Increased regulatory burden for software providers

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

The Commission's position in relation to software providers who will need to be licensed when the new Gambling (Licensing and Advertising) Bill comes in force will be set out in the third part of its response to the consultation on the new LCCPs, which is not expected to be published until late April/early May.

The Bill is due to receive Royal Assent shortly and, in combination with the revised LCCPs, will mean that a much larger population of software providers and developers will need to be licensed by the Gambling Commission and have their software tested.

To recap, the Bill requires operators to obtain a licence from the Gambling Commission either if they have remote gambling equipment situated in Great Britain or, even if they don't, if gambling facilities are used or are likely to be used by customers here. So the category of gambling operators who will be subject to the 2005 Gambling Act will be extended to include offshore businesses with a UK customer base.

In parallel with this legislative process, the Gambling Commission is also updating the LCCP's, which all licensed operators have to comply with, and the Commission has proposed a new condition requiring licensed operators to obtain gambling software only from providers who are also licensed by the Commission.

As a result of the increase in operating licences, a much greater number of software providers will also be caught by the licensing requirements (for both operating and personal licences). This new requirement will not come in to force at the same time as the rest of the revised LCCP - the Commission is suggesting 1 January 2015 at the earliest - but software providers will need to consider now whether or not the software that they provide to gambling sector clients is within the scope of the new LCCP.

Generic software provided to companies generally will not be caught simply because it is provided to a gambling company, instead the aim is to regulate providers of software which is integral to the gambling activity. But unfortunately the definition of "gambling software" in the legislation is drafted very broadly and there will inevitably be grey areas. The Commission appears to be placing a lot of emphasis on the ownership of the IP in the particular software as an indicator of who requires a licence, but the rationale for this is not obvious.

Essentially, software providers will need to take legal advice to determine whether or not the software they are providing falls within the statutory definition.

For larger companies this may not be too much of a concern - although there are questions about the necessity for all companies within a group to have separate software provider licences - but the administrative burden and cost attached to obtaining the necessary licence will not be good news for smaller players. It is also unclear how the new regime will apply to developer platforms and aggregators - will individual developers be required to be licensed or will the platform? It does not seem to make sense for individual developers to have to be licensed and surely the Commission will get sufficient comfort from licensing the aggregators , who are obliged to test the games in any event?

We will need to wait for the third part of the Commission's response to the LCCP consultation to see what further clarity they can provide.