Considerably higher UKGC fees on the near horizon

Proposals for very considerably increased Gambling Commission fees – particularly for the remote gambling sector – are contained in a DCMS consultation published today (29 January 2021) and running until 25 March 2021 (although, within the DCMS consultation document reference is made to 26 March 2021 as the deadline) , that you can download below.

This follows serious concerns about funding of the Gambling Commission’s work expressed:

  1. by the National Audit Office in February 2020,
  2. by the House of Commons Public Accounts Committee in June 2020 and
  3. by the House of Lords Select Committee on the Social and Economic Impact of the Gambling Industry in July 2020.

In justification for its proposals, the Commission has identified the following challenges (described by it as “most pronounced in the online and digital gambling market but … by no means unique to them”):

  1. “Increased technological developments including product and payment innovation”,
  2. “Changes in the size and shape of the market partially caused by consolidation, meaning operators it regulates are increasingly global operators” and
  3. “Increasing risks associated with unlicensed operators and the need to protect consumers and the industry from ‘black market’ encroachment”.

Challenge numbered 3 above will cause surprise to many, given the comment in a very recent (15 January 2021) letter from Neil McArthur (Chief Executive of the Commission) to Carolyn Harris MP (Chair of the Gambling-Related Harm All Party Parliamentary Group), on the nature, scale, and disruption of illegal gambling in the UK – previously reported by us here – in which he has stated:

We know that licensed operators and their trade bodies are concerned about the impact of the illegal market, but our own evidence suggests that the impact may be being exaggerated.

Now, just a fortnight later, DCMS is reporting the Commission to have said that “its understanding of the exact scale of this issue needs to be improved”.

Within its consultation, DCMS indicates that the Commission has recommended that, to ensure that it covers its costs:

  • with effect from October 2021:
    • each annual fee band for remote operating licences (other than lottery and gaming machine technical licences) and for gambling software licences should be increased by 55%,
    • all remote licence application fees (i.e. applications for new licences, variation of existing licences and changes of corporate control) should be increased by 60%, and
    • the discounts on annual fees available for both remote and non-remote licensees who hold licences for multiple types of gambling activity will be removed;
  • with effect from April 2022 rather than October 2021 (reflecting the fact that the non-remote sector has been impacted very significantly by the nationwide restrictions introduced in response to the Covid-19 outbreak), each annual fee band for non-remote licences, other than gambling software, should be increased by 15%.

Arising from the above and other changes set out within the consultation, the Gambling Commission estimates that if its proposals are implemented:

  • there will be:
    • increases in operating licence annual fees between 15% and 21% for most non-remote licensees who remain in the same fee band (and for most licensees that hold both a non-remote and remote gaming machine technical, society lottery or external lottery manager licence)
    • increases in operating licence annual fees between 55% and 72% for all other (i.e. nearly all) remote licensees and all gambling software licensees;
  • remote licensees, particularly small and medium-sized licensees for whom the flat RNG fee represents a higher proportion of their total fee, will see the largest increases in percentage terms (because the Commission’s regulatory costs for the remote sector are significantly higher than the level of fees currently paid by many types of remote business); and
  • the total annual fees payable by the gambling industry will be 0.22% of the industry GGY (excluding the National Lottery).

The Executive Summary to the consultation reads as follows:

Executive Summary

1.1. This consultation, which is based on recommendations from the Gambling Commission to Government, seeks views on proposals for changes to Gambling Commission fees. It proposes an uplift to enable the Commission to continue to recover its costs and respond to new challenges.

1.2. Changes will be brought into force by secondary legislation. Our intention is to introduce the proposed annual fee increases for remote licences and all application fee increases on 1 October 2021. We also plan to make other changes to simplify the fees system, including removing annual fee discounts for combined and multiple licences, at the same time. However, to reflect the particular difficulties caused to the land-based sector over the past year by the Covid-19 pandemic, we plan to leave the main fees payable by existing non-remote operators (annual licence fees) unchanged for 2021/22, implementing this uplift in April 2022.

1.3. The Commission is experiencing new challenges in regulation which are expected to grow in significance in coming years:

  • Increased technological developments including product and payment innovation.
  • Changes in the size and shape of the market partially caused by consolidation, meaning the operators it regulates are increasingly global operators.
  • Increasing risks associated with unlicensed operators and the need to protect consumers and the industry from ‘black market’ encroachment.

1.4. It has been adapting and up skilling its staff to keep pace with the changing landscape and plans to go further in future. The table below summarises the main elements of its proposed responses to the challenges outlined above.

Key elements of the proposed response to Challenge 1:

  • More specialist technical staff, including a Chief Product Officer (CPO), to understand and translate the impact of technological changes, and staff with technical and investigative expertise.
  • Investing in tools to improve its approach to compliance.
  • Developing its approach to making better use of the wealth of data available.

Key elements of the proposed response to Challenge 2:

  • More staff whose focus is on driving the international regulatory agenda, and working with international regulatory partners and agencies.
  • More specialist staff to interrogate and understand complex corporate structures.
  • Increased legal capacity to defend positions.

Key elements of the proposed response to Challenge 3:

  • More staff to proactively and systematically identify the scale of illegal gambling.
  • More resources to robustly tackle illegal gambling, including increased legal capacity for prosecutions.

1.5. The proposed responses to these key challenges are not fixed and will need to evolve over time. The estimated additional investment that is proposed is based on the Commission’s current knowledge and represents its best estimate of the additional costs it will incur in the short to medium term, to further address the key challenges it is facing. As the Commission recruits staff with more specialist technical knowledge, they will help to develop the Commission’s longer-term plans and strategic ambitions.

1.6. Alongside its fee income the Commission has been drawing on its reserves in recent years, as planned in the last review of fees. Both the level of reserves and the extent to which they have been drawn on have been higher than anticipated at that time. The reserves will not be sufficient to make this a continuing option for future years. The effects of Covid-19 are also expected to impact its income in 2021/22 as well as in 2020/21.

1.7. The Commission has taken action in 2020-21 which is expected to result in significant efficiency savings in 2021-22, primarily through a programme of restructuring. It has also identified opportunities to make further efficiencies through continuing with that programme and through smarter working and modernisation of processes. However, to regulate effectively going forward, its fees income will also have to be increased.

1.8. The Government has announced a review of the Gambling Act 2005, with a Call for Evidence published on 8 December 2020. This will include looking at the Commission’s powers and resources. While that may lead to further changes to the fees system in future, the proposals in this consultation are aimed at ensuring the Gambling Commission is able to meet ongoing challenges while the Review progresses.

Summary of proposed changes to annual fees for operating licences

1.9. The Commission aims to allocate its forecast costs to the different gambling sectors, individual licence types and fee categories in a way that ensures that fees are cost reflective and fair. The largest increases in annual fees are therefore proposed for remote and gambling software operators, because it is predominantly these types of licensee that are driving the challenges set out above. Each fee band for remote operating licences (other than lottery and gaming machine technical licences) and for gambling software licences will therefore see an annual fee increase of 55% (see Annex 2 for further detail). We propose to increase annual fees for remote operating licences in October 2021.

1.10. The Commission is also proposing increases to non-remote fees to reflect increasing costs of maintaining current activity levels and challenges that are relevant for the non-remote sector, such as product and payment innovation. Each fee band for non-remote licences, other than gambling software, will see an increase of 15%. It is important that the costs of regulation are borne by the industry and that the Commission is funded to respond effectively to the challenges set out here.

1.11. However, the Department and the Commission recognise that the non-remote sector has been impacted very significantly by the nationwide restrictions introduced in response to the Covid-19 outbreak, and a significant number of premises have been closed for large parts of the year. To reflect this, we are proposing to leave annual licence renewal fees for existing non-remote operators unchanged in 2021/22, with uplifts only coming into force in April 2022.

1.12. In addition to this phased implementation, most fee bands are based on gross gambling yield (GGY), which is the difference between money staked and winnings paid out, or equivalent to gross profits. This means that if an operator’s projected income reduces before their next annual fee is due they may apply to the Commission to vary their licence to enter a lower fee band. Their fee would then be based on this updated fee band.

1.13. The Commission proposes to simplify the fee structure by removing the discounts on annual fees available for licensees who hold licences for multiple types of gambling activity (combined or multiple licences). This better reflects the regulatory costs incurred; it would also reduce the costs associated with managing the discount process and allow the Commission to build in more automation. We propose to remove these discounts from the fees structure in October 2021, for both the remote and non-remote sectors.

1.14. Licences which rely on Random Number Generator (RNG) software – i.e. remote casino, bingo and virtual betting licences – pay an additional annual fee for any combination of these three licences, which is currently £2,500 or £5,000 depending on the number of activities licensed. This fee has not been increased since 2009. These additional fees will be doubled, as will the additional annual fees for ‘host’ licences (casino games host, bingo games host and virtual betting host licences). This will better reflect the costs of regulating these types of licensee.

1.15. The Commission proposes to add additional fee categories for society lottery licences, with new higher fee bands for larger societies whose annual proceeds grow in excess of £10m, following the increase in the per calendar year proceeds limit from £10m to £50m. It also proposes additional fee categories and higher fees for the largest external lottery managers, to ensure the full and proportionate recovery of regulatory costs from this sector.

1.16. Overall, the Gambling Commission estimates these changes will lead to increases in operating licence annual fees between 15% and 21% for most non-remote licensees who remain in the same fee band (and for most licensees that hold both a non-remote and remote gaming machine technical, society lottery or external lottery manager licence). There will be increases in operating licence annual fees between 55% and 72% for all other remote licensees and all gambling software licensees. Annual fee increases for remote licences would come into effect from October 2021, but annual fee increases for non-remote licences would come into effect from April 2022.

1.17. Remote licensees, particularly small and medium-sized licensees for whom the flat RNG fee represents a higher proportion of their total fee, will see the largest increases in percentage terms. This is because the Commission’s regulatory costs for the remote sector are significantly higher than the level of fees currently paid by many types of remote business. Remote licensees will also benefit most from increased work to tackle black market encroachment. The Commission estimates that if the proposals are implemented, the total annual fees payable by the gambling industry will be 0.22% of the industry GGY (excluding the National Lottery).

Summary of application fee changes

1.18. The cost of assessing new licence applications has increased over the years, partly because of additional checks being required but also due to the increased complexity of applications. The Commission is therefore proposing to increase all licence application fees by 60%, from October 2021, to ensure that it covers its costs.

1.19. Increases in application fees would apply to all operator applications – new entrants, changes of corporate control, and those seeking to change or vary their licence. The increase in application fees would apply equally across the non-remote and remote sectors.

1.20. For a small non-remote business applying for a new operating licence (eg an adult gaming centre, bingo or general betting (standard) applicant with a projected annual GGY of £250,000), the 60% increase would mean that the new proposed application fee would represent 0.6% of that applicant’s projected GGY. For a small remote casino operator with a projected GGY of £250,000, the proposed application fee would represent 1.7% of its projected GGY.

1.21. New application fees are also being proposed for the new fee categories being proposed for society lottery and external lottery manager licences.

1.22. Personal licence application and maintenance fees remain unchanged under the proposals, as increasing regulatory cost has been balanced by efficiency savings due to improved technology.

The timing of this consultation will raise many eyebrows, not least because – as the DCMS expressly acknowledges within its consultation document – “As part of the Review of the Gambling Act [launched by the Government on 8 December 2020], Government is considering whether there is a case for enabling a more flexible approach to setting fees. In addition, if there are any changes to the Gambling Commission’s powers and responsibilities in future, the implications for fees will also be considered”.

UPDATE: Commenting on its website regarding this consultation, the Gambling Commission has stated:

The Department for Digital, Culture, Media and Sport (DCMS) has launched a consultation into the funding of the Gambling Commission.

The consultation, which will run until 25 March 2021, proposes an uplift to Gambling Commission fees based on proposals from the Gambling Commission to the Government. This is separate to the ongoing Gambling Act Review.

We welcome this DCMS consultation as it will explore much needed changes to our fee income to enable us to continue to regulate effectively.  We would encourage everyone impacted by the proposals to have their say.

We are already making gambling safer – having strengthened age and identity verification, introduced strict new guidance for so-called VIP schemes and banning gambling with credit cards – but further resources will mean we are able to make greater and faster progress in making gambling safer and protecting consumers in the years to come.

The Commission is a relatively small regulator and gambling is a fast-moving industry which must be regulated effectively.

Read consultation and have your say.