Gambling Commission proposes sweeping changes to enforcement policy

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

On Thursday 26 January, the Gambling Commission published a consultation on proposed changes to its enforcement strategy. The proposals largely focus on a move away from voluntary settlements and a greater emphasis on licence reviews, whilst also providing for the potential of higher fines for licence holders in breach of regulations.

The changes proposed by the consultation will impact no less than four of the Commission's guidance documents:

• Statement of principles for licensing and regulation;
• Licensing, compliance and enforcement under the Gambling Act 2005: policy statement;
• Statement of principles for determining financial penalties; and
• Indicative sanctions guidance (a new piece of guidance introduced by the consultation, which sets out a framework for decision making about regulatory enforcement and the possible sanctions that could apply).

In this article we explore the key changes proposed by the consultation and the potential implications of these. Whilst the finer details may come as a surprise to some in the industry, as we reported back in November last year, gambling companies providing services to British customers have recently faced a wave of regulatory intervention, and this consultation could be seen as yet another turn of the regulatory screw.

No bias towards voluntary settlements

There is a shift away from reliance on voluntary settlements in the consultation. Echoing the speech of the Commission's Chief Executive, Sarah Harrison, at the Commission's "Raising Standards" conference on 8 November, the document states:

One of the principles in our existing Statement for licensing and regulation is a preference for pursuing compliance through settlement rather than formal licence review. We want to remove this bias in favour of settlement. Regulation works well when regulators use the right tool for the job. We have a wide range of regulatory tools and we aim to use them appropriately and proportionately. Favouring settlements as a matter of course is not the right way to achieve that proportionality. We propose to put access to all tools, including licence review (both of the operator and personal management licences), on an equal footing.

Previously in the "Statement for principles for licensing and regulation", the Commission expressed an intention to seek to fulfil its statutory obligations through means that "stop short of formal licence reviews" where appropriate. In its place, the Commission now states that it will only do so in limited circumstances. This removes any expectation that settlements (renamed "regulatory settlements" throughout the policy documentation) will be the first port of call for enforcement purposes. Instead, it is likely that licence reviews will become far more prevalent.

The chapter on 'dealing with non-compliance' in the "Licensing, compliance and enforcement under the Gambling Act 2005: policy statement" has also been restructured and redrafted to reflect this change in approach.

Time-limited discounts

Despite this approach, the Commission still acknowledges that settlements are a "key tool" in their arsenal. They do, however, intend to introduce time-limited discounts to incentivise early settlement.

In the revised policy documentation, the Commission has inserted new provisions to deal with credit being given to licensees for early disclosure. Here the Commission states that the earlier that a licence holder discloses the relevant facts and makes the appropriate admissions (irrespective of whether a formal licence review has been commenced or not), the more credit they will be given. Such credit could be in the form of a reduction in any penalty due, as set out in the "Statement of principles for determining financial penalties".

Higher penalties

The Commission has proposed various changes to its "Statement of principles for determining financial penalties" which will lead to higher penalties for regulatory breaches, especially where systematic and repeated failings occur.

The revised policy now breaks penalties down into two elements: (i) the removal of the detriment to customers/the gain made by the licensee due to the breach; and (ii) the penal element which reflects the seriousness of the contravention. Whereas before the Commission spoke of taking into account the financial situation of the licensee and its ability to pay, a harder line is now taken, with the Commission now not only taking account of the damage caused and recouping the gain made, but imposing additional sanctions to deter further wrong-doing.

On the upside, the Commission provides further clarity on how it will calculate penalties and the factors it will take into account when determining the appropriate amount. Interestingly the expanded list of factors included in the "Statement of principles for determining financial penalties" not only includes whether there has been a repeated breach or failure by the licence holder itself, but also now whether any of its group companies have been previously in breach. Also of note is the fact that the Commission will consider whether the breach arose in circumstances that were similar to previous cases the Commission has dealt with (emphasising a need for licensees to learn from the previous settlements and decisions published by the Commission).

Focus on consumer protection and other changes

Throughout the policy documentation, the Commission has made changes to reflect its new "enforcement mission statement": an emphasis on protection of consumers and the general public, and an intention to improve standards across the industry. The Commission intends to achieve this through driving a "consumer first culture", improving compliance with the licensing objectives, reducing gambling related harm and deterring behaviour which is inconsistent with these goals.

This change of philosophy is also illustrated in a proposed change to the "Statement of principles for licensing and regulation": the approach of the Commission in relation to regulation generally is altered from seeking to impose a “minimum burden” to “avoiding unnecessary regulatory burdens”. This too suggests a greater readiness on the part of the Commission to intervene in the activities of operators.

The deadline for responding to the consultation is on 21 April 2017.