UKGC threatens to ban HVC/VIP schemes if new High Value Customers guidance is not followed

The Gambling Commission has today (30 September 2020) published:

each of which you can download below. In the case of the HVC Industry Guidance downloadable below, we have marked in yellow changes made to the final version by comparison with the draft such guidance published with the consultation in June 2020.

The principal such changes are:

  • the addition of the words “at appropriate stages of the customer relationship, or in response to specific concerns” in paragraph 1.3, qualifying what had previously seemed to be an intended introduction by the Gambling Commission of an absolute requirement to conduct affordability checks on all customers;
  • withdrawal of the Commission’s previous position that all those who had previously self-excluded via a multi-operator self-exclusion scheme should not be considered eligible for HVC status (see paragraphs 2.9 & 2.18); and
  • recognition by the Commission that licence-holders cannot be held to account in circumstances where a customer withholds knowledge that the licence-holder could not reasonably have obtained prior to making a commercial decision regarding that customer (see paragraph 2.30).

In other respects, the changes introduced appear to provide clarification rather than introduce any more burdensome obligations than were contained within the original draft guidance.

The following addition will accordingly be made to existing LCCP Social Responsibility Code provision 5.1.1 – applicable to all licences (including ancillary remote licences), except gaming machine technical and gambling software licences – and will come into effect on 31 October 2020:

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.

In its consultation response document, the Commission makes it clear that “should a business be found to have misapplied the guidance, or use HVC schemes to exploit vulnerable consumers, they will be subject to regulatory action. This may include, but not be limited to, restrictions placed on individual licences that will prohibit the offering of HVC schemes”.

Announcing publication of the guidance, the Gambling Commission has also flagged up:

  • a forthcoming consultation on customer interaction, that it says will: “include the assessment of affordability, identifying vulnerability and how to take early preventive and reactive action when there are risk indicators”, and
  • publication shortly of its response to its safer online game design consultation.

Its announcement states as follows:

Gambling Commission new rules to stamp out irresponsible ‘VIP customer’ practices

The Gambling Commission has announced strict new guidance for operators in order to clean up the malpractice of so-called VIP schemes – stating that if the guidance is followed there should be no irresponsible incentivisation of high value customers in the future.

As part the Commission’s work to strengthen consumer protection, the regulator has made addressing these schemes a priority after seeing repeated instances of failure to protect high value customers.

The Commission identified VIP schemes as an area for change and challenged the industry to clean up its act earlier this year, pushing them to work together to address the issue through an industry code of conduct.

Following an extensive consultation, all operators will now need to follow new guidance on these schemes – which see ‘high value’ consumers provided with tailored bonuses, gifts, hospitality and preferential service from an operator designed to maintain or increase their custom.

Before any operator makes a customer a VIP, from 31 October it must:

  • Establish that spending is affordable and sustainable as part of the customer’s leisure spend
  • Assess whether there is evidence of gambling related harm, or heightened risk linked to vulnerability
  • Ensure the licensee has up to date evidence relating to identity, occupation and source of funds, and;
  • Continue to verify the information provided to them and conduct ongoing gambling harm checks on each individual to spot any signs of harm.

The new guidance also means operators will appoint a senior executive who holds a personal management licence (PMLs) to oversee their respective scheme – making individuals personally accountable.

Neil McArthur, Gambling Commission chief executive, said:

“We have introduced these new rules to stamp out malpractice in the management of ‘VIP’ customers and to make gambling safer. Our enforcement work has identified too many cases of misconduct in the management of VIP schemes and this is the last chance for operators to show they can operate such schemes appropriately.

We understand that the number of customers signed up to ‘VIP’ schemes has already reduced by 70% since we challenged the industry to get its house in order, last year. Whilst that is a sign of the positive impact our innovative approach to collaborative working can have, these new rules are designed to ensure progress continues to be made to protect vulnerable customers.

Operators can be in no doubt about our expectations. If significant improvements are not made, we will have no choice but to take further action and ban such schemes. These new rules are part of the Commission’s comprehensive programme of tougher enforcement and compliance activity which has also seen the introduction strengthened protections around online age and ID verification, improved customer interaction practices, and the banning of gambling on credit cards.”

In the coming weeks, the Commission will be launching a consultation on customer interaction which will include the assessment of affordability, identifying vulnerability and how to take early preventive and reactive action when there are risk indicators. It will also shortly respond to a consultation on safer online game design.

We anticipate that some operators licensed by the Gambling Commission may consider the one month implementation period to ensure compliance with the HVC Industry Guidance to be unduly short. The Commission disagrees, stating in its consultation response document:

As HVCs are a subset of the wider customer base, licensees should already be applying regulatory controls concerning customer protection, due diligence, and the prevention of criminal proceeds being used to fund gambling. The need to introduce additional specific guidance around HVC schemes is due to a failure on the part of licensees to collectively raise standards despite the Commission highlighting common failings in this area. The Commission signalled its clear intent to see rapid improvements in how HVC schemes are operated in October 2019. A large proportion of the industry has already committed to apply the voluntary code announced by industry representatives in May 2020. For those licensees, this guidance represents additional adjustments in a few targeted areas.

Those licensees who have chosen not to apply the voluntary undertakings or applied controls of their own, will now need to make the necessary adjustments to apply the new guidance at pace or suspend their HVC schemes until such time as they can demonstrate the guidance has been applied.

The “voluntary code” to which reference is made above is to the Betting & Gaming Council’s “Gambling Industry Code of Conduct – High Value Customer VIP Reward Programmes”, in relation to which the Gambling Commission comments in its consultation response (by reference to its ‘Industry Challenges Progress Update’ in June 2020, on which we previously reported here):

Earlier this year, the Betting and Gaming Council published a new industry code, which included a number of actions and related guidance specific to HVCs. We proposed formalising elements of that code to ensure these minimum requirements are enforceable across the whole industry.

Although the Gambling Commission’s HVC Industry Guidance will take precedence over the BGC’s voluntary code, the latter contains a number of ‘good practice’ measures that all UK licensed operators would be well advised to adopt if they have not already done so.

Bearing in mind the short period of time before the Commission’s HVC Industry Guidance comes into effect, all affected operators will be well advised to start work immediately on:

  1. preparing their own definition of an HVC, taking into account their own business model and overall customer base;
  2. conducting an assessment of the heightened risks associated with accepting and incentivising the custom of HVCs and how to mitigate that risk, both at the outset of the customer relationship and on an ongoing basis;
  3. conducting an assessment of the risk associated with each individual HVC, as a minimum taking into account affordability, vulnerability/safer gambling and enhanced due diligence factors, that will also serve to determine the frequency of checks required;
  4. drafting and planning implementation of effective policies and procedures for the operation and governance of their HVC schemes, including:
    • authority levels for key decision-making,
    • a named PML holder at senior executive level or equivalent, accountable for the HVC programme’s compliance,
    • oversight of appropriate governance arrangements for HVC schemes (including keeping such schemes under review) by the operating company’s Board or an Executive Committee,
    • maintenance of full audit trails of each HVC relationship to (a) monitor changes in behavioural and transactional activity and (b) record decisions made and all customer contacts, and
    • use of audit or assurance functions to ensure objective assessments can be made whether an HVC scheme is operating in accordance with the licensing objectives under the Gambling Act 2005;
  5. enhanced staff training on safer gambling and AML risks specific to HVC management (including in relation to escalation of concerns relating to HVCs);
  6. ensuring arrangements are in place whereby HVC teams will work collaboratively with other teams (e.g. safer gambling and AML) to allow for objective decision-making and reviews, based on all available information;
  7. reviewing job descriptions of all persons involved with HVC schemes, taking into account the Commission’s guidance that (a) protection of the licensing objectives is the basis for all activity conducted by such persons, (b) staff should not be incentivised or remunerated based on a customer’s loss, spend or activity and (c) where possible, staff who look after specific HVCs should be rotated to ensure that objectivity in decision-making is maintained;
  8. reviewing arrangements with affiliates with whom they contract for any provision of their HVC acquisition or management.

If any operator requires assistance in any or all of the above respects, please contact us. We will be pleased to help.

UPDATE: The BGC has put a positive gloss on the above news, publishing the following reaction on its website:

Standards body BGC welcomes tough new Gambling Commission rules on VIP schemes

Standards body the Betting and Gaming Council has welcomed new Gambling Commission guidelines on the use of ‘VIP schemes’ by operators.

The move follows the publication by the BGC of a new code of conduct which has seen the number of people enrolled in the schemes fall by 70 per cent.

Under the new arrangements, which come into force on 31 October, customers must be subjected to rigorous checks before being signed up, and their betting behaviour must be closely monitored going forward.

The programmes themselves must be overseen by senior managers and run in a fully transparent way.

Michael Dugher, chief executive of the Betting and Gaming Council, said:

“The BGC, working with the Gambling Commission, has taken tough action on VIP accounts, including the introduction of a strict new code of conduct which has seen the number of players enrolled in them reduced by 70 per cent. The code restricts anyone aged under 25 from taking part, while any customer considered for a VIP reward programme must first pass rigorous safer gambling checks and be subject to ongoing checks on their betting behaviour. Reward programmes must be overseen by senior management and conducted in a clear and transparent way to prevent any betting-related harm. Operators are also banned from incentivising customers based on losses. This is further evidence of our commitment to driving up standards within our industry.”