Stiff upper lip Andrew Cotton and Tony Coles' article in Global Gaming Business Magazine

News / / Stiff upper lip Andrew Cotton and Tony Coles' article in Global Gaming Business Magazine

The Gambling (Licensing and Advertising) Act 2014, which amended the Gambling Act 2005 (GA05) came into force November 1, 2014 after a series of delays including an unsuccessful legal challenge by the Gibraltar Betting and Gaming Association (GBGA), on which the High Court handed down an extremely comprehensive judgment, rejecting the claim for judicial review The GBGA challenged both the new legislation and the Gambling Commission regulatory regime as being a barrier to the free movement of services contrary to Article 56 of the Treaty on the Functioning of the European Union (TFEU)The court, in applying the principles established by the European Court of Justice in other challenges to the legality of licensing regimes, concluded that the UK government and the commission were entitled to adopt a precautionary approach in requiring all overseas remote operators to obtain an operating license from the commission if they were to continue to offer their gambling facilities to players based in Great Britain Prior to the implementation of the new legislation overseas remote operators licensed in another European Economic Area (EEA) state, Gibraltar or one of the white list jurisdictions (in the main Alderney and the Isle of Man) were entitled to rely on that license in providing their services to British customers Only 15 percent of the remote gambling sector was licensed by the commission prior to 2014Implementation of the ActUnder the transitional arrangements those operators already licensed in an EEA or former white list jurisdiction were entitled to apply for continuation rights, allowing them to continue to deal with British players pending final determination of their applications The commission launched an online application process in advance of the application window, based on the Multi-Jurisdictional Business Form, devised by IAGR Over 170 transitional applications for remote operating licences were submitted to the commission by the required deadline but it did not complete processing all of the full license applications and accompanying documentation until the spring of 2015Personal Management License and Personal Declaration formsPersonal Management Licences (PMLs) are required by those responsible for the following specified management officesThe person responsible for overall management and direction of the licensee's business or affairsThe head of the finance functionThe head of the marketing functionThe person with overall responsibility for gambling-related technologyThe person with overall responsibility for regulatory complianceThe person holding this position is not permitted to hold any other management position without specific approval from the commissionThose post holders were required to file applications for PMLs along with the application for continuation rights and the final operating licences could not be issued until all PMLs were grantedWhere three or fewer persons occupy the specified management offices they are able to submit a Personal Declaration insteadNew requirements for those applying for PMLs or Personal Declarations were introduced as part of the new licensing regimeKey management andor holders of at least 10 percent equity in an operating license applicant were required to provide a personal credit report produced no more than 6 months before the date of applicationHolders of at least 10 percent equity in an operating license applicant who would be providing funding from their own personal wealth were required to supply original bank statements for the past three months for the relevant accountsKey management were required to provide evidence of competence, for example by producing CVsAll applicants were required to sign a consent to enable the Commission to obtain any information it requires from third parties, including regulatory bodies in other jurisdictionsApplicants residing outside the United Kingdom were required to obtain a police report from their local police station, as the Commission are only able to undertake checks on UK residents (including those who live in the Isle of Man)License Conditions and Codes of Practice (LCCPUK Operating Licences are issued subject to a suite of License Conditions and Codes of Practice (LCCP) License conditions are mandatory requirements and the breach of any license condition is a criminal offence GA05 provides for the imposition of two types of code of practicemdashsocial responsibility provisions, which have the force of license conditions, and ordinary code provisions, which set good practice which the commission expects operators to follow Licensees are only able to adopt alternative approaches where they can demonstrate that to do so would be equally effective in achieving the objective in the code LCCP is based on the principle that licensees are responsible for delivering the three statutory licensing objectives under GA05 These arekeeping gambling free from crime and from being associated with crimeensuring gambling is fair and openprotecting children and vulnerable people from being harmed or exploited by gamblingThe commission periodically reviews LCCP and a major review was undertaken in the spring of 2014 As a result, side by side with the new regulatory regime, changes were introduced and implemented in August 2014 These included new requirements for the handling of customer complaints and disputes so that if, at the conclusion of the initial internal investigation of the complaint, a customer remains dissatisfied they are entitled to refer any unresolved gambling dispute to an Alternative Dispute Resolution Entity (ADR) Operators are required to provide this service free of chargeRemote operators were also required to make arrangements to link all accounts held by a customer to assist with the monitoring of accounts for the identification of problem gamblingNew requirements were also introduced requiring operators to hold all customer funds in a separate account from company funds Operators are required to identify in their terms and conditions the level of protection of customer funds in the event of insolvency and require the customer to acknowledge the information before being permitted to gamble Website homepages and every page from which gambling facilities can be accessed are required to state that the operator is licensed and regulated by the commission and to include a link to the license register entry on the commission's sitePolicy and Procedure DocumentationAs part of an application for an operating license applicants are required to produce detailed policy documentation which demonstrates how they will ensure that they operate in a manner consistent with the licensing objectives LCCP requires licensees to put in place effective policies and procedures for managing risks to the licensing objectives and they must keep their policies reviewed to ensure they are applying the requirements in LCCP They must also ensure that their policies are reviewed and redrafted, as required, each time the Commission implement changes to LCCPFollowing the implementation of the 2014 Act the Commission consulted on significant changes to the social responsibility provisions to LCCP, which were implemented in May and October 2015 The most important changes for the remote sector wereImposing a mandatory requirement to contribute to organizations which undertake research into the prevention and treatment of gamblingrelated harmEnhanced requirements for staff to be trained on preventing underage gambling, customer interaction and self-exclusionEnhanced requirements for the identification of at-risk customers and interaction with such customersA new provision requiring operators to share experience and best practice on customer interactionChanges to the minimum self-exclusion period, which initially must be no less than 6 months and no more than 12 months, with the ability for the customer to extend this by one or more 6 month periodsAn additional requirement to signpost customers to counseling and support servicesA revised requirement that licensees must have regard to the UK advertising regulator's guidance on the rules for gambling advertisements in addition to complying with the regulator's advertising codes of practice They must also comply with the UK Industry Code of Practice for Socially Responsible AdvertisingThe provision of time-outs for customers who wish to take a break from gambling but not self excludeBusiness Plan, Conduct in other Markets and Information RequirementsUnder the 2014 changes all remote license applicants were required to file a comprehensive business plan including details of all jurisdictions from which the license applicant derived 3 percent or more of total revenues For those with revenues of less than 5 million the commission requires details of the markets from which they derive more than 10 percent of total revenues Where an applicant held no license in such jurisdictions it was necessary to provide the legal rationale for transacting with end users Where legal advice has been taken it was necessary to confirm who has provided the advice, although it is not necessary to provide the actual legal opinion The obligation for licensees to report details of new jurisdictions which exceeds the 3 percent and 10 percent thresholds is an ongoing one Under ordinary code provision 81 licensees are required to work with the commission in an open and cooperative way and inform it of any matters of which the commission would reasonably need to be aware in exercising its regulatory functionsLicensees are also required to notify the commission of a wide range of specific Key Events listed in LCCP within five working days Licensed operators are also required to submit regulatory returns on a quarterly basisThe requirement for software suppliers to be licensedLicense condition 221 requiring UK-licensed operators to obtain gambling software only from holders of a Gambling Commission gambling software license came into force on 31 March 2015 A software license authorizes the holder to manufacture, supply, install or adapt gambling softwareThe definition of gambling software and its difference from other forms of software is complex and will almost certainly be the subject on ongoing debate Remote operators have been prevented from using any new software from an unlicensed software provider since March 2015 and this includes the adaption of software supplied prior to that date It is an offence not to comply with the conditionRemote Technical Standards and Testing RequirementsLicense condition 23 requires licensees to comply with the commission's Remote Gambling and Software Standards (RTS) The commission is to launch a consultation on revisions to the RTS in early 2016 Every licensee's policy documentation must demonstrate its compliance with RTS and again must be reviewed and up-dated to reflect changes that are implemented There must also be compliance with the commission's Remote Testing Strategy Those who secured continuation rights were allowed a period of twelve months (Until 31st October 2015) to test to the commission's full requirements The commission has recently joined with the Alderney Gambling Control Commission, the Isle of Man Gambling Supervision Commission and the Danish Gambling Authority to develop a standard testing framework The commission launched a consultation on a review of its Testing Strategy on December 3, 2015Licensees were also required to file an annual security audit with the commission by April 30, 2015 and annually thereafterOther Pending ChangesThe commission is currently consulting on proposed changes to the crime related provisions of LCCP, which are being reviewed for the first time since the GA05 was implemented The commission's enforcement and compliance casework has identified significant failings, particularly in relation to anti money laundering controls, amongst several leading UK based operators The voluntary settlements in the two most recent investigations into shortcomings at two major operators have been publicized by the commission and it has been made clear that the industry is expected to learn from the mistakes of these operators, which have also been required by their voluntary settlements to surrender significant profits to agreed charitable causesChanges to the system of customer funds reporting are being introduced in February 2016The largest 75 gambling operators will be required to file an annual assurance statement with the commission commencing in April 2016 These will involve a detailed regulatory compliance assessment and action plan to mitigate any shortcomings identifiedAs part of the review of the social responsibility enhancements to LCCP in 2015 the commission has confirmed that it will introduce a mandatory remote self-exclusion scheme, which will require all remote operators to file details of all customers who self exclude with the commission All UK licensed remote operators will be required to check the database maintained by the commission before signing up a new customer The commission will be consulting on the detail of the scheme in the first part of 2016ConclusionThe sweeping changes introduced in 2014 and 2015, which included not only the new regulatory and compliance regime outlined above but also the 15 percent gross profits tax (currently subject to challenge by the GBGA and which has been referred to the European Court of Justice for a preliminary ruling) have meant that very many operators serving the UK market have been required to implement many expensive and extensive changes to their operating systems The changes have hit profits and so with ongoing challenges and inevitable consolidation it will be some time before the full effects of the implementation of the new UK regime can be fully assessed
Andrew Cotton

Andrew Cotton Director of Betting and Gaming

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