DCMS proposes licence fee hike to help GC tackle modern challenges

The fee changes were proposed in a consultation from the Department of Culture, Media and Sport (DCMS) that opened today (29 January) and closes on 25 March. The consultation is separate from the Gambling Act review consultation, which is also undertaken by DCMS and will also look into the Gambling Commission.

In its consultation document, DCMS argued that the Commission faced three major challenges. These are increased technological developments, the fact the operators the Commission regulates are typically very large global businesses, and the threat of black market unlicensed operators.

In response to the first challenge, the consultation proposed bringing in more specialist technical staff at the Commission, including a chief product officer and staff with proven technical expertise. In addition, DCMS proposed the Commission invest more in tools to improve compliance and worked on its use of data, to allow the “wealth of data” it collects to be better used.

It proposed that these changes would cost £1.2m when they are fully implemented in 2023/24.

In response to the second challenge, the consultation suggested the Commission should have more staff who would work on “driving the international regulatory agenda” and working with other regulators, as well as more staff to “interrogate and understand” companies with complex corporate structures. DCMS also proposed increased legal capital for the Commission to help in this area. These, it said, would cost £1.0m when implemented.

Finally, in response to the black market, DCMS proposed hiring more staff to identify the scale of the illegal gambling market and giving the Commission more resources to tackle the issue, including increased ability to prosecute unlicensed operators offering services to British customers. This would cost less than the other measures, at £300,000.

DCMS noted, though, that all of these plans will require increased funding for the regulator. This, it said, was especially true as the Commission had already been drawing from its funding reserves, and while use of these reserve funds was planned, it has needed to draw more than it expected and so this will not be a “continuing option” in future years.

The Department added that the Commission was currently set to face a £4.7m funding gap by 2023-24 if it implemented the proposed changes.

While DCMS said the regulator had already taken action to cut costs elsewhere and “identified opportunities to make further efficiencies” going forward, fees from both new and existing operators would nonetheless need to be increased.

This increase would focus on the remote sector and its suppliers, as the changes proposed that require the funding all primarily concern regulating remote gambling. Under the proposal, annual licence renewal fees for remote and software licensees – with the exception of lotteries – would be increased by 55% within every fee band, starting in October 2021. 

Those who offer Random Number Generator (RNG) games, such as online casino and slots – which currently pay an additional fee of either £2,500 or £5,000 depending on the games they offer – will also see this fee doubled.

In addition, the 5% annual fee discount for a combined remote and non-remote operating licence would be removed. This, it said, should help the Commission streamline its regulatory process by not having to manage the discount process.

For the non-remote sector, DCMS proposed a 15% renewal fee increase, to come into effect in April 2022, with the delay planned in order to offer relief to businesses affected by the novel coronavirus (Covid-19) pandemic.

“It is important that the costs of regulation are borne by the industry and that the Commission is funded to respond effectively to the challenges set out here,” the consultation said. “However, the Department and the Commission recognise that the non-remote sector has been impacted very significantly by the nationwide restrictions introduced in response to the Covid-19 outbreak, and a significant number of premises have been closed for large parts of the year. 

“To reflect this, we are proposing to leave annual licence renewal fees for existing non-remote operators unchanged in 2021/22, with uplifts only coming into force in April 2022.”

In addition, the Department pointed out that annual licence fee bands are based on gross gambling yield, and so an operator with a significantly lower gross gambling yield in 2020/21 because of the pandemic should qualify for a lower band, meaning they may not face an increase in fees at all.

Charitable lotteries will not see annual fees increased across the board, but new fee bands will be introduced starting for those with proceeds of at least £10m. These new fee bands will be subject to higher fees.

The Department said that it expects the increase in fees to raise around £7.7m by 2023-24.

Total annual fees after the increase will represent 0.22% of the British gaming industry’s Gross Gambling Yield (GGY) when the National Lottery is excluded. In the year to March 31, 2020, overall GGY excluding the National Lottery came to £6.32bn. This would mean the Commission would receive roughly £13.9m if GGY remains stable.

It added that non-remote operators could see their fees rise by up to 21% and remote operators by up to 72%, with smaller remote operators – for whom the flat RNG fees make up a larger portion of revenue – likely to be the hardest hit, though it noted that these should be significant beneficiaries of black market crackdowns.

All new application fees, meanwhile, will see a 60% increase under the proposal, regardless of licence type.

“For a small non-remote business applying for a new operating licence (eg an adult gaming centre, bingo or general betting applicant with a projected annual GGY of £250,000), the 60% increase would mean that the new proposed application fee would represent 0.6% of that applicant’s projected GGY,” DCMS said. “For a small remote casino operator with a projected GGY of £250,000, the proposed application fee would represent 1.7% of its projected GGY.”

The consultation also broke down the Commission’s operating costs. It said the regulator’s 2020/21 operating budget is £21.4m. Of this total, £9.2m goes to operational costs, £5.1m towards policy, £2.6m on partnerships, £2.4m on licensing and £2.1m on information gathering.

The DCMS is asking stakeholders five questions about these proposed changes, addressing each area of the fee increase. It encouraged stakeholders to be specific and propose alternatives if they disagreed with the Department’s proposals.

The Commission said it supported the changes and believed the extra funds would help it regulate a large and rapidly-changing industry.

“We welcome this DCMS consultation as it will explore much needed changes to our fee income to enable us to continue to regulate effectively,” the Gambling Commission said. “We would encourage everyone impacted by the proposals to have their say.

“We are already making gambling safer – having strengthened age and identity verification, introduced strict new guidance for so-called VIP schemes and banning gambling with credit cards – but further resources will mean we are able to make greater and faster progress in making gambling safer and protecting consumers in the years to come.

“The Commission is a relatively small regulator and gambling is a fast-moving industry which must be regulated effectively.”