A review of UK regulatory developments including the UK point of consumption regulatory regime a year on
The Gambling (Licensing and Advertising) Act 2014, which amended the Gambling Act 2005 (“GA05”) came into force November 1, 2014 after a series of delays including an unsuccessful legal challenge by the Gibraltar Betting and Gaming Association (GBGA), on which the High Court handed down an extremely comprehensive judgment, rejecting the claim for judicial review. The GBGA challenged both the new legislation and the Gambling Commission regulatory regime as being a barrier to the free movement of services contrary to Article 56 of the Treaty on the Functioning of the European Union (TFEU).
The court, in applying the principles established by the European Court of Justice in other challenges to the legality of licensing regimes, concluded that the UK government and the commission were entitled to adopt a precautionary approach in requiring all overseas remote operators to obtain an operating license from the commission if they were to continue to offer their gambling facilities to players based in Great Britain. Prior to the implementation of the new legislation overseas remote operators licensed in another European Economic Area (EEA) state, Gibraltar or one of the “white list” jurisdictions (in the main Alderney and the Isle of Man) were entitled to rely on that license in providing their services to British customers. Only 15 percent of the remote gambling sector was licensed by the commission prior to 2014.
Implementation of the Act
Under the transitional arrangements those operators already licensed in an EEA or former “white list” jurisdiction were entitled to apply for “continuation rights,” allowing them to continue to deal with British players pending final determination of their applications. The commission launched an online application process in advance of the application window, based on the Multi-Jurisdictional Business Form, devised by IAGR. Over 170 transitional applications for remote operating licences were submitted to the commission by the required deadline but it did not complete processing all of the full license applications and accompanying documentation until the spring of 2015.
Personal Management License and Personal Declaration forms
Personal Management Licences (PMLs) are required by those responsible for the following specified management offices:
- The person responsible for overall management and direction of the licensee’s business or affairs;
- The head of the finance function;
- The head of the marketing function;
- The person with overall responsibility for gambling-related technology;
- The person with overall responsibility for regulatory compliance.
- The person holding this position is not permitted to hold any other management position without specific approval from the commission.
Those post holders were required to file applications for PMLs along with the application for continuation rights and the final operating licences could not be issued until all PMLs were granted.
Where three or fewer persons occupy the specified management offices they are able to submit a Personal Declaration instead.
New requirements for those applying for PMLs or Personal Declarations were introduced as part of the new licensing regime:
- Key management and/or holders of at least 10 percent equity in an operating license applicant were required to provide a personal credit report produced no more than 6 months before the date of application;
- Holders of at least 10 percent equity in an operating license applicant who would be providing funding from their own personal wealth were required to supply original bank statements for the past three months for the relevant accounts;
- Key management were required to provide evidence of competence, for example by producing CVs;
- All applicants were required to sign a consent to enable the Commission to obtain any information it requires from third parties, including regulatory bodies in other jurisdictions.
- Applicants residing outside the United Kingdom were required to obtain a police report from their local police station, as the Commission are only able to undertake checks on UK residents (including those who live in the Isle of Man).
License Conditions and Codes of Practice (LCCP)
UK Operating Licences are issued subject to a suite of License Conditions and Codes of Practice (LCCP). License conditions are mandatory requirements and the breach of any license condition is a criminal offence. GA05 provides for the imposition of two types of code of practice—social responsibility provisions, which have the force of license conditions, and ordinary code provisions, which set good practice which the commission expects operators to follow. Licensees are only able to adopt alternative approaches where they can demonstrate that to do so would be equally effective in achieving the objective in the code. LCCP is based on the principle that licensees are responsible for delivering the three statutory licensing objectives under GA05. These are:
- keeping gambling free from crime and from being associated with crime;
- ensuring gambling is fair and open;
- protecting children and vulnerable people from being harmed or exploited by gambling.
The commission periodically reviews LCCP and a major review was undertaken in the spring of 2014. As a result, side by side with the new regulatory regime, changes were introduced and implemented in August 2014. These included new requirements for the handling of customer complaints and disputes so that if, at the conclusion of the initial internal investigation of the complaint, a customer remains dissatisfied they are entitled to refer any unresolved gambling dispute to an Alternative Dispute Resolution Entity (ADR). Operators are required to provide this service free of charge.
Remote operators were also required to make arrangements to link all accounts held by a customer to assist with the monitoring of accounts for the identification of problem gambling.
New requirements were also introduced requiring operators to hold all customer funds in a separate account from company funds. Operators are required to identify in their terms and conditions the level of protection of customer funds in the event of insolvency and require the customer to acknowledge the information before being permitted to gamble. Website homepages and every page from which gambling facilities can be accessed are required to state that the operator is licensed and regulated by the commission and to include a link to the license register entry on the commission’s site.
Policy and Procedure Documentation
As part of an application for an operating license applicants are required to produce detailed policy documentation which demonstrates how they will ensure that they operate in a manner consistent with the licensing objectives. LCCP requires licensees to put in place effective policies and procedures for managing risks to the licensing objectives and they must keep their policies reviewed to ensure they are applying the requirements in LCCP. They must also ensure that their policies are reviewed and redrafted, as required, each time the Commission implement changes to LCCP.
Following the implementation of the 2014 Act the Commission consulted on significant changes to the social responsibility provisions to LCCP, which were implemented in May and October 2015. The most important changes for the remote sector were:
- Imposing a mandatory requirement to contribute to organizations which undertake research into the prevention and treatment of gambling–related harm;
- Enhanced requirements for staff to be trained on preventing underage gambling, customer interaction and self-exclusion;
- Enhanced requirements for the identification of at-risk customers and interaction with such customers;
- A new provision requiring operators to share experience and best practice on customer interaction;
- Changes to the minimum self-exclusion period, which initially must be no less than 6 months and no more than 12 months, with the ability for the customer to extend this by one or more 6 month periods;
- An additional requirement to signpost customers to counseling and support services;
- A revised requirement that licensees must have regard to the UK advertising regulator’s guidance on the rules for gambling advertisements in addition to complying with the regulator’s advertising codes of practice. They must also comply with the UK Industry Code of Practice for Socially Responsible Advertising;
- The provision of time-outs for customers who wish to take a break from gambling but not self exclude.
Business Plan, Conduct in other Markets and Information Requirements
Under the 2014 changes all remote license applicants were required to file a comprehensive business plan including details of all jurisdictions from which the license applicant derived 3 percent or more of total revenues. For those with revenues of less than £5 million the commission requires details of the markets from which they derive more than 10 percent of total revenues. Where an applicant held no license in such jurisdictions it was necessary to provide the legal rationale for transacting with end users. Where legal advice has been taken it was necessary to confirm who has provided the advice, although it is not necessary to provide the actual legal opinion. The obligation for licensees to report details of new jurisdictions which exceeds the 3 percent and 10 percent thresholds is an ongoing one. Under ordinary code provision 8.1 licensees are required to work with the commission in an open and cooperative way and inform it of any matters of which the commission would reasonably need to be aware in exercising its regulatory functions.
Licensees are also required to notify the commission of a wide range of specific “Key Events” listed in LCCP within five working days. Licensed operators are also required to submit regulatory returns on a quarterly basis.
The requirement for software suppliers to be licensed
License condition 2.2.1 requiring UK-licensed operators to obtain gambling software only from holders of a Gambling Commission gambling software license came into force on 31 March 2015. A software license authorizes the holder to manufacture, supply, install or adapt gambling software.
The definition of gambling software and its difference from other forms of software is complex and will almost certainly be the subject on ongoing debate. Remote operators have been prevented from using any new software from an unlicensed software provider since March 2015 and this includes the adaption of software supplied prior to that date. It is an offence not to comply with the condition.
Remote Technical Standards and Testing Requirements
License condition 2.3 requires licensees to comply with the commission’s Remote Gambling and Software Standards (RTS). The commission is to launch a consultation on revisions to the RTS in early 2016. Every licensee’s policy documentation must demonstrate its compliance with RTS and again must be reviewed and up-dated to reflect changes that are implemented. There must also be compliance with the commission’s Remote Testing Strategy. Those who secured continuation rights were allowed a period of twelve months (Until 31st October 2015) to test to the commission’s full requirements. The commission has recently joined with the Alderney Gambling Control Commission, the Isle of Man Gambling Supervision Commission and the Danish Gambling Authority to develop a standard testing framework. The commission launched a consultation on a review of its Testing Strategy on December 3, 2015.
Licensees were also required to file an annual security audit with the commission by April 30, 2015 and annually thereafter.
Other Pending Changes
The commission is currently consulting on proposed changes to the crime related provisions of LCCP, which are being reviewed for the first time since the GA05 was implemented. The commission’s enforcement and compliance casework has identified significant failings, particularly in relation to anti money laundering controls, amongst several leading UK based operators. The voluntary settlements in the two most recent investigations into shortcomings at two major operators have been publicized by the commission and it has been made clear that the industry is expected to learn from the mistakes of these operators, which have also been required by their voluntary settlements to surrender significant profits to agreed charitable causes.
Changes to the system of customer funds reporting are being introduced in February 2016.
The largest 75 gambling operators will be required to file an annual assurance statement with the commission commencing in April 2016. These will involve a detailed regulatory compliance assessment and action plan to mitigate any shortcomings identified.
As part of the review of the social responsibility enhancements to LCCP in 2015 the commission has confirmed that it will introduce a mandatory remote self-exclusion scheme, which will require all remote operators to file details of all customers who self exclude with the commission. All UK licensed remote operators will be required to check the database maintained by the commission before signing up a new customer. The commission will be consulting on the detail of the scheme in the first part of 2016.
The sweeping changes introduced in 2014 and 2015, which included not only the new regulatory and compliance regime outlined above but also the 15 percent gross profits tax (currently subject to challenge by the GBGA and which has been referred to the European Court of Justice for a preliminary ruling) have meant that very many operators serving the UK market have been required to implement many expensive and extensive changes to their operating systems. The changes have hit profits and so with ongoing challenges and inevitable consolidation it will be some time before the full effects of the implementation of the new UK regime can be fully assessed.
Contact the Author
My key specialisms are in betting & gaming, liquor licensing and regulatory law. In addition to the licensing of premises I advise clients on the UK’s remote gaming licensing regime and assist them with their applications to the UK Gambling Commission. I assist clients with a variety of regulatory compliance issues and apply my operational experience, gained in-house at the Rank Group, advising on all aspects of gambling regulation, including anti money laundering and social responsibility policies. I am a member of the International Masters of Gaming Law and the Society for the Study of Gambling.
I am renowned in the leisure industry for my specialist knowledge of gaming and betting law. I regularly lecture to an international audience on gaming issues and am a frequent contributor to gaming law periodicals and journals. In addition to being the Past President of International Masters of Gaming Law, I am the author of the UK chapter of the Internet Gaming Report, and a member of the Editorial Board of Gaming Law Review and Economics. My clients span a range of sizes and sectors and include a number of international household names in the leisure industry.