold fees at current levels. The GC makes the point that fees have been held at the same levels since 2009 (and indeed, since 2007 for most such operators), so continuing to hold them at current levels still represents a significant reduction in real terms.

The Commission points to the increase in fees for External Lottery Managers (“ELMs”) as part of the 2012 fees implementation and considers that these remain at the right level given the increasing influence of ELMs in the lottery market and their role in introducing significant developments in the kinds of product available. It also refers to the introduction of an ancillary licence for society lotteries (as a result of the 2011/12 fees consultation) that take payment via remote means up to a value of £250,000 per annum. This reduced annual fees for many society lotteries by around 30% and up to 60% for the very smallest lotteries as previously they had been required to a hold a full remote licence. The Commission therefore believes that the maintenance of the current fees levels for lotteries is appropriate although it says that it may have to review society lottery fees again once it has completed its current review of the sector. This will no doubt disappoint many in the lottery market, particularly ELMs, and I and my lottery clients shall await the outcome of any further fees review with interest.

One area of suggested change that some society lottery and ELM licence holders may benefit from, however, is the proposal to introduce annual fee discounts for the holders of two operating licences. Currently, such licence holders receive a 5% discount on the cheaper of the two licences they hold, whether it be remote or non-remote. It is proposed to apply that discount to every licence activity on both licences.

The proposed fee changes are intricate in places and this piece does not set them out in full. Should you require any advice on them, or assistance with responding to the consultation paper, please contact one of the team.