Licence Conditions Imposed on Operators following Gambling Commission Investigations

United Kingdom

On 28 October 2020, the Gambling Commission (the Commission”) published a statement in which it gave details about its investigations into three online gambling operators, BGO Entertainment Limited, Games Account Network Plc and NetBet Enterprises Limited (the “Operators”) following social responsibility and anti-money laundering failings.

The statement detailed the Commission’s investigatory findings and the three regulatory settlements that the Commission has reached with the Operators, which included two of the Operators having new conditions imposed on their licences and all three having to make payments in lieu of fines to the National Strategy to Reduce Gambling Harms.

BGO Entertainment Limited

The Commission’s investigation uncovered systemic failings in BGO Entertainment Limited’s (“BGO”) social responsibility and anti-money laundering controls, which affected a large number of customers, and meant that BGO had failed to comply with the Commission’s Licence Conditions and Codes of Practice (“LCCP”). These breaches related to:

  • Social Responsibility Code 3.4.1(1) – Customer interaction BGO accepted that between September 2018 and March 2020, it did not have effective policies and procedures in place for customers who may be displaying signs of problem gambling.
  • Licence Condition 12.1.1 Prevention of money laundering and terrorist financing – BGO had not conducted a risk assessment of the risks of the business being used for money laundering and terrorist financing from September 2018 to July 2020. BGO had also failed to ensure adequate customer Enhanced Due Diligence and Source of Funds checks had been conducted.
  • Licence Condition 12.1.2 Prevention of money laundering and terrorist financing – BGO accepted that it had failed to implement measures contained in the Money Laundering Regulations 2007 and the Money Laundering Regulations 2017.

The Commission considered BGO had failed to take into account the Commission’s affordability and responsible gambling guidance noting examples of inadequate interactions with customers who were displaying signs of problem gambling. The Commission cited instances where customers deposited and lost significant amounts including one example where a customer lost over £159,000 in three months (irrespective that the source of funds was a lottery win). Over that period, a significant number of responsible gambling triggers were met with insufficient interaction from the operator, such as an overreliance on pop up messages.

The Commission also gave examples of customers where insufficient Source of Funds checks were carried out or provided. One example highlighted a customer, with a known salaried income of £20,000, who deposited in excess of £100,000 but had not provided appropriate Source of Funds documentation. A screenshot of a current bank account detailing transactions believed to be from an online gambling company together with a screenshot showing savings were considered insufficient to establish source of funds.

Regulatory Settlement:

The Commission and BGO reached a regulatory settlement in which BGO has agreed to:

  • Variation of its licence whereby BGO must apply Enhanced Due Diligence Measures to its top 250 customers. However this obligation is limited to “where it is required to do so in accordance with both the Money Laundering Regulations 2017 and the Gambling Commission’s published guidance concerning AML” and so does not materially alter BGO’s obligations.  Operators should have regard to the Commission’s definition of the top 250 customers: the top 125 customers by deposits in the last 12 months and the top 125 customers by loss in the last 12 months, in each case based on customers who have placed a bet in the previous 12 months, irrespective of whether such customer’s account is, at the relevant time, active, frozen / closed  or self-excluded. BGO must also maintain a record of the effectiveness of the Responsible Gambling checks that it carries out on its top 250 customers; and
  • A payment of £2,000,000, in lieu of a financial penalty, to the National Strategy to Reduce Gambling Harms and a further payment of £31,023 towards the costs of the investigation.

The Commission was influenced by a number of aggravating factors in reaching its decision:

  • The breaches occurred over a sustained period of time;
  • The time period of the breaches extended beyond the commencement of the licence review;
  • The systemic nature of BGO’s failings meant it was likely that further customers unknown to the Commission were affected;
  • The breaches arose in circumstances similar to previous cases which had led to the publication of lessons to be learned;
  • The need to encourage wider compliance in the industry; and
  • BGO’s failure to have adequate policies and controls in place despite the Commission’s continued guidance.

In mitigation, the Commission stated that BGO accepted responsibility for its failings at an early stage and was cooperative throughout the review process and had now implemented renewed policies and procedures.

Games Account Network Plc

The Commission found multiple failings with Games Account Network Plc (“GAN”)’s compliance with the LCCP. Specifically, these breaches related to:

  • Licence Conditions 12.1.1 and 12.1.2 Prevention of money laundering and terrorist financing – GAN’s risk assessment and AML controls were found to be inadequate. In particular, the Commission found that the risk assessment should have been updated to take account of the Commission’s own risk assessment in June 2019.
  • Social Responsibility Code 3.2.11 – Underage gambling GAN was found to be in breach of the provision requiring operators to ensure they display warnings that underage gambling is an offence.
  • Social Responsibility Code 3.4.1(1) – Customer interaction GAN’s Responsible Gambling Policy contained no specific provision for VIP customers and there were also no arrangements in place for monitoring and identifying certain groups of customers at risk of problem gambling. The Commission also noted that the policies did not refer to relevant Commission guidance and had not been dated or signed by senior management.
  • Social Responsibility Code 5.1.6(1) – Underage gambling One of GAN’s websites was found to contain a number of game tiles containing cartoon imagery.

Specific examples cited by the Commission of GAN’s insufficient AML controls included accepting bank statements submitted by a customer in a different name and inadequate assessment of concerns around the use of cryptocurrency.

Regulatory Settlement:

The settlement reached between the Commission and GAN included:

  • A payment of £100,000, in lieu of a financial penalty, and divestment of £46,754 accrued as a result of the failings to be directed to the National Strategy to Reduce Gambling Harms; and
  • New operating licence conditions being imposed on GAN. These include GAN ensuring persons in certain roles are suitably qualified, that AML training is provided and AML and SR policies, procedures and controls continue to be reviewed.

Aggravating factors were stated to be:

  • The serious nature of the breaches and the repeated nature of these breaches and failures;
  • The need to encourage wider compliance in the industry; and
  • The impact on the licensing objectives.

In mitigation, the Commission said, amongst other things, that the following factors helped to reduce the penalties levied on GAN:

  • A settlement proposal was made at the first opportunity;
  • GAN cooperated throughout the review process and took substantial steps to address the issues identified by the Commission;
  • Source of funds documents were requested from customers, and customers who did not provide these had their accounts suspended; and
  • GAN’s financial position. Given the nature of the failings identified by the Commission and the comparatively low payment made this would appear to be a significant factor.

NetBet Enterprises Limited

The Commission’s regulatory review found failings in NetBet Enterprises Limited’s (“NetBet”) processes on its casino and betting website. Specifically, NetBet were found to have failed to comply with the following provisions of the LCCP:

  • Licence Conditions 12.1.1(3) – Prevention of money laundering and terrorist financing – NetBet accepted that there were shortcomings in its implementation of AML policies, procedures and controls.
  • Social Responsibility Code 3.4.1 – Customer interaction NetBet accepted historic failings in its implementation of its responsible gambling policy.

The Commission found NetBet had failed to conduct appropriate levels of Enhanced Due Diligence on at risk customers. In some instances no EDD was carried out at all. The Commission also commented on NetBet’s failure to critically review Source of Funds documentation upon receipt from customers.

Regulatory Settlement:

The regulatory settlement reached between the Commission and NetBet included a payment of £748,000 to the National Strategy to Reduce Gambling Harms and a payment of £8,806 to the Commission’s costs of the investigation.

The Commission observed, amongst others, the following aggravating factors:

  • The serious nature of the breaches and the fact that they arose in circumstances similar to previous cases which had led to the publication of lessons to be learned;
  • The need to encourage wider compliance in the industry; and
  • NetBet’s delayed compliance following the initial notification of the breaches and initial assessments.

In mitigation, the Commission said it took account of:

  • The extent of NetBet’s steps taken to remedy the breach;
  • NetBet’s early recognition of its failings; and
  • NetBet’s cooperation throughout its dealings with the Commission.

Comment

In the Commission’s statement, Richard Watson, executive director, stated that “Licensees must protect consumers from harm and treat them fairly”. Watson emphasised that where investigations uncover similar failings, the Commission are prepared to use a range of enforcement tools, as in this latest instance, to ensure compliance with the LCCP and to deter future breaches.

In particular, this recent statement highlights the need for operators to take note of and learn from the Commission’s previous investigations and its reasons given for sanctions. Operators should consider the issues outlined, and consider these in light of their own practices, policies and procedures. Watson confirmed, “[The Commission] will continue to crack down on failing operators through its tough and proactive compliance and enforcement work”, sending a clear message to operators that they should be diligent in updating, maintaining and actively enforcing their policies and processes if they want to avoid being faced with similar sanctions.

There was a noticeable difference in the amounts that the Operators had to pay under their respective settlements. This can be attributed to the nature of the breaches, the steps taken by each of the Operators in mitigation and their financial position.

Early recognition of an operator’s own failings, taking steps to remedy these, and a willingness to reach a settlement at the earliest opportunity appear to be important mitigating factors and operators under investigation would be prudent to take these into consideration. GAN’s relatively low payment sum given the serious nature of its breaches indicates that GAN’s financial position was a significant factor for the Commission in determining the level of payment.  

There may still be a further sting in the tail as the Commission has stated that it is also reviewing the actions of the individual Personal Management Licence holders in all three cases.

Article co-authored by Harry Hall.