Betting and Gaming horizon scanning: UK regulatory roadmap: Summer 2021 edition

The Department for Digital, Culture, Media & Sport (DCMS) has announced an uplift to fees to enable the Commission to continue to recover its costs and address three key regulatory challenges: (i) increased technological developments including product and payment innovation. (ii) changes to the size and shape of the market, particularly consolidation by mergers and acquisitions, and globalisation; and (ii) increasing risks associated with unlicensed operators to protect consumers and the industry from ‘black market’ encroachment.

DCMS consulted on its proposals to:

• increase annual fees for remote operating licences by 55% on 1 October 2021;
• increase all application fees by 60% from 1 October 2021;
• make other changes to simplify the fees system, including removing annual fee discounts for combined and multiple licences, on 1 October 2021; and
• increase annual fees for non-remote operating licences by 15%, with implementation of these increases delayed until 1 April 2022 to give non-remote operators some time to recover from the impact of Covid-19.

Following consideration of industry responses to the consultation, DCMS will be implementing all proposals as planned.  In addition, two further amendments will be made to current secondary legislation:

• no variation fee will be charged where an individual requests a variation to a licence because inaccurate personal data is held by the Commission – this is to ensure the Commission's fee structure is consistent with data subject rights under UK-GDPR; and
• the fee for a single machine permit will increase from £25 to £40 - this fee category was unintentionally omitted from the initial consultation.

The Commission states that it plans to use the additional revenue to ensure it has the right skills and expertise to develop and implement solutions to the current challenges facing the industry, and intends to focus the investment for each challenge particularly on the recruitment of specialist staff.

This will include the recruitment of staff with tech expertise; staff that can interrogate, analyse and understand complex business structures and financial arrangements (which the Commission perceive to be necessary for annual fee-funded compliance and enforcement work); staff with legal expertise; and more general capability and resource so the regulator can "shift to a more proactive stance on preventing illegal gambling".

These developments suggest an ongoing focus on regulatory enforcement activity over the coming years, as the Commission increases its capacity to carry out such work. 

The interim Responsible Gambling measures introduced by the Commission at the beginning of the first Covid-19 lockdown remain in place until further notice.

The Commission has also continued to monitor the impact of lockdown and the easing of lockdown on gambling behaviours.

In its analysis of the most recent online gambling data for April 2021, the Commission attributes a 3% growth in online gambling GGY (to just over £560m) to a mix of structural growth (increase in active player numbers – with an increase in recreational players expected during the Grand National) and an increase in operator margins for real event betting. This is a continuing trend from the month ended 31 March – where a 4% growth in online gambling GGY was attributed by the Commission to increases in actives and recreational play during the Cheltenham festival.

After a significant increase during the previous month (by 15% to what was a new peak of nearly £203m), online slots GGY stayed relatively stable at £202m. The number of spins and active players (also both up significantly last month by 12% to 6.2bn spins and 10% to nearly 3.3m active players – new highs for the sector) both decreased 1%, to 6bn and 3.2m respectively.

Meanwhile, the most recent consumer research data assesses gambling participation in the quarter to 31 March 2021 and compares this against the previous data.  The Commission notes that whilst the number of people gambling overall has declined, the data indicates that that amongst those that have gambled, the number who indicated their activity had increased was greater than in the previous quarter, and the number who stated that their activity had reduced had declined.   The data relating to anticipated gambling spend remained largely unchanged from the previous quarter, but the Commission concluded that overall the research indicated that risks brought about by the last lockdown did increase.

On 28 May 2021, the Commission published a new COVID-19 emerging risks bulletin, highlighting:

• innovations in the cryptoasset market including non-fungible tokens (NFTs);
• the quality of suspicious activity reports (SARs);
• insufficient due diligence measures; and
• the threat of organised crime,

as emerging AML risks for the industry.

Subsequently on 15 June 2021, the Commission referred operators to the National Crime Agency (NCA)'s newly published national strategic assessment of serious and organised crime, which mentions gambling as an example of how illicit finance is spent.

The Commission's focus on cryptoassets such as NFTs in its emerging risks bulletin is unsurprising given its published views on cryptoassets as a payment method for gambling. 

However, operators should take note of the NCA's guidance on submitting SARs which includes a useful checklist of what to include in SARs, and a reminder of the importance of requesting a defence against money laundering or terrorist financing including the necessity for such requests to be specific to the relevant transaction(s) that the operator wishes to conduct (rather than an open ended request such as "handling all business dealings").

Operators should also (i) review the UKFIU's new podcast which discusses how SARs can make a big difference in cutting serious organised crime; and (ii) take note of the updates to the list of high-risk third countries under Schedule 3ZA of the Money Laundering and Terrorist Financing (Amendment) (High Risk Countries) Regulations 2021 and the recent addition of Pakistan to that list (to the extent relevant to their business).

On 2 June 2021 the Crown Prosecution Services published revised guidance regarding the circumstances in which it will pursue prosecutions for breach of section 330, Proceeds of Crime Act 2002 (POCA).

Section 330 POCA provides that an offence is committed if a person employed in the regulated sector (e.g. a casino employee) fails to report knowledge or suspicion of money laundering to a nominated officer or the NCA as soon as practical.

The revised guidance indicates that prosecutions will now be pursued if a relevant person fails to report suspicions of money laundering to the authorities as soon as practical, regardless of whether money laundering has actually taken place.

Prior to the guidance update, the CPS did not charge under section 330 unless there was evidence that money laundering had actually occurred.

The CPS states that their new approach 'means that where individuals in the regulated sector receive information giving rise to a suspicion, or provides reasonable grounds for suspecting, that another is engaged in money laundering, an offence is committed by failing to make a report under section 330, regardless of whether it subsequently transpires that the money laundering cannot be proven, or that it did not occur ... Prosecutors should only pursue standalone s.330 prosecutions in these cases where the offence took place after the date on which this guidance is published, for clarity the effective date is the 2nd of June 2021 – therefore this approach will not be retrospective.'

The Commission has reminded operators of the need to submit a suspicious activity report (SAR) to the UK Financial Intelligence Unit (UKFIU) wherever there is knowledge or suspicion of money laundering (including criminal spend) or terrorist financing, and also that a corresponding SAR key event must be submitted to the Commission.

In the Parliamentary debates which led to POCA being enacted, concerns had been expressed that s.330 was unfair, because individuals would be exposed to prosecution if they were negligent (either because they failed to be sufficiently suspicious, or failed to make a report). The then Attorney General Lord Goldsmith QC stated that these concerns were misplaced, because s.330 required the prosecution to prove that money laundering was in fact planned or undertaken.

The CPS now takes the approach that Lord Goldsmith QC had added an unnecessary gloss (on the basis that there is nothing in s.330 which requires money laundering to have occurred). Operators should therefore note that the CPS intends to prosecute breaches of section 330 on a more strict basis.

On 14 June 2021, the Commission further updated its guidance on regulatory returns (first published on 4 May 2021).

Operators can now see a full list of information required to be submitted in regulatory returns (with associated guidance) for each licence type in one set of guidance. Previously, the Commission published sector-specific guides.

Operators should take note of the new guidance which is designed to make it easier to locate guidance relevant to specific licences.

NB - the revisions to the guidance in June 2021 do not fundamentally change operators' obligations (or the list of information required to be submitted) in the guidance published in May 2021, and are instead intended to make it easier for operators to understand the Commission's requirements.

Whilst Brexit continues to present complex issues for gambling businesses, including the potential impact of the Trade and Co-operation Agreement on tax residency rules and relocation and visa requirements for employees, certainty has now been reached in relation to data transfer flows from the EEA to the UK, with the European Commission confirming that the UK's data protection regime is adequate. This means that transfers of personal data from the EEA to the UK can continue without requiring further measures to be put in place.

EU nationals and their family members had until 30 June 2021 to apply to the EU Settlement Scheme for a right to remain in the UK to ensure that they will be able to continue living or working in the UK.  The Home Office has confirmed that it will continue to accept applications, even though the deadline has passed, provided there is a reasonable explanation as to why the application was submitted late.  Operators should consider reminding their relevant staff that if they have not made applications to the EU Settlement Scheme, then they must do so immediately.  If an Operator becomes aware that a relevant staff member who commenced work for the Operator before 30 June 2021 should have applied to the EU Settlement Scheme but did not, employment does not necessarily need to come to an end immediately even though the relevant staff member is technically an over-stayer in the UK.  However, the Operator must take certain steps to protect itself against a fine for illegal working. 

As highlighted in our Spring 2021 Update, the Commission announced a number of changes to the RTS in its response to its online games design and reverse withdrawals consultation. See our website briefing for more details: Gambling Commission announces strict new measures for online games.

The changes to the RTS introduce new requirements regarding:

• display of transactions – systems will be required to display a customer's net position since the start of the session
• auto-play functionality – will no longer be permitted for slots; a customer must commit to each game cycle individually
• time requirements and reality checks – elapsed time will need to be displayed for the duration of a gaming session
• responsible product design:
  • operators will be prohibited from offering functionality allowing players to play multiple slots at the same time
  • there will have to be a minimum of 2.5 seconds from the time a game is started until the next game cycle can be 30 commenced
  • features such as turbo, quick spin and slam stop (and other features which allow customers to reduce the time until a result is presented) will no longer be permitted
  • the gambling system will not be permitted to celebrate a return which is less than or equal to the total stake gambled
  • reverse withdrawals (prohibited on a temporary basis since  the beginning of the pandemic) will be permanently prohibited form the effective date.

The RTS testing strategy has also been updated to incorporate the new standards.

Operators have until 31 October 2021 to ensure that their systems comply with the new RTS requirements.

In an interim update on the outcome of its Remote Customer Interaction consultation, the Commission has confirmed its view that stronger requirements are needed for operators to identify a range of indicators of harm and take appropriate action more often / at an earlier stage – but there was a noticeable change of emphasis, including an apparent shift in focus away from general "affordability" and more towards "clearly unaffordable gambling" (language also used in a recent speech by the Commission's acting joint CEO here). The Commission also notes concerns expressed about data privacy and freedom of choice. 

Operators will have to wait until the summer for the full response and, in the meantime, the Commission will proceed as planned with a further customer interaction consultation, focussing on what the thresholds for operator action and on what those actions should be.

It had already been confirmed that the Commission would provide the evidence received in response to the consultation, together with its recommendations, to DCMS to be considered as part of the Gambling Act Review (GAR).

The change in tone and emphasis suggests that the Commission's approach on affordability is softening, apparently reflecting an acceptance on their part that they could not themselves have gone as far as the original proposals, especially in light of the ongoing GAR.  We believe a less hard-line approach would be more aligned with DCMS, but the update does suggest that the Commission still plans to introduce some form of "affordability" checks in any event.  

The Commission's is expected to publish its response to the customer interaction consultation and details regarding next steps during Summer 2021.

There is no fixed date for the publication of any supplementary consultation.

On 1 April 2021, the Gambling Commission unveiled its new three-year Corporate Strategy and annual Business Plan.

The Commission's corporate strategy covers the period 2021 to 2024 and highlights the areas in which it intends to focus over the next three years. A short animation video explaining the Commission's corporate strategy has been added to the Commission's YouTube channel.

The Commission's corporate strategy focuses on five priority areas, or strategic objectives, and its business plan for April 2021 to March 2022 sets out the Commission's organisational priorities in relation to each of the objectives.

• Protecting children and vulnerable people from being harmed by gambling: according to the corporate strategy document, this will be achieved through improving conduct and competence, continuing to evolve the LCCP, building a stronger evidence base, and focusing on preventative regulatory action. The business plan confirms that the Commission's organisational priorities include responding to its consultation and call for evidence on customer interaction (see section 1.8). The Commission also plans to undertake a programme of compliance activity including targeted and thematic assessments, website reviews and personal licence reviews. The Sports Betting Intelligence Unit will identify and manage betting integrity threats including providing support to international tournaments taking place in the UK.
• A fairer market and more informed consumers: this objective includes improving information for players and making licence holders' complaints procedures easier to access and understand. The business plan's organisational priorities include exploring how licensees deal with consumers when things go wrong and reviewing the current tiered approach to protection of customer funds.
• Keeping crime out of gambling: while money laundering continues to be a focus, the Commission will also work to manage risks around sports betting integrity and event manipulation. Priorities identified by the business plan include implementation of the Fifth Money Laundering Directive, identifying and managing betting integrity threats including providing support to international tournaments taking place in the UK and assessing and tackling illegal gambling.
• Optimising returns to good causes from the National Lottery: the business plan highlights as a priority managing the key phases of the Fourth National Lottery, including review and feedback, evaluation, preferred application notification, confirmation of award, implementation and commencement.
• Improving gambling regulation: a number of priorities are identified in the business plan and in particular, supporting DCMS in their response to the consultation on proposals for changes to Gambling Commission fees, advising the Secretary of State on the Gambling Act review, continuing to explore a single customer view solution and publishing authoritative statistics.

The strategic objectives and organisational priorities listed in the Commission's corporate strategy and business plan are ambitious in their scale, although the Commission does acknowledge the challenges for the industry in tackling the many issues identified: "we have recognised that we will delivering in an environment where we, the industry and consumers emerge from the impacts of the COVID-19 pandemic."

Given the Commission's indication that it plans to undertake website reviews, we recommend that operators undertake their own pre-emptive website audits to ensure compliance with the LCCP, RTS, the terms of the undertakings given by various operators to the Competition and Markets Authority (CMA), CAP Code and the Gambling Industry Code for Socially Responsible Advertising.

The Commission's commitment to reviewing the tiered approach to protection of customer funds is likely to have been prompted by the BetIndex Limited (t/a Football Index) matter and we predict there will be reform in this area with a view to better protecting customers in the event of operator insolvency.

On 1 April 2021, we published an article titled: UK Gambling Act Review: What happens next Things have moved on since then and it has now been confirmed that the Commission will provide the evidence it receives in response to its customer interaction (and "affordability") consultation, together with its subsequent recommendations, to DCMS to be considered as part of the Gambling Act Review (GAR).

At this stage, there is no clear timeframe for the GAR and any legislative changes that may result from it. No related draft legislation was included in the Queen's Speech (which took place in May 2021). As such, it is unlikely that any new primary legislation will come into force before Q1 2023 at the earliest and we consider it more likely that any new primary legislation would come into effect during 2023-2024.

The impact of these developments is as yet unknown. However, the most likely changes are considered to be those relating to slots limits and restrictions on advertising and sponsorship.

An outright ban on gambling advertising has also been mooted.

It is also possible that some form of licensing or approval regime may be introduced in relation to white label arrangements.

The call for evidence closed on 31 March 2021.

DCMS is aiming to publish a white paper by the end of 2021. We consider it unlikely that the white paper will include draft legislation.

GambleAware commissioned NatCen to review activity on 140,000 active gaming and betting accounts between July 2018 and June 2019 to improve understanding of the online gaming market.

The interim findings show that: (i) a large majority of UK accounts spent relatively low amounts and were used infrequently throughout the year (85% spent less than £200 on betting and 90% of gaming accounts had an overall win or loss of less than £500); (ii) a small proportion of accounts were used extensively and generated substantial losses (0.7% of betting accounts and 1.2% of gaming accounts lost £5k or more over a year) and made up a large proportion of total GGY; and (iii) 5% of accounts with the highest losses generated at least 70% of total GGY in betting, casino and slots verticals. The findings indicate that late night ‘gaming’ is associated with greater spending intensity, particularly for live and virtual casino games.

Researchers also looked at the use of safer gambling tools: around 4% of all players were subject to responsible gambling interactions with the vast majority (84%) of those interactions being made by email. Of the accounts that lost in excess of £2,000 during the year, around a third (36%) were subject to interactions during the year, while 0.84% received a phone call from an operator. Of the safer gambling tools made available, deposit limits were most widely used by account holders. Around a fifth (21.5%) set deposit limits and 2.3% of accounts self-excluded.

It is noteworthy that the data used as the basis for these findings was collected 2-3 years ago (and may therefore pre-date the introduction of the Commission's formal guidance for remote gambling operators on customer interaction and the related changes to social responsibility code provision 3.4.1 of the LCCP). Significant developments have occurred since then but operators may want to consider whether any of the findings should be reflected in their customer interaction policies and procedures.

The second phase of the Patterns of Play research will consider survey data submitted by players in the data set. It is not yet known when this research will be published.