UKGC announces consultation on VIPs, publishes progress on VIP Incentives, Game Design & Ad-tech and announces creation of Experts by Experience Group

The Gambling Commission has today (19 June 2020):

  • launched a consultation on proposed changes to its Licence Conditions and Codes of Practice in relation to high-value VIP customers, that will run until 14 August 2020;
  • published its “October 2019: Industry Challenges Progress Update”, following up on the recommendations by VIP incentivisation, game & product design and ad-tech working groups, on which we previously reported here; and
  • announced that it “is working with an interim Experts by Experience Group who will provide advice, evidence and recommendations to the Commission to help inform decision making and raise standards, along with co-creating a permanent Experts by Experience Advisory Group to advise the regulator on a more established basis”.

We report separately below on each of these developments.

The Commission’s website announcement in relation to the VIP customers consultation and Industry Challenges Progress Report reads as follows:

The Gambling Commission is today seeking views on proposed changes to the rules operators must abide by when transacting with high value customers.

The consultation follows collaborative work with the industry following three challenges laid down by the Gambling Commission to make gambling safer and reduce harm across the sector.  The Commission challenged the industry to make faster progress in raising standards in relation to VIP incentives, responsible product and game design, and online advertising.

Today the Commission also publishes a report into the progress made by the industry in those areas and the Commission’s next steps in relation to this work.  The report also features input and challenge from Experts by Experience.

The proposed changes to the Licence Codes and Conditions of Practice (LCCP) are aimed at focusing operators’ attention on making gambling fairer, safer and crime free when transacting with high value customers.


1. Consultation on high-value customers

The consultation is by way of an online survey that is accessible here. It proposes addition of a new paragraph numbered 2 to LCCP Social responsibility code provision 5.1.1 – Rewards and bonuses to read as follows:

 “2. If a licensee makes available incentives or reward schemes for customers designated by the licensee as ‘high value’, ‘VIP’ or equivalent they must be offered in a manner which is consistent with the licensing objectives. Licensees must take into account the Commission’s guidance on high value customer incentives.”

We set out below the Commission’s draft guidance

High Value Customers: Industry Guidance

1. Introduction          

How to use this guidance

1.1       This document provides guidance for licensees in relation to social responsibility code provision (SRCP) 5.1.1 on rewards and bonuses for high value customers (HVCs), also known as ‘VIPs’. It is designed to help licensees assess whether they can provide HVC schemes with the necessary safeguards as set out in SRCP 5.1.1(2), which provides that:

Social responsibility code provision 5.1.1

Rewards and bonuses – SR code

All licences (including ancillary remote licences), except gaming machine technical and gambling software licences

2. If a licensee makes available incentives or reward schemes for customers, designated by the licensee as ‘high value’, ‘VIP’ or equivalent, they must be offered in a manner which is consistent with the licensing objectives. Licensees must take into account the Commission’s guidance on high value customer incentives.

1.2       SRCP 5.1.1(2) places responsibility on licensees to assess the risks of incentivising HVCs. This guidance sets out the minimum expectations that licensees should be meeting to mitigate that risk. Where a licensee cannot meet these minimum expectations, they should not be operating HVC incentive schemes. 

1.3       Licensees are required to apply player protection controls, affordability checks, and due diligence to all customers. This guidance supplements existing requirements related to customer protection, the prevention of crime or fair and open gambling. In particular, it supplements guidance for licensees on how to meet their customer interaction requirements. It does not supersede existing requirements but sets out the minimum standard that must be met to achieve the intended outcomes for HVC schemes. Licensees should seek independent legal advice where further clarity is required.

1.4       To minimise duplication, section 3 of this guidance is used to signpost licensees to relevant material, most notably the customer interaction guidance, which covers themes such as affordability, vulnerability and evaluation.

1.5       We have used the word ‘must’ to denote a legal obligation, while the word ‘should’ is a recommendation of good practice, and is the standard that we expect licensees to adopt and evidence. We expect licensees to be able to explain the reasons for any departures from that standard.

Scope of this guidance

1.6       There is no single definition of what constitutes a HVC. The categorisation and management of HVCs is determined by a licensee’s business model and is relative to their overall customer base.

1.7       This guidance covers those customers identified as being of enough commercial value to warrant enhanced customer service unavailable to the wider customer base. Such treatment may include but is not restricted to:

  1. Invitation to hospitality, events, dinners, or other enhanced services
  2. Personal account management/dedicated point of contact with the licensee[1]
  3. Individualised bonuses, benefits, or gifts.

1.8       Whilst this guidance does not provide a single specific definition of HVCs, we would expect a licensee to be able to provide a clear explanation of how HVCs are defined in their business and how this guidance has been applied.

1.9       This guidance may be amended periodically to take account of emerging good practice or regulatory changes. Minor amendments will be consulted on informally, for example, through industry trade bodies, with more substantive changes subject to public consultation. 

[1] See point 35 for further information on changes to personal circumstances

2. High Value Customer Reward Programmes

Know your customer – assessing and mitigating risk

2.1       The management and incentivisation of HVCs poses two headline regulatory challenges:

  1. HVCs are more heavily engaged gamblers by spend, frequency or both. Heavily engaged gamblers are at greater risk of gambling related harm.
  2. The disproportionate financial value of HVCs leaves licensees vulnerable to the accusation they are placing commercial objectives over regulatory compliance.

2.2       Licensees should be taking steps to ensure all customers are gambling with money they can afford to lose (lawfully acquired disposable income) and without experiencing harm. For the general customer base, this assessment requires a risk-based approach often with the use of thresholds or triggers to alert licensees to the need for additional customer checks.

2.3       HVCs pose a heightened risk due to their high levels of engagement by frequency, spend, or both. For a licensee to accept and incentivise a HVC’s custom they need to demonstrate how they have assessed and mitigated that heightened risk at the outset of the customer relationship and on an ongoing basis.

2.4       As a minimum, we would expect a licensee to be able to evidence that the following checks are undertaken before making any customer a HVC:

  1. Affordability – to establish that spending is affordable and sustainable as part of the customer’s leisure spend
  2. Safer gambling – to assess whether there is evidence of gambling related harm, or heightened risk linked to vulnerability
  3. Enhanced due diligence – to ensure the licensee has up to date evidence relating to identity, occupation and source of funds.

2.5       It is important that customer checks are undertaken in a thorough and objective manner. There should be appropriate separation between those with responsibility for customer checks, and those managing the day-to-day relationships and incentivisation of HVCs.

2.6       In verifying a prospective HVC’s affordability, licensees should be cautious when considering funds derived from an unplanned financial windfall from gambling or other sources, such as redundancy or inheritance. It is important that licensees can demonstrate that they have considered the sustainability of a customer’s leisure spend, not just their access to immediate funding.

2.7       Statistics which estimate the numbers of problem and ‘moderate risk’ gamblers are published regularly, based on the combined health surveys in England, Scotland and Wales (NatCen 2018).In assessing the risk of gambling related harm, we expect licensees to take account of available research including the latest data on demographic groups who over-index for at-risk or problem gambling rates, for example, 18-34 year old males

2.8       Subject to their assessment of risk, licensees should consider whether additional specific controls should be applied to a HVC’s activity, either in consultation with the customer or imposed on a precautionary basis. This is to mitigate the risk to the consumer; failure to do so would put the operating and personal licence at risk. Such controls can be reviewed as appropriate provided decisions are documented and subject to sign-off by a senior executive or equivalent in accordance with the licensee’s governance arrangements.

2.9       Where a safer gambling check uncovers evidence a customer has previously been part of a multi-operator self-exclusion scheme, they should not be considered eligible for HVC status.

2.10       At a minimum, licensees should consider the following types of vulnerability, as set out in the customer interaction guidance, as part of any safer gambling assessment criteria:

  1. Personal – would include where an individual is experiencing poor physical or mental health, physical or cognitive impairment, suffering side effects from injury, medication or addiction.
  2. Situational – would include where an individual is experiencing financial difficulties, is suffering from domestic or financial abuse, has caring responsibilities, experiences a life change or sudden change in circumstances.
  3. Behavioural – would include where an individual has a higher than standard level of trust or high appetite for risk.

2.11     We expect licensees to take all reasonable steps to verify the information provided to them and conduct ongoing checks. The frequency of such checks should be determined by the assessment of risk from ongoing monitoring of the customer’s activity, behaviour and circumstances. In the absence of any change in the risk assessment, licensees should as a minimum undertake a review of a HVC’s account at least quarterly. 

2.12     Where a HVC fails any of the above checks, their HVC status should be suspended immediately until the licensee has addressed the risk identified in line with the relevant regulatory or legal requirements. This could include undertaking a customer interaction, seeking additional assurance, applying limits on the customer’s account, submitting a suspicious activity report (SAR), or discontinuing the customer relationship.

2.13     Where a customer is unable or unwilling to provide the information required, they should not be considered eligible for HVC incentives and licensees should consider the regulatory risk posed by continuing the customer relationship.

2.14     HVCs provide disproportionate revenue to licensees when compared with the wider customer base. This presents a risk of commercial motivations conflicting with regulatory compliance.

2.15     To mitigate this risk, it is important for licensees to have implemented effective policies and procedures for the operation and governance of their HVC schemes. This should include authority levels for key decision making, and appropriate oversight arrangements. No customer contact should be conducted outside the licensee’s policies, procedures or systems.

2.16     Each rewards programme should have a named individual, at senior executive level or equivalent, accountable for the programme’s compliance. For all licensees (except small-scale operators), we would expect this individual to be a personal management licence holder. Board or Executive committees should be responsible for overseeing appropriate governance arrangements for HVC schemes and keeping these under review.

2.17     A full audit trail should be maintained detailing the management of individual HVCs, including:

  1.     notable events with HVCs at all stages of the customer relationship to monitor changes in behavioural and transactional activity. This should include instances where the licensee has attempted to make contact with the customer but received no response and;
  2.     a record of decisions made and all customer contacts irrespective of channel, with details kept in line with the licensee’s data retention policy.

2.18      Any review of a HVC’s activity should include all accounts the individual has with the licensee or related group licensees irrespective of brand and sector.[2]

[2] Remote licensees are subject to existing requirements in relation to SRCP 3.9.1 Identification of individual customers

2.19     Audit or assurance functions should be used where appropriate to ensure objective assessments can be made of whether HVC schemes are operating in accordance with the licensing objectives.

2.20     Licensees should consider what additional steps are required to ensure staff are equipped and motivated to manage HVCs effectively, including:

  1. enhanced training on safer gambling and AML risks specific to HVC management. Training should be formally recorded and refreshed regularly, and staff should be appraised on their safer gambling actions.
  2. job descriptions reflecting that protection of the licensing objectives are the basis for all activity carried out by staff involved with HVC rewards programmes.
  3. staff should not be incentivised or remunerated based on a customer’s loss, spend, or activity.
  4. the performance management of HVC staff should be consistent with the principle that commercial pressures should never override regulatory considerations or customer welfare.
  5. ensuring staff managing multiple accounts retain their ability to assess risk on an individual basis.

2.21     Customer contact should be conducted in a professional and transparent manner and where possible, colleagues that look after specific HVCs should be rotated to ensure objectivity in decision making is maintained.   

2.22     All licensees are required to interact with HVCs in a way which minimises the risk of customers experiencing harms associated with gambling, as set out in SRCP 3.4.1 (on customer interaction) of the licence conditions and codes of practice (LCCP).

2.23     Having collected verified information regarding the HVCs affordability, licensees are well placed to target interactions more effectively where a customer’s gambling activity is inconsistent with the information held.

2.24     Licensees must ensure arrangements between HVC teams and other teams (e.g. safer gambling and AML) are working collaboratively to allow for objective decision making and review, based on all available information.

2.25     Licensees should consider the risk of HVCs taking longer to access support through concern that may lead to the removal of their HVC status and rewards. To further protect HVCs, licensees should:

  1. provide regular and enhanced information on gambling management tools
  2. offer HVCs an active choice whether to set account limits
  3. make safer gambling resources available to HVCs at any appropriate point of contact
  4. promptly comply with HVC’s requests to be removed from reward programmes and stop any personalised incentives immediately
  5. regularly review the HVC’s suitability for incentives
  6. take action to restrict or terminate personalised incentives if the HVC’s spend or play exceeds their usual habits with no supporting explanation.

2.26     HVC incentives should not be used to exploit vulnerable customers or to encourage problematic behaviour. Licensees must be able to evidence how their rewards and bonuses are compliant with the provisions in section 5.1 of the codes of practice.

2.27     We expect the accountable executive or equivalent to be able to demonstrate how they have assured themselves that:

  1. Incentivisation methods do not encourage risk behaviours such as chasing losses, excessive time or money spent gambling, or accelerating frequency of gambling.
  2. The timing of incentives is not linked to periods of excessive play or significant losses. 
  3. Information held on individual HVC’s habits and preferences is being used to inform responsible incentivisation which is only conducted alongside appropriate consumer protections.
  4. Incentives are proportionate to a customer’s spending pattern and consistent with the licensee’s affordability and vulnerability assessment
  5. Tiered or structured incentive schemes are not promoted to HVCs in a manner which results in individuals gambling excessively to obtain (or retain) a grade or status of HVC which is unsustainable.

2.28     Life events or changes to an individual customer’s circumstances may mean that a person becomes more vulnerable to experiencing gambling harms. These changes may include bereavement, loss of income or financial windfall, or a breakdown of personal relationships. Further guidance on the factors that operators should consider are included in our customer interaction guidance.

2.29     Given the personal service extended to HVCs, staff may become aware of risks associated with temporary or longstanding vulnerability. Licensees must ensure the actions and behaviour of staff does not exploit such vulnerabilities – either through the provision or characterisation of incentives, or by engaging in contact which goes beyond a professional level to become one of friend or confidant. In addition, the licensee should have processes in place outlining what action should be taken upon identifying specific vulnerabilities.

2.30     Licensees are responsible for the actions of affiliates with whom they contract for any provision of their HVC acquisition or management. They must ensure contractual provisions are in place to terminate agreements where appropriate.

3. Further Guidance

As outlined above, this guidance specifically concerns the provision of incentives to HVCs. In addition to this, all customers, including those considered to be high-value customers, are subject to the wider requirements of the LCCP for consumer protection. In particular, the following guidance is relevant:

Customer interaction

Further information on the how to meet the requirements for proactive interaction can be found on our website.

Identity verification

Further information on age and identity verification requirements can be found on our website.

Anti-money laundering

Guidance on how to comply with anti-money laundering responsibilities can be found on our website.

Online markers of harm research

Further research on online markers of harm can be found on the GambleAware website.

As indicated above, the consultation closes on 14 August 2020. You can download below, in PDF format, both:

  • the consultation and
  • the draft guidance.

One aspect that might merit careful consideration is the intended inclusion within the proposed VIP customers guidance (at paragraph 1.3 above) of the following wording, namely: “licensees are required to apply …. affordability checks …. to all customers” (i.e. not merely high-value customers), adding that “licensees should be taking steps to ensure that all customers are gambling with money they can afford to lose (lawfully acquired disposable income) and without experiencing harm”.

This would represent a marked further development in relation to customer affordability checks, bearing in mind that:

  • since 31 October 2019, as reported by us here, UK licensed operators have been required by LCCP Social Responsibility Code provision 3.4.1(2) to take into account the Gambling Commission’s customer interaction guidance for remote and non-remote (i.e. premises based) operators in relation to the use of open source data to assess affordability for their GB customer base with the aim of (a) improving their risk assessments for such interactions and (b) better enabling early interventions to help those experiencing, or at risk of, gambling-related harm; and
  • since 12 May 2020, when the Commission’s additional formal customer interaction guidance for remote operators was announced, operators should “conduct affordability assessments for individuals picked up by existing or new thresholds and triggers which indicate consumers experiencing harm”.

2. The “Industry Challenges Progress Update”

The Commission’s “October 2019: Industry Challenges Progress Update” (that you can also download below) originates from a speech delivered on 2 October 2019 by Gambling Commission CEO, Neil McArthur to those attending a CEO Breakfast Briefing in London, in which he identified opportunities/challenges for the industry in the following respects:

  1. an effective Industry Code for Game Design that will set out:
    • the techniques that the industry plans to use when designing apps, online games and gaming machine products
    • the risk associated with each product and how they can be mitigated
    • a clear explanation of what is not acceptable.
  2. development of a code of conduct on inducements to gamble offered to VIP consumers
  3. industry collaboration to develop a plan that sets out new standards for how industry will embrace ad-tech for social responsibility purposes, actively targeting ads away from vulnerable audiences.

The Progress Update published today follows up on publication by the Gambling Commission of its response to recommendations made by three industry working groups on which we previously reported here.

Introducing the Update, the Commission states:

This update clarifies our approach to date and how we aim to take this work forward. We want to reiterate that this is the first step in the process and by no means the end of the conversation on any of these challenges. As a result of this initial work, we will now conduct a formal consultation to provide further opportunity for the widest input.

In relation to each of the three “industry challenges”:

  1. We have referred above to the VIP Incentivisation consultation launched today.
  2. The Commission states in relation to game design that it “will use the commitments made as the basis for an LCCP consultation before the end of June 2020” but makes the point that it considers them to have “fallen significantly short” in a number of areas detailed within the Progress Update document; arising from this, the Commission outlines factors that will form the subject-matter of the forthcoming consultation’s proposals (including mandatory loss limits and messaging around wins/losses and stake/time played increases).
  3. In relation to the use of online ad-tech for social responsibility purposes – i.e. using it to actively target away from vulnerable audiences – the Commission is satisfied with the approach taken to date and welcomes the fact that ad-tech commitments will be codified via an updated version of the Gambling Industry Code for Socially Responsible Advertising that will come into effect in July 2020.

The Commission’s Progress Update should be regarded as essential reading material by all UKGC remote licence-holders (both B2C and B2B).


3. Creation of Experts by Experience Interim Group

The Commission has previously given notice of its intention to form such a group. Today’s announcement reads as follows:

The Gambling Commission has today announced that it is working with an interim Experts by Experience Group who will provide advice, evidence and recommendations to the Commission to help inform decision making and raise standards, along with co-creating a permanent Experts by Experience Advisory Group to advise the regulator on a more established basis.

The creation of the interim forum follows a workshop in March, in which people with lived experience were asked to offer perspectives on key topics including High Value Customers,  Advertising Technology and Safe Game design – three areas the regulator had challenged the industry to make progress on quickly. Today the Commission also publishes a report on these areas of work which includes Expert by Experience input on progress made so far.

The group also discussed ideas about how the Commission could better work with people with lived experience and the need for more effective engagement and collaboration to benefit consumers, working together to prevent harm and make gambling safer.

Gambling Commission Chief Executive, Neil McArthur, said:

“Our goal is to make gambling safer for consumers and the creation of the interim group is another important step in helping us bring a wider range of perspectives into our work. We will work with the interim group to co-create a formal Advisory Board, which will allow us to involve Experts by Experience more closely in the development of our regulatory framework. I am really grateful for the open and constructive way in which members of the interim group have shared their personal experiences of gambling related harm and for everyone’s commitment to work together to tackle these important issues.  It is early days and we are learning along the way to ensure that feedback and advice is utilised in the most effective way.  This week we looked at the subject of affordability and we’ll be focused on other areas of player protection online in the weeks ahead.”

A spokesperson for the Interim Group said:

“The Interim Group comprises a group of people who have suffered a wide range of gambling harms, including recovering gambling addicts, family and partners of addicts, and those who have lost children to gambling suicides. The role that is too often allocated to Experts by Experience (EbEs) of telling our stories and commenting on narrowly defined questions is ineffective, so the establishment of the group is long overdue. We are determined that EbEs should play a continuing and much more active role in the deliberations and decision making across the whole remit of the Commission as part of the National Strategy to reduce gambling harms. We bring a new and vital perspective on key issues of regulation and even how the Commission itself works. We and they are learning how we can best work together, but we feel that there is a genuine commitment all round to make it work. Some of our comments were incorporated into the progress update on the industry-led working groups, but in future we may issue our own comments on issues that we have consulted with the Commission. We appreciate that the Commission recognises the value of our input, but we differ on certain key issues. Notably on how far and how fast improvements can be made. We look forward to working with the Commission.”

The interim group will be in place for at least the next six months, when the Commission plans to move to a permanent Advisory Group, which will add to other advice that the regulator receives through groups such as the Advisory Board for Safer Gambling and the Digital Advisory Panel.

This valuable input will add to the Commission’s other approaches currently used to include the views of consumers in their work. This includes information and feedback received from the consumer contact centre, online consumer research panels and engagement and consultations on regulatory changes.


UPDATE:

As reported by us here, on 30 September 2020, the Gambling Commission published:

On the same date, the following addition will be made to existing LCCP Social Responsibility Code provision 5.1.1:

2.  If a licensee makes available incentives or reward schemes for customers, designated by the licensee as ‘high value’, ‘VIP’ or equivalent, they must be offered in a manner which is consistent with the licensing objectives. Licensees must take into account the Commission’s guidance on high value customer incentives.

Download article PDF: GC - HVC consultation
Download article PDF: Draft HVC guidance June 2020