The GB Gambling Commission's enforcement strategy changes and implications for industry

News / / The GB Gambling Commission's enforcement strategy changes and implications for industry

Old regimeThe UK licensed gambling industry has probably had it too good for too long and never even realised The Commission's revised enforcement regime was implemented in July 2017, as part of the Commission's well publicised drive to raise standards and put the interests of consumers first In its consultation on the proposednbsp amendments to its enforcement strategy the Commission made it clear that it wished to remove the bias in favour of voluntary settlements rather than undertaking formal licence reviewsUnder the Commission's previous enforcement strategy voluntary settlements had become the standard approach, with the formal licence review process only being initiated in the most extreme cases In the consultation paper 1 the Commission stated that experience shows that whilst settlements are an effective way of improving compliance,nbspin practice, the process of arriving at these has been too drawn out Voluntary settlements required the operator to surrender the profits made from noncompliance and agree to the publication of a public statement setting out the detail of the failings and the Commission's findings The Commission concluded that the settlements had insufficient deterrent value, as they only removed the operator's commercial gain from the compliance failings, together with payment of the Commission's costs of the investigationThis absence of a big deterrent' had become apparent in the string of voluntary settlements arising from anti-moneynbsplaundering (AML') and social responsibility failings There have been nine of these since 2013 with many of the major gambling operators falling short of the expected standards for AML and Social Responsibility controls and procedures The detailed failings and findings were published together with warnings that all other operators must learn from the mistakes of others however, the same failings and mistakes were made by other operatorsCoral Racing, Bet365, Rank, Paddy Power, Silverbond and Betfred were all found to have insufficientnbspinternal AML reporting and escalation systems in place across their multiple outlets, products and platforms, and in several cases the operators had failed to detect the customer's criminal spend at an early stage through their social responsibility controlsThere were very few financial penalties levied under the old regime but that is now all set to change in a big way and in fact is already evident with the recent enforcement action taken against BGO Entertainment Limited2 and EU 2Lotto Limited 3 under the new regimeThe changes Changes were brought in on the back of the consultation process, which started in January 2017 and concluded four months later The industry's concerns were raised during that process and focused around the Commission stepping beyond their regulatory remit and creating an unfair bias in favour of an increasingly savvy customer base, who at times abuse bonuses and complaints systems, putting the operator at an unfair disadvantageHowever the Commission, in its response document 4, confirmed thatnbspit saw this new approach as a way to redress the balance of power and give consumers a voice and protection whilst at the same time acting in a fair and balanced way The Commission issued a revised Statement of Principles for Licensing and Regulation 5 and a new Licensing Compliance and Enforcement Policy Statement 6 in June 2017Major change number one the presumption of settlements has now goneThere is now no bias in favour of voluntary settlement (now referred to as a regulatory settlement) but instead all forms of regulatory enforcement are put on an equal footing, where following a licence (operator and or personal management) review, the following may be the outcomeUnder S116 (1) (2) of the 2005 Gambling Act (Act)Take no further actionAdvice on how licensee should conduct themselvesUnder S117 of the Act toGive licensees a warningAdd, remove or amend a condition to the licenceSuspend a licenceRevoke a licenceImpose a financial penaltyWhere any one or more of the S117 measures may be imposedThere is no real change in the review procedure itself, which can run in parallel with or instead of a regulatory settlement A regulatory settlement usually needs to be instigated by the operator or personal management holder at any stage in a licence review but will most likely be encouraged by the Commission if it feels that this is the more appropriate route to take The GC will not defer to a regulatory settlement if the breach is so serious as to warrant criminal or regulatory enforcementThe first step in the licence review process is for the Commission to issue a written notice to the licensee setting out the details of the breach and inviting it to a preliminary meeting Following a fact finding process and thisnbsp preliminary meeting, the Commission will issue a preliminary findings letter, which will include its preliminary assessmentIt is at this stage where the decision to go down the regulatory settlement route may crystallise There have to date been two cases where the principles of the new enforcement strategy have been applied, namely the BGO and Lottoland casesIn the case of BGO the regulatory settlement route was not followed, and one can surmise that this was due tonbsp repeated failings by BGO to abide by the warnings given by the Commission, dating back to June 2015, to address BGO's failure to comply with marketing and advertising Social Responsibility Code 517 and Social Responsibility Code 112 (responsibility for third parties), together with BGO's inaccurate statements to the Commission that it had achieved compliance when in fact the opposite was trueThe case of Lottoland also stemmed from breach of the same two Social Responsibility Codes but Lottoland had in the past following warnings from the Commission and made changes to make their advertising more transparent, and in this instance was cooperative and agreed with the seriousness of the failure to comply with the Commission's Social Responsibility requirements This led to a regulatory settlement route being followed rather than a financial penalty and a formal warning under S117 of the Act as in the BGO case Following the preliminary findings letter the licensee has about 28 days to make representations (written or oral) to the Commission After that the Commission will make a final decision in those cases where a financial penalty is to be imposed The licensee is offered thenbspoption to appeal to the Commission's Regulatory Panel for final determinationThe Commission has the power, under S28 of the Act, to instigate a criminal investigation where it is suspected that an offence under the Gambling Act has been committed Such instances may be a personal management licensee cheating under S42 of the Act, the provision of illegal gambling facilities or providing false or misleading information to the Commission or a Licensing Authority under S342 of the Act Finally operators or any individuals employed by them who are complicit in money laundering offences will be taken down the criminal routeMajor change number two higher financial penaltiesThe Commission will impose higher financial penalties for breaches, especially where these are systemic and persistent Out of the 11 drafting changes consulted on, eight relate to financial penaltiesThe Commission has purposively not provided a formula for the calculation of penalties or discounts to ensure its own complete discretion and to prevent licensees calculating in advance their prospective penalties to factor that into their decision makingFinancial penalties will consist of two parts, with the first taking account of the detriment suffered by consumersnbspandor removal of any financial gain and the second a penal element linked to the seriousness of the breachThe increase in the level of the financialnbsppenalty will be linked to the penal element only The Commission's discretion in this respect will depend on a total of 17 factors as set out in Paragraph 28 of their Statement of Principles for determining Financial Penalties 7 However out f those, therenbspare six Key Considerations, where two are linked to repeated failings by the licensee itself or by other licensees as publicised by the Commission Therefore it is essential that licensees not only heed warnings issued by the Commission, as for example in the BGO case, but also monitor the Commission's publications and advice, in order to analyse and learn from the failings of other operatorsThis may explain the difference between the BGO fine of 300,000 versus Lottoland's fine of 150,000 for the same Social Responsibility Code breachesMajor change number three discountsDiscounts will only be applied to the penal element of a financial penalty, and the earlier that disclosure of all material facts and admissions are made during the investigation the more credit will be given to the licensee This will then be applied against the financial penalty or payment in lieu of this if a regulatory settlement is madeIn the case of BGO there were multiple instances of marketing and advertising breaches, whereas in the Lottoland case there was only one customer complaint and one instance of non-compliant affiliate marketing Therefore the detriment to the consumer and financial gain to BGO would have been much greater than in the case of Lottoland Coupled with the lack of cooperation and repeated failings by BGO the penal element will have increased the overall financial penalty, making a discount unlikely The mere fact that Lottoland offered the regulatory settlement route should have entitled them to a discountThe implicationsThe warnings are clear learn from your own or others' past mistakes or suffer the consequences Licensees will need to be proactive and continually review published findings by not only the Commission but also other relevant bodies such as the Advertising Standards Authority (ASA') and Competition and Markets Authority (CMA')First early target consumer protectionOn 23 June 2017 the CMA and the Commision issued a joint update 8 on the CMA's investigation into the gambling industry's unfair consumer practices Several operators are under investigation for breach of consumer protection law and will as a result face enforcement action by both the CMA and the Commission The CMA's civil enforcement powers centre around the use of court orders to compel defendants to take remedial action However any company officer responsible for the failure may also be required to meet the costs of the CMA's court applicationsThe CMA investigation started in October 2016, and, following the June 2017 update the next one will be in December 2017 There will no doubt be enforcement action initiated by the Commission, which is likely to be publicised in the second half of this year and will focus on such anti-consumer practices asNon transparency around sign up bonusesRestrictions on the ability to withdraw, such as preventing the withdrawal of relatively small amounts at any one time overly extensive timeframes excessive wagering requirements or requirements to produce unnecessary documentationPotentially unfair rules that restrict certain play strategies, on which operators rely to deny customers a pay out when they come to claim their winningsRequirements for players to take part in publicity or advertising activity for an operator before the player can withdraw their winningsUnfair dormant fund charges with the ability to cut the total player balance after just token attempts at trying to contact the player, regardless of the size of the balanceSecond early target money launderingAs mentioned above there have been nine cases of publicised AML failures In the Key Considerations Paragraph 16 of its financial penalty document, the Commission has made clear that it will have particular regard toWhether the breach arose in circumstances that were similar to previous cases the Commissionnbsphas dealt with which resulted in the publication of lessons to be learnt by the wider industryIn June 2017 at a remote sector industry workshop the Commission announced that it would be conducting a thematic AML review and reminded the industry of Licence Condition 12, introduced in October 2016 and which requires all operators to conduct an AML Risk Assessment of its business on at least an annual basis If as a result of this thematic review (where a sample set of operators will be reviewed in terms of AML Risk Assessment and corresponding AML Policies), there is seen to be a significant lack of compliance in this area, then this will no doubt be a second target area for enforcement actionThe Commission will itself be assessed by the Financial Action Task Force (FATF') as the supervisory authority for the gambling industry in 2018, and so will need to demonstrate that it is adequately enforcing AML compliance in the gambling industryThird early target group revenue reportingLicensees will need to report actual revenues across their group of companies from April 2018 under a proposed change to Licence Condition 1522 The Commission's intention is to stop grey market revenues giving an unfairnbspadvantage in the British market and to address ongoing suitability issues Given the great reluctance of some gambling companies to potentially incriminate themselves in disclosing wider group revenues, licensees may renege on this obligation, thereby breaching the Licence Condition and exposing themselves to regulatory or even criminal enforcement actionConclusionThe implications of this new enforcement strategy remain to be seen but given the early BGO and Lottoland cases, we will no doubt see a higher volume and greater level of regulatory enforcement It will be up to licensees to decide if they capitulate by means of regulatory settlement or fight through the appeal processThough the signs do not look good, as Lottoland can testify, with a single complaint (with minimal damage done)nbsp and full cooperation with the Commission investigation still leading to a 150,000 payment and the embarrassment of a public admissionhttpwwwgamblingcommissiongovukPDFconsultationsChanges-to-our-enforcement-strategy-consultationpdfhttpwwwgamblingcommissiongovukPDFBGO-decision-noticepdfhttpwwwgamblingcommissiongovukPDFLottoland-public-statement-June-2017pdfhttpwwwgamblingcommissiongovukPDFEnforcementstrategy-consultation-responses-June-2017pdfhttpwwwgamblingcommissiongovukPDFStatementof-principles-for-licensing-and-regulationpdfhttpwwwgamblingcommissiongovukPDFLicensingcompliance-and-enforcement-policy-statementpdfhttpwwwgamblingcommissiongovukPDFstatement-ofprinciples-for-determining-financial-penaltiespdfhttpwwwgamblingcommissiongovuknews-action-and-statisticsnews2017Gambling-operators-face-landmark-enforcementaction-over-unfair-practices-and-promotionsaspxRead the article on Online Gambling Lawyer here
Andrew Tait

Andrew Tait Consultant Solicitor

Andrew Cotton

Andrew Cotton Director of Betting and Gaming

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