On 20 June 2018, the Gambling Commission announced it had reached a regulatory settlement with 32Red Limited in respect of weaknesses found in its responsible gambling and anti-money laundering controls. As part of the settlement, 32Red will pay a penalty package of £2m, including a £709,046 divestment of financial gain, £1.3m payment in lieu of a financial penalty and £15,000 towards investigatory costs. The settlement is yet another example of the Commission exercising its powers under its revised – and more stringent - enforcement policy, adding to an ever-increasing list of high profile and large scale regulatory settlements.
The Commission’s investigation focused on 32Red’s dealings with a VIP customer who – between November 2014 and April 2017 – deposited £758,000. The regulator found that, during this time, there were 22 incidents where the customer referred to issues or made complaints which could have indicated problem gambling, and should have led to a customer interaction but instead were each met with a bonus being applied to the customer’s account. The Commission further found that, in breach of social responsibility code provision 3.4.1 of the Licence Conditions and Codes of Practice (LCCP), the operator’s social responsibility policies did not refer to customer interactions, as well as omitting certain specific provisions required under social responsibility code provision 3.1.1(1) to combat problem gambling.
In addition to these responsible gambling failures, the Commission also held that 32Red failed to conduct source of wealth checks at the requisite times. According to the regulator, the customer’s account should have been reviewed in August 2016 – following the implementation of revised anti-money laundering policies, procedures and controls - when lifetime deposits were £235,000. It was not until January 2017, however, that the customer's account was reviewed, by which time lifetime deposits were nearly £500,000. Although source of wealth information requests were made, the customer was allowed to play for another 5 weeks whilst 32Red waited to receive the requested information. Once received, the documentation did not support the level of deposits made by the player - for example, the payslip provided suggested a monthly net income of £13,000 yet average monthly deposits were in excess of £45,000 – and despite this 32Red took no further action until the account was suspended in April 2017. By this point lifetime deposits had reached £758,000.
The Commission held that this and other failings demonstrated operational weaknesses and breaches of the condition specifically added to 32Red's licence to implement Parts 2 and 3 of the Money Laundering Regulations 2007. The Commission also found that 32Red had failed to conduct an assessment of the risks of its business being used for money laundering and terrorist financing, in breach of licence condition 12.1.1 of the LCCP.
The operator made full admissions to the breaches in its initial meeting with the Commission and has since implemented a number of improvements to its processes and procedures. These include arranging for an independent third party audit of its AML policies, procedures and controls, implementing the recommending changes, and undertaking a full review of all active customers against these revised policies. Following its acquisition by Kindred Group PLC, it has also adopted Kindred’s ‘player safety-early detection system’ and has been integrated into a group wide platform to work to an aligned policy.
Lessons for the industry
As with other enforcement cases, the Gambling Commission expects operators to consider the issues raised by the 32Red investigation and review their own practices to identify and implement improvements. More specifically, the regulator has direct other remote operators to consider the following questions to avoid the pitfalls 32Red fell foul of:
- Do you have systems in place to identify potential problem gamblers? Do you look at the volume and frequency of calls by customer?
- Are your staff sufficiently trained to identify problem gambling? Do they have a picture of the customer’s behaviour readily available to them?
- Does your business culture attempt to keep customers happy by giving them bonuses without considering whether they are problem gamblers? Are commercial considerations overriding customer protections?
- Have you conducted an assessment of the risks of your business being used for money laundering? Is it kept under review?
- Are you doing affordability checks? Do you know where customer money is coming from? Do you seek and use information from a wide range of sources to build knowledge of your customer, and to corroborate and test information? Do transactions seem reasonable in light of what you know about them?
- Have you allocated sufficient resources to AML compliance? Can you promptly apply revised policies and procedures to existing active customers?
- Do you have a culture of curiosity? Do you place more importance on making money than on risk management? Do you act quickly when you have concerns?
- Do you recognise your VIPs or equivalents as high risk and handle them appropriately?
- How do you encourage customers to respond to information requests? Does your monitoring system allow for timely escalations if information is not received? When would you terminate the business relationship?
- Is your SAR regime robust? Do you make and retain records of decisions and rationale? Are reports submitted as soon as practicable?
- Can you demonstrate due consideration of our public statements and other industry sources? Are your policies and procedures version controlled and dated?
The public statement regarding this case can be accessed here.