Gambling Commission’s Enforcement Report and National Strategic Assessment

United Kingdom

On 6 November 2020, the Gambling Commission (the “Commission”) published its:

  1. latest annual Compliance and Enforcement Report, ‘Raising Standards for Consumers’ (the “Report”); and

  2. its first National Strategic Assessment (the “Assessment”).

There is a considerable amount of research, analysis and guidance within the Report and the Assessment. We set out below an overview of both and some of the key takeaways.

Compliance and Enforcement Report 2019-2020, ’Raising Standards for Consumers

The Report provides an overview of the enforcement work that the Commission has undertaken throughout the preceding financial year and contains lessons for operators and Personal Management Licence Holders (“PMLs”) in order to guide their compliance with the Gambling Act 2005 (the “Act”) and the Licence Conditions and Codes of Practice (the “LCCP”). Through its enforcement work, the Commission aims to protect consumers and the wider public and to raise standards in the gambling industry through targeted actions.

The Report provides insight into the following seven key areas:

  1. Triggers and Customer Affordabilityensuring operators protect consumers through considering their affordability and the implementation of appropriate triggers;

  2. Customer Interaction and Social Responsibility Failings – protecting people from gambling-related harm by ensuring operators identify and engage with at risk customers;

  3. Anti-money Laundering and Counter Terrorist Financing – working to ensure gambling stays free of crime and the proceeds of criminal finance;

  4. Personal Management Licence Reviews – ensuring compliance with the Act and the LCCP through focusing on the role played by PMLs;

  5. Illegal Gambling – investigating offences committed under the Act;

  6. White Label Partnerships ­– ensuring operators take appropriate steps and checks regarding their white label partnerships to ensure compliance with the Act and the LCCP; and

  7. Betting Exchanges ­­­– reminding operators that the same principles and standards apply as regards betting exchanges.

For each of these areas, the Report sets out key statistics, case studies and notable enforcement cases, areas in which operators tend to fall down and expectations going forwards. The Report also contains a number of ‘healthchecks’ in the form of questions which operators are encouraged to consider in order to ensure compliance with the LCCP.

The Report details the Commission’s enforcement work over the past financial year. This included 234 security audits, 33 website reviews, 350 compliance assessments and over 3,000 intelligence reports, resulting in over £30m of financial penalty packages or regulatory settlements and the suspension of 5 and the revocation of 11 operating licences. The Report also states that the Commission undertook reviews of 49 PMLs.

Comment

Within the Report, the Commission underlines its increasingly tough approach to enforcement and stresses that “where licensees fail to meet the standards we expect, we will take tough action, including the suspension and revocation of licences”. Operators should take the time to review the Report’s contents and assess whether their policies and procedures require any amendment. The failure to take on board lessons learnt, and accordingly revise policies and procedures, is consistently cited in the Commission’s public statements as a factor contributing to more severe financial penalties.

The Report notes that regulatory settlements have been used to good effect but warns that “there are too many occasions where settlement proposals are made at a late stage of our investigation process or approached as if a licence review is a commercial dispute to be negotiated” and that this is “not acceptable”. Moreover, “licensees who choose to contest the facts before conceding at a later stage need not make offers of settlement”. It is clear that this is intended as a warning to operators seeking to achieve regulatory settlements. However, the Commission has made clear that it is for the operator to propose the terms of a regulatory settlement, including the level of payment in lieu of a financial penalty. The Commission presumably cannot object to an operator seeking to agree a payment that is appropriate to the issues raised by the investigation (and indeed the board of an operator that failed to do so may be in breach of its obligations to the operator’s shareholders). That said, whilst the Commission has a Statement of principles for determining financial penalties, this provides only qualitative criteria to be taken into account. An operator cannot refer to a calculation method or matrix (such as is offered by other regulators) in order to identify an appropriate regulatory settlement offer to make. In these circumstances, it would appear reasonable for an operator to make an offer for the purposes of discussion with the Commission, and to wait to do so until the scope of the investigation and the Commission’s concerns are clear.

The Report also comments on a shift of focus towards PMLs as “those in boardrooms and senior positions need to live up to their responsibilities”. PMLs are therefore also strongly advised to carefully consider the Report. This is consistent with the tenor of the Commission’s Assessment (as further detailed below) which includes a comprehensive section on their expectations in relation to PMLs.

The Report comments on the effects of the COVID-19 pandemic and consumer affordability, encouraging operators to “urgently revisit their framework on triggers and consider their customer base and their disposable income… to ensure vulnerable customers are identified as early as possible and interacted with appropriately”. The Commission highlights a concern that operators are using “complex and convoluted mappings within their affordability frameworks” in order to justify triggers that are in excess of gross (let alone disposable) income and confirms that if a customer wishes to spend more than the national average they should be asked to provide information such as payslips, p60s, tax returns or bank statements. For the Commission’s guidance in light of COVID-19, please see our notes on the new customer interaction guidance and the open letter from Neil McArthur.

National Strategic Assessment

Alongside the Report, the Commission also published its first National Strategic Assessment.  The Assessment is based on what the Commission describes as four ‘pillars’:

  1. the Person gambling;

  2. the Place gambling occurs;

  3. the Products available to customers; and

  4. the Provider of facilities for gambling.

The Assessment identifies the key issues and risks in respect of each of the four pillars and sets out various actions that the Commission is planning to take to mitigate these risks and raise standards and compliance within the industry. The Commission notes that evidence suggests that gambling participation is not increasing but emphasises that ways of gambling are changing, and it is important to continue work to better understand the cause, scope and impact of gambling-related harm.

For each of the pillars, the Commission has collected data, statistics and evidence from its own compliance and enforcement work and has taken into account advice from its Advisory Board for Safer Gambling, Digital Advisory Panel and the Interim Experts by Experience Group. The Commission has also engaged with industry representatives and colleagues to inform the Assessment and drawn on the findings of recent Parliamentary reports. The Assessment draws on all of these sources to identify and assess the issues and risks that gambling presents to consumers and the public, creating “a foundation for prioritising action over the coming months and years”.

The Commission’s findings in respect of each of the four pillars are as follows:

  1. The Person

The Assessment notes that whilst participation in gambling is not increasing, there have been increases in industry GGY and so the average gambling loss per customer is increasing. It also emphasises that though the rates of problem gambling have remained stable, there are approximately 340,000 problem gamblers in Great Britain. It sets out eight typologies of people’s reasoning for gambling: wise decision; social play; along for the ride; lucky feeling; money to burn; ‘me’ time; just what I do; and for the money. It notes that this research provides a strong basis for understanding where fun may cross over into harm.

  • Ineffective ‘know your customer’ approaches including affordability checks

Individuals spending more than they can afford is recognised as one of the harms most associated with gambling. The Assessment states that operators do not know enough about their customers including how much they can afford to gamble, acknowledging that customers may be reluctant to share their personal information.

The Assessment reiterates that according to the ONS Annual Survey of Hours and Earnings, the median gross weekly earnings for full-time employees is £585 and emphasises that threshold levels continue to fail to reflect the affordability of the typical consumer. Using scenarios, it sets out examples of behaviours that the Commission considers clearly illustrate unaffordable gambling.

The Commission confirms that it will respond to the results of its consultation and call for evidence on how unaffordable gambling can be reduced and how best to improve the effectiveness of customer interaction. It also notes that it will continue to investigate operators’ compliance with social responsibility code provisions within the LCCP and commitments in assurance statements.

  • Early identification and effective responses to at-risk behaviours

The Assessment emphasises that each customer is different and that: (i) financial, time and behavioural indicators should be used to monitor customers; and (ii) personal circumstances, such as, bereavement or loss of income, might indicate vulnerability. It notes that harm can be avoided or mitigated with early identification of customers’ at-risk behaviours or vulnerability, but that operators are missing opportunities to do so. In particular, operators prioritise commercial considerations and fail to use evidence as to patterns of play and behavioural indicators to undertake proportionate customer interaction.

The Commission notes that it is in the process of implementing the outcomes of its consultation on the management of high value (and higher risk) customers. The Commission recently published new guidance on the treatment of such customers, and our note summarising that guidance is available here. The Commission also confirms that it will publish a statement setting out key areas and principles of its approach to vulnerability.

  • More engaged gamblers who participate in multiple products across different providers

Gamblers with multiple accounts across different operators can circumvent individual operator-led controls. 56% of online gamblers have more than one gambling account. The Assessment asserts that operators must take steps to identify and provide preventative controls for such gamblers where activity is confined to a single operator or group.

The Commission notes that progress has been made through the multi-operator self-exclusion schemes but stresses that it will continue to encourage the industry to use technology to keep customers safe. It also outlines a plan to bring together technology providers, data scientists, academics, researchers and financial service providers to provide ‘a single customer view’.

  • Underage gambling ­­

Controls to prevent underage gambling must be robust and effective. The Assessment notes that 1 in 10 visits to gambling premises by test purchasers resulted in a failure to challenge for age identification and that there are serious weaknesses in the controls on access to gaming machines in pubs and betting at racecourses. 

Operators can expect the Commission to continue to enforce compliance with age verification controls on online platforms. The Commission will also support licensing authorities, police and trading standards officers who undertake test purchasing.

  • Gaps in the evidence and understanding of gambling-related harms ­

The Assessment observes that building and maintaining a first-rate evidence base about gambling harms is essential to informing effective regulation. It emphasises movement away from solely counting the number of problem gamblers and towards the measurement of different harms caused by gambling, including harms experienced by those other than the gambler.

The Commission intends to review its approach to tracking participation in gambling and the prevalence of at-risk and problem gambling, with the aim of publishing a consultation later this year and implementing its outcomes in 2021. It also intends to establish a permanent Experts by Experience advisory group, pilot a new set of questions on the Commission’s quarterly online omnibus survey to understand the public’s experience of gambling-related harms, and scope feasibility of a longitudinal study of gambling behaviours and problem gambling.

  1. The Place

The Assessment emphasises that the place where a person gambles is central to the effective management of risk and compliance with regulatory requirements. Remote operators and operators with premises must take different steps to ensure gambling is fair, safe and crime free.

  • Accessibility of online gambling

The constant availability of online gambling has changed how and when consumers gamble; there has been a decline in premises-based gambling and an increase in online gambling. The Assessment acknowledges the distinct set of risks and opportunities that this presents and describes the risks that customers face at each stage of the online gambling experience, such as prior to the decision to play, at the point of sign-up, and during play.

The Commission intends to draw on the expertise of advisory groups to inform the approach and response to new risks. It emphasises the need to make use of emerging technologies to ensure regulation remains fit for purpose. 

  • Anonymity within premises-based gambling

The Assessment describes the issues presented by the anonymity of customers when gambling in premises, such as the identification of suspicious gambling activity and the tracking of customer behaviour. It also notes that premises can be locations for crime and that staff do experience violent and abusive behaviour.

The Commission plans to continue engaging with premises-based operators to deliver a programme of initiatives to raise standards and to encourage the industry to implement consumer protections through a product design working group.

  • Advertising

The Assessment recognises that there has been a clear increase in the volume of, and spend on, gambling advertising in recent years. It notes that the evolving nature of advertising means that operators need to promote their products responsibly and ensure that vulnerable audiences, including children, are not targeted. It highlights that existing evidence does not demonstrate a causal link between compliant gambling adverts and problem gambling.

It is emphasised that the responsibility for marketing affiliates’ compliance lies with the licence holder, who must conduct due diligence on affiliates and ensure that there are appropriate safeguards in place.

The Commission directs operators to harness ad tech to reduce the exposure of vulnerable adults and children to online gambling advertising. It will also monitor the effectiveness of the updated version of the Gambling Industry Code for Socially Responsible Advertising which came into effect on 1 October 2020 and plans to gather evidence on how best to prevent bonuses being offered to consumers displaying indicators of harm, building on the interim guidance issued during the COVID-19 lockdown.

  1. The Products

The Assessment explains that there are increasing numbers of customers playing high risk games, such as online slots. Operators must ensure that such games are safe and that customers understand their chances of winning to allow informed decision-making. It also highlights that there are many factors relevant to the risk of a particular game or product, such as speed and frequency of play, ease of access and scope to deposit and lose funds.

  • Online game and platform design

Understanding product and game characteristics and their links to harm are key factors in ensuring games and platforms are made safer by design. The Assessment notes that slots are the largest online gambling product by GGY, and that research shows they are the product with the highest ‘binge’ rate.

To improve consumer safety, the Commission has engaged in several research programmes including the GambleAware-funded project into online patterns of play. Alongside that, it is conducting randomised controlled trials with three large operators into anchoring and commitment devices within products; the findings will be published in due course. The Commission will also publish its response to its consultation on Safer Game Design and its proposal to ban reverse withdrawals (which have in effect been banned since May 2020 whilst the issue is considered further).

  • Gaming machines

The characteristics of gaming machines combined with the environments in which they are made available present regulatory risks. Risks include their location and accessibility, anonymous and untracked play, intensity of play and the effectiveness of oversight and

intervention. There are 185,203 gaming machines in Great Britain according to industry statistics.

The Commission plans to review what changes are required to the regulatory framework to ensure players using gaming machines are safe, treated fairly and informed about how the machines operate. It will also implement the enhanced test house framework. The Assessment notes that the impact of the introduction of the £2 stake limit for B2 gaming machines and their withdrawal from the market, and the restrictions on access to gaming machines due to COVID-19 remains uncertain.

  • Higher risk products

Core product characteristics such as speed of play, frequency, staking options, return to player and accessibility should inform the risks to players and should guide the controls applied by operators. Products permitting high frequency participation are likely to be most attractive to customers and are, at the same time, more likely to be associated with harm. By way of example, the Commission considers that in-play betting (which is of significant commercial importance to operators) presents considerable risk given its rapid and repetitive nature which blurs the distinction between online gaming and online betting. The aim is to make these sorts of products safer.

Operators are reminded to ensure appropriate consumer protections are in place and that clear player information is available on how in-play markets operate including ‘cash-out’ features and the risks associated with delayed video streams or data that is provided to the gambler.

  • Product innovation

Product innovation should deliver positive consumer and regulatory outcomes and should not prioritise commercial considerations. The Assessment recognises the following areas of concern: betting exchanges, pool betting and new products that “blur the lines” between betting regulated by the Commission and spread-betting or other instruments regulated by the FCA.

The Commission aims to improve its understanding of new technologies, new products, delivery mechanisms and payment methods to combat product risks. It also commits to engaging with the Department for Digital, Culture, Media and Sport in order to ensure effective regulation.

  1. The Provider

Operators range in size and the structure of their business models. The Commission licenses over 2,500 individual operators, but the 10 largest operating groups generate 69% of total GGY. The Assessment notes that public trust in gambling has fallen from 49% in 2008 to 29% in 2019. It notes that this drop should be compared to other sectors and that operators should proactively share the results of consumer surveys.  Complaints data is also recognised as a method of better understanding customers and improving confidence in the industry.

  • Ownership and governance of gambling providers

Within the industry, there are a growing number of licensees with complex international structures and increasing numbers of changes in corporate control. This means that ensuring the suitability of licensees and regulatory compliance requires additional investment by the Commission.

The Assessment encourages licensees and prospective licensees to work with the Commission in an open and cooperative manner. The Commission confirms its intention to continue to apply stringent processes to ensure the suitability of applicants for licences and take swift action for non-compliance. It also reminds PMLs of their obligations and emphasises that the Commission will continue to act against accountable individuals in order to raise standards within the industry.  Operators can also expect a response to the Commission’s consultation on corporate governance in due course.

  • Unlicensed gambling

The risks posed by illegal gambling operators are changing in the online environment. The Assessment emphasises that the priority is keeping consumers safe and so the disruption of unlicensed operations is key. 59 unlicensed operators were disrupted in the last year and in doing so, the Commission engaged with 15 international regulators.

The Commission states that it will continue to combat illegal gambling by increasing understanding of the problem, increasing capacity including with accredited online investigators, expanding the availability of software tools and exploring the use of different disruption techniques.

  • Tackling suspicious gambling activity

The Assessment emphasises that operators are responsible for keeping crime out of gambling and highlights a number of areas in which operators fail. For instance, it notes that (i) PMLs often have insufficient depth of knowledge; (ii) operators adopt a ‘one size fits all’ approach and fail to learn lessons from guidance published by the Commission; (iii) operators fail to conduct effective risk assessments and so implement ineffective policies, procedures and controls; and (iv) operators fail to provide regular quality training to staff.

Operators are warned to expect further enforcement action as the Commission continues to apply international best practice through the implementation of the Fifth Money Laundering Regulation and by updating its own Money Laundering risk assessment.

The impact of COVID-19

The Assessment includes a section on the COVID-19 pandemic, recognising it is an uncertain and unsettling time for operators, their employees and customers. The Commission sets out three phases of the pandemic and considers their impact and risks. The key theme appears to be an increase in time and money spent on gambling during lockdown (albeit that the number of consumers gambling dropped at least initially) and the need to review policies and procedures in light of that. As mentioned above, the Commission has already introduced new guidance aimed at reducing the risk of harm during the COVID-19 pandemic and confirms that it will publish data on the impacts of COVID-19 on consumers in due course.

Comment

Operators and PMLs are advised to review the Assessment in detail and reflect on their policies, procedures and controls to consider whether any changes are required in light of the risks and issues highlighted in the Assessment. The Assessment encourages operators and licensees to do more to understand their customers and “end the distinction between regulatory and commercial considerations”. In order to do this, the Commission has put forward a call to action to engage on issues such as “developing credible affordability solutions, making products safer by design and building dynamic player-centric safeguards”.

The Commission notes that “an approach to raising standards for consumers which is heavily dependent on the Commission using its formal regulatory powers will continue to damage the industry’s reputation, restrict activities and result in escalating penalties”. It seeks effective engagement from and proactive change by operators in order to protect customers and reignite trust within the industry.

Co-Authored by Harry Hall