Gambling regulators globally are intensifying their scrutiny of B2B suppliers, focusing on their sources of revenue and partnerships with operators, aggregators and resellers.
In the UK, the Gambling Commission (GC) recently commenced a section 116 review of Evolution's licence after its games were found to be accessible on unlicensed websites targeting British consumers. Internationally, the Swedish Gambling Authority recently issued financial penalties to several suppliers after their games appeared on unlicensed websites and the Michigan Gaming Control Board has started requiring disclosures at the licence application/renewal stage from internet game content providers regarding the supply of their games to unlicensed operators.
GC warning to its licensed suppliers
The GC has come under increasing pressure from licensed operators to do more to tackle the black market; with a recent report commissioned by the Betting & Gaming Council indicating that 1.5 million Brits stake up to £4.3 million on the growing black market each year. The GC has responded to such pressure by (among other things) focusing on the upstream arrangements that unlicensed operators rely upon for their day-to-day operations including, with gambling software and games suppliers, payment providers, and search engines. To demonstrate the extent of its efforts to date, Andrew Rhodes, Chief Executive of the GC, commented during his address to the World Regulatory Briefing (WRB), that since the start of FY24/25, the GC has issued over 770 cease and desist and disruption notices, 102,000 URLs have been referred to Google (with 64,000 of them being removed by the search engine), and 264 websites have been taken down.
The GC also recently issued a warning to licensed suppliers about the risk of their games appearing on unlicensed websites made available to GB consumers. The concern is that such websites may lack the necessary consumer safeguards and anti-money laundering controls mandated by applicable legal and regulatory requirements, which may expose GB consumers to the risk of fraud, data protection issues and unfair practices.
In its warning, the GC also said it is aware of instances where third party resellers and aggregators have distributed games supplied by GC-licensed software suppliers to the illegal market, often in breach of their own contractual obligations. The GC's warning is clear; licensees who may have been negligent in allowing a reseller or aggregator to do so, put their own licence at risk.
Scrutiny by the GC at the application stage
As part of the GC's efforts to ensure that suppliers are vigilant in their assessment of third party relationships, applications by B2B suppliers are now required to be supported by a 'Jurisdiction Explanation Document' which should include details of:
- The criteria used for the applicant to select third party partners, including details of any due diligence processes that are in place.
- A summary of the contractual constraints imposed on third party partners, such as territorial restrictions.
- Details of any technological protections in place to prevent unlicensed activities.
- Statistics on the percentage of revenue derived from operator partners who are uncertain about their players' locations.
As it is a recent requirement for suppliers to provide this supporting information as part of an application, existing GC-licenced software suppliers would be well-advised to take this approach into account, to consider what their own 'Jurisdiction Explanation Document' (or equivalent) would look like, and to identify and implement any improvements to their policies, procedures, technological protections, contractual constraints and ongoing monitoring of their partners' activities.
Risk mitigation
During Andrew Rhodes' address to the WRB, he advised licensees to ensure that, "…they have undertaken due diligence regarding their own activities and those of any suppliers they rely on". The GC's recent warning to licensed suppliers also stated that "[i]t is critical that licensees…actively engage with the Commission where such [illegal] activity is identified, setting out the preventative measures adopted to ensure such activity ceases immediately" and that "[a]ctively notifying the Commission and setting out a clear plan to mitigate the issue at pace is a minimum requirement".
- In light of the above, it is important that licensed suppliers continue to implement suitable mechanisms to mitigate the risk of regulatory enforcement. Practical steps that suppliers should consider taking (if they have not already done so) include:
- Evaluating due diligence processes and onboarding procedures to ensure they elicit pertinent information and are sufficiently robust, taking into account the extent to which the Money Laundering Regulations may apply, and the GC's AML guidance.
- Undertaking an assessment of current contractual terms to ensure they provide the necessary protections to mitigate legal, regulatory, licensing, and reputational risk; for example, ensuring that excluded and restricted territories lists are regularly maintained and communicated effectively to commercial partners.
- Evaluating the effectiveness of existing policies and procedures relating to the ongoing monitoring of commercial partners and their activity, and the exercise of contractual rights in the event that an issue arises.
- Reviewing existing technological tools used to mitigate jurisdictional risk, identifying whether any improvements or additional tools could be implemented and addressing any potential shortcomings in the effectiveness of such mechanisms.
- Ensuring that relevant staff receive adequate training and understand the legal and regulatory obligations of the business and the expectations of regulators.
Concluding remarks
GC-licensed software suppliers will generally be well placed to navigate this heightened regulatory scrutiny. However, there will undoubtedly be value in spending time reviewing existing practices to ensure the risks are appropriately mitigated and that any identifiable improvements are made.
Our specialist Betting and Gaming team is well placed to assist with any queries that you may have.