Essential reading material: this year’s annual UKGC Compliance & Enforcement Report

The Gambling Commission has today (6 November 2020) announced the belated publication of its annual Compliance and Enforcement Report. It has made clear that publication of the report has been delayed from its normal date in June due to Covid-19 impacts.

As with previous such reports, this document constitutes essential reading material for all involved in or with the UK gambling industry, featuring – as it does – findings arising from the Commission’s casework against licence holders and containing details of where it believes the industry needs to raise standards.

We set out below the content of this year’s report (with links to, and relevant page numbers of, its constituent parts):

  1. Chief Executive’s message 03
  2. Triggers and customer affordability 05
  3. Customer Interaction and Social Responsibility failings 09
  4. Anti-money laundering and counter terrorist financing 15
  5. Personal Management Licence Reviews 21
  6. Illegal gambling 24
  7. White Label Partnerships 27
  8. Betting Exchanges 31

The stern opening message within the report by Neil McArthur, Chief Executive of the Commission, reads as follows:

Holding an operating licence or a personal licence is a privilege, not a right, and we expect our licensees to protect consumers from harm and treat them fairly.

The aim of our compliance and enforcement work is to raise standards through targeted actions that drive a culture where licensees:

  • Minimise risks to the licensing objectives and reduce gambling related harm
  • Treat consumers fairly and communicate in a clear way that allows them to make properly informed judgments about whether to gamble
  • Work with us in an open and co-operative way
  • Are deterred from acting in a way that does not comply with either the letter or the spirit of the regulatory framework we set.

In the summer of 2017, we made it clear that we would take a tougher approach to enforcement. At the time, some commentators doubted that we were serious about tougher penalties, but as this report shows, where licensees fail to meet the standards we expect, we will take tough action, including the suspension and revocation of licences. We also indicated our focus was shifting towards personal management licence holders. Those in boardrooms and senior positions need to live up to their responsibilities and we will continue to hold people to account for failings they knew, or ought to have known, about.

Regulatory settlements are a way of resolving enforcement cases which we have used to good effect. Frankly, however, there are too many occasions where settlement proposals are made at a late stage of our investigation process or approached as if a licence review is a commercial dispute to be negotiated. That is not acceptable.

Our Statement of Principles for Licensing and Regulation makes it clear that settlements are only suitable where a licensee is open and transparent, makes timely disclosures of the material facts, demonstrates insight into apparent failings and is able to suggest actions that would prevent the need for formal action by the Commission. Only licensees who meet those criteria need make settlement offers; licensees who choose to contest the facts before conceding at a later stage need not make offers of settlement.

In summary, our compliance and enforcement work in the last financial year included:

  • Commencing section 116 reviews on 49 PML holders
  • 5 operating licences suspended
  • 11 operating licences revoked
  • 12 financial penalty packages or regulatory settlements – totalling over £30 million
  • 234 security audits and 33 website reviews
  • 350 compliance assessments of land-based and online operators
  • 630 reports of suspicious betting activity, sports rules breaches and misuse of inside information being managed by our Sports Betting Intelligence Unit
  • Over 3,000 intelligence reports being generated.

Everyone has a part to play to make gambling safer and learning the lessons from the failings identified in this report is one way of doing that.

Particular note should be taken of the Commission’s following comments in the report with regard to affordability, not least because of the major focus on this same issue within the Commission’s recently published “Remote Customer Interaction Consultation and Call for Evidence” (on which we have previously reported here):

Open source data that can help operators assess affordability for GB customers and improve its risk assessment and customer interventions has not notably changed since last year’s enforcement report.

According to the office for National Statistics Annual Survey of Hours and Earnings:

  • Median gross weekly earnings for full-time employees in the UK has increased 6.4% to £585 from £550 (2019 provisional and 2018 revised results and 2017 provisional and 2016 finalised)
  • The occupation group with the highest median weekly earnings for full time employees is still managers, directors and senior officials for which median gross weekly earnings has increased 4.6% to £862 from £824 (2019 provisional and 2018 revised results and 2017 provisional and 2016 finalised).

Based on the above, 50% of the full-time employees in the UK receive less than £30,500 gross earning per year and 50% of the full-time managers, directors and senior officials in the UK receive less than £45,000 gross earnings. These earnings are what is received before expenses such as income tax, national insurance, mortgage/rent payments, telephony contracts, travel costs, food and utilities are paid for. We would expect such expenses to be considered in affordability frameworks so the starting point adequately reflects the true level of available disposable income for that individual.

Open source information is an important element of an affordability framework because it is a parameter to consider when setting benchmark triggers that will drive early engagement with customers. Officials are aware of affordability frameworks being considered by operators, but they are not being implemented at pace despite our guidance and advice.

We are concerned licensees are creating complex and convoluted matrices and mappings within their affordability framework to place customers into trigger groups well over the gross earnings stated above, before disposable income is factored in. Of more concern, these trigger groups are set without any sort of customer interaction to influence their true affordability determination. Operators must interact with customers early on to set adequate, informed affordability triggers to protect customers from gambling related harm. Failure to do so could render the operator non-compliant. Customers wishing to spend more than the national average should be asked to provide information to support a higher affordability trigger such as three months’ payslips, P60s, tax returns or bank statements which will both inform the affordability level the customer may believe appropriate with objective evidence whilst enabling the licensee to have better insight into the source of those funds and whether they are legitimate or not.

We appreciate that operators have established customer bases and these customers will either be in a loss position or a profit position with the operator. For customers in the loss position a sensible approach would be to assign the customers a national average affordability trigger, irrespective of historical deposits and withdrawals, and move these customers to higher affordability triggers once appropriate affordability evidence is received. For customers in a profit position, operators may have adopted a framework which allows triggers to be moved up from the national average without affordability evidence as their winnings are evidence of what these customers can afford. With this type of customer, we would expect an operator to still be considering affordability whilst also monitoring the customers play activities to be satisfied that they are not exhibiting signs of gambling-related harm. This especially applies to large one-off winners such as jackpot winners.

If winning customers are not being asked for affordability evidence but are withdrawing and redepositing funds, we consider checks are required to mitigate any Social Responsibility or Money Laundering risks as customers could be misappropriating funds and re-depositing fresh criminal spend the operator mistakenly believes are previous winnings. Operators need to consider this and obtain evidence when appropriate to satisfy themselves that this is not the case.

Reference above to customers wishing to spend more than the national average should be asked to provide information to support a higher affordability trigger such as three months’ payslips, P60s, tax returns or bank statements which will both inform the affordability level the customer may believe appropriate with objective evidence whilst enabling the licensee to have better insight into the source of those funds and whether they are legitimate or not” (our emphasis in green) does require explanation from the Commission as it appears to be contradicting somewhat the risk-based approach inherent within fundamental AML compliance principles.

Publication of this year’s Compliance and Enforcement report coincides with publication of the Commission’s first ever National Strategic Assessment (on which we have reported separately here, again with a specific focus on the issue of customer affordability). The content of these two separate documents is closely interlinked in other ways too – the latter drawing on data, statistics and evidence obtained from the Commission’s compliance and enforcement work – and we encourage all of our clients, followers and contacts within the gambling industry to study both documents very closely.

Please contact us – [email protected] or [email protected] – if you have any questions arising, including in relation to the issue of affordability checks that, as mentioned above, are the subject of a current Gambling Commission consultation and Call for Evidence (running until 12 January 2021).