The big clean – UK gambling’s AML issues

Britain's gambling industry is being rapped on the knuckles by the Gambling Commission over its anti-money laundering and social responsibility processes and failings. Operators will have to overhaul their AML policies to ensure compliance, writes Scott Longley.  

The latest missive from the Gambling Commission, issued on 5 May and detailing the anti-money laundering (AML) measures that will come into force later this year, offered further proof of the tightening of the UK’s regulatory ratchet.

The document came just over a week after the Commission publicly hauled Coral (both the online and UK high street operation) over the coals for historic failures in its AML and social responsibility procedures related to the lack of sufficient checks applied to a customer who, as it transpired in court, had funded a long-term gambling spree by stealing £800,000 from a vulnerable adult.

The details of the case are embarrassing enough for the company – Coral took the word of what turned out to be an electrician living in a modest semi-detached as to the source of his wealth and placed undue faith in its fleeting contacts with the man and his family at corporate hospitality events – but the implications of the findings go way beyond this specific instance.

As the Commission warned with due emphasis: “The gambling industry should be on notice that the issues identified in this statement are likely to form the basis for future… compliance activity.”

The evidence is building that the UK Gambling Commission not only has teeth, but is demonstrating a greater willingness to bear them.

In its introductory comments to the new AML requirements, the Birmingham-based body is explicit in suggesting operators need to apply the same “intellect, expertise, technology and data” that it brings to promoting its marketing and product to likewise preventing crime and demonstrating social responsibility.

As the document states: “We challenge operators to show how they use data gained through a variety of channels and products to give insight into consumer behaviours and effectively manage risk.”

There can be no doubting that the Commission’s more recent interventions are having an effect. William Hill’s profit warning in March may have attracted a degree of skepticism from the analysts when it cited self-exclusion trends as the reason for lion’s share of the predicted profit shortfall of circa £25m, and we certainly need to be careful before assuming any read across the rest of the sector.

But the anecdotal evidence confirms that the self-exclusion measures introduced within the last year, including the simplification of the self-exclusion process online and new reality checks, have indeed had a dampening effect on revenues within the online sector.

Now the new AML requirements are already being predicted to provide further brake on revenues. Writing in a blog in late April which commented on the recent share price falls affecting Paddy Power Betfair, Mark Davies (ex-Betfair) suggested the bout of investor queasiness might be attributed to comments from Sky Bet chief executive Richard Flint at a recent investor breakfast, where he was reported as saying that a trial of the new AML measures resulted in an immediate 5% fall in revenues.

Playing catch-up
The regulatory settlement in the Gala Coral case – and the other high-profile judgements in the last 12 months including findings against Paddy Power, Rank and Caesars Entertainment (UK) – makes it plain that AML breaches should now be considered one of the biggest potential threats to any gambling business.

Writing ahead of the publication of the latest AML guidelines, Dan Tench, partner at Olswang, made the point that it was obvious from what the Commission said about the Gala Coral case that it was now “taking the connected areas of AML and social responsibility extremely seriously”.

“Many operators may be somewhat behind the curve on AML and social responsibility compliance,” Tench added. “Indeed, there is a clear sense here – following on from the Commission’s censure of Rank, Caesars Entertainment and Paddy Power – of sending a message to the industry. Accordingly, all operators would be prudent to ensure that their AML and social responsibility procedures and policies are up to scratch.”

David Clifton, partner at legal consultancy Clifton Davies, concurs that the fourth Anti-Money Laundering Directive (4AMLD) – due for full introduction in 2017 and encompassing large parts of the gambling sector for the first time – is already casting a long shadow over the gambling industry.

“That (directive) will necessarily increase the regulatory burden on them and we know from the various public statements over the last year what pain that can bring with it,” he says.

The Commission’s own comments confirm the sentiment. The document makes the point that it considers that both its own regulatory tools and the industry’s controls “could be stronger in this area”.

Hence, it is moving ahead of the full introduction of 4AMLD to institute its own measures that will “require licensees to assess and manage the risks of their business being used for money laundering and terrorist financing”. The Commission added that it was satisfied the measures it is implementing “will not be at odds” with any upcoming 4AMLD requirements.

Martin Pashley, chief commercial officer at data screening provider W2 Global Data, says the new requirements demonstrate that complying with AML rules is not just a simple matter of ticking a box.

“The measures we can already see proves that systems need to be in place that provide constant surveillance,” he says. “We think it’s interesting, for instance, that the Commission says in this communication that in its opinion licensees ‘often’ don’t make sufficient enquiries about their customers or their source of funds.”

The Commission makes it clear, indeed, that with the new AML rules it expects more from its operators and that it is up to licence holders to determine the money laundering risks to its business and as part of that, whether there are specific customers or types of customers that pose a greater threat.

In other words, the burden very much sits on the shoulders of the operators, says Pashley. “It shows that operators really cannot afford not to take all this seriously,” he adds.

Clifton sums up the risk. Asked whether he believed operators were paying due attention to the AML issues, he said he thought the evidence suggested the answer was in the negative. This despite, as he says, the fact that “it is also clear that this area of regulation has also become much more of a focus for the GC than it was formerly”.

He concludes: “I think the Commission is losing patience with operators for not learning lessons from the mistakes of others.”