Shape up or ship out

The Gambling Commission’s revised enforcement strategy might be less than a year old, but its effects can already be seen. With at least five online operators currently in danger of losing their licences, the industry would do well to take its compliance obligations seriously, says Simon Bernholt

The last couple of years have seen a flurry of regulatory activity in the UK-focused remote gambling sector. Some of the biggest names in the industry have entered into regulatory settlements with the Gambling Commission of Great Britain, making payments, sometimes for considerable amounts, as part of the process.

To give some context, the Commission’s revised enforcement strategy came into force on 5 July, 2017. In the four years prior to that revised strategy, there were 12 public statements, which included four licence reviews, 11 regulatory settlements and one decision.

The total mandated divestment (essentially, ‘paying back’ the revenue ‘earned’ from the activities which were the subject of the settlement) was £3.36m, and payments in lieu of financial penalties (made mostly to charities supporting social responsible causes) totalled £794,500.

In the first nine months of the revised strategy there have already been seven public statements, which included three licence reviews, six regulatory settlements and one decision. The total mandated divestment has been £6.56m, with payments in lieu of financial penalties totalling £11.49m. Every one of the seven operators has made a payment in lieu of a financial penalty, three over £1m each.

The penalty packages since the revised strategy was put in place are, quite clearly, of a much higher order. They also, in some instances, have no clear relation to the divested amounts, although each case is different so it’s hard to discern a pattern, especially with discounts for early reporting and engagement.

And there is no sign of the enforcement action stopping: the Commission confirmed in January that five operators are currently in licence review, a number that has already grown.

One significant development at the Commission has been the co-working between the compliance and enforcement functions, particularly following the thematic review of the sector undertaken by the Commission (which was introduced to consider how well operators are meeting their current regulatory obligations).

The need to get operators’ attention, and to direct resources into rapid improvement, has led to fast-tracking of compliance issues into the enforcement function. Operators may need to move very quickly to solve compliance issues to have any chance of keeping enforcement away.

Moreover, there are signs that some in the industry are beginning to recognise the issue. At the ‘Keeping Crime out of Gambling’ conference in January, there was reportedly much discussion about how operators may need to take their lead from the financial services industry, particularly when it comes to anti-money laundering (AML) processes and procedures.

Given that some financial services companies reportedly spend up to a quarter of their profits on compliance, this would be a real step-change for gambling industry.

So how should operators adapt to this brave new world? Well, the first step is to understand the importance of compliance to gambling operators. In a regulated business, compliance is as important as product, technology and customer service; it doesn’t matter how good your product is if you lose your licence to make it available to customers.

Secondly, make sure that compliance has real clout within your business. Head of compliance is not a minor position, one of a number of reports to the CFO or to the COO. If compliance is fundamental to a gambling operator’s business (which it should be), the relevant individuals and reporting structures need to reflect that fact.

Thirdly, communication is crucial. In our dealings with the Commission, it regularly cites breakdowns between marketing and compliance teams as a key factor behind regulatory failure.

Compliance personnel need be involved from the very start of a project – whether that project is for products, processes or promotions – and not only brought in to ‘bless’ something at the last minute. “We’ve got this campaign launching tomorrow…” is no longer acceptable.

Fourthly, invest in systems and people. Gambling operators can’t get away with sloppy AML and know your customer (KYC) checks. The gambling sector has the same level of legal responsibilities as the financial services sector, and it should look to have the same level of customer checks. Sufficient resourcing is therefore required.

Lastly, educate your customers. When an individual opens a bank account, he expects to provide lots of personal information to his new bank. The opening of a new player account is not significantly different, and customers should learn to expect the same level of checks should their gambling pattern warrant it.

And if you don’t do the above? Well, expect personal management licences to come under close and sustained scrutiny this year.

If the Commission feels that a company is not taking its compliance obligations seriously, one of the tools at its disposal is to sanction the person in charge of those obligations, even if that person is only nominally responsible. And no PML holder wants to lose his licence due to the compliance failures of his employer.

To conclude with the words of Sarah Harrison, the now former CEO of the Commission, in her keynote speech at the Commission’s ‘Raising Standards Conference’ in November 2017: “We are at a tipping point, and those that do not share this commitment, those who do not deliver for the consumer will find themselves in an uncomfortable position, with their future in this industry increasingly in peril.”

Simon Bernholt is a partner in Wiggin’s Betting and Gaming team. He advises clients on the full range of commercial, IP and domestic and international regulatory issues facing stakeholders in the gambling industry, as well as providing general strategic advice. Prior to joining Wiggin, Simon was Head of Legal at a leading gambling software and services supplier.