Legal Eye: UK Gambling braced for its defining summer test series

Harris Hagan dissects the affairs of a busy opening to May, in which the Gambling Commission published its Summer 2023 Consultation Response providing its timelines to test key proposals of the Gambling Review’s White Paper.

The spotlight glares on the compliance of UK gambling, entering a transformative phase as the Commission seeks to apply comprehensive changes from financial vulnerability assessments to game design, aiming to bolster consumer protection and ensure responsible gaming environments.

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On 1 May 2024, the Gambling Commission published the response to its Summer 2023 Consultation on Proposed Changes to the LCCP and RTS (the “Summer 2023 Consultation Response”), confirming widespread changes to the rules that regulate licensed gambling operators in Great Britain, including in relation to financial vulnerability checks and financial risk assessments; remote games design; direct marketing; age verification and personal management licences.

Meanwhile, the Betting & Gaming Council (BGC) on the same day published a new Industry Voluntary Code on Customer Checks and Documentation Requests Based on Spend (the “Industry Voluntary SR Code”), which will operate as a voluntary interim code on all aspects of social responsibility (“SR”) measures where, notwithstanding any other regulatory requirement, customer spend is the trigger for action.

The purpose is to provide a more consistent approach to SR compliance, specifically customer checks and document requests based on spend until the financial vulnerability checks and the risk assessments described in the Summer 2023 Consultation Response are brought into force. The simultaneous publication is not coincidental as the documents are inextricably linked, as we explain below.

In this update, we outline the changes proposed in the Summer 2023 Consultation Response and discuss these in the context of the announcement of the Industry Voluntary SR Code.  

The Summer 2023 Consultation Response

The Summer 2023 Consultation Response is the second consultation response to be published relating to the reforms outlined in the White Paper (after the Department of Culture Media and Sport published the response to its consultation on stake limits on 23 February 2024 – for further information, please see our blog: White Paper Series: DCMS announces online slots stake limits) – and the first to be published by the Gambling Commission.

The long-awaited response outlines the Gambling Commission’s plans to introduce changes to the rules set out in the Licence Conditions and Codes of Practice (“LCCP”) and Remote Gambling and Software Technical Standards (“RTS”) over the course of the next ten months – with changes coming into force in four stages: August 2024, November 2024, January 2025 and February 2025, to ease implementation.

The key changes are outlined below.

1. Financial vulnerability checks and financial risk assessments

Changes

The Gambling Commission will introduce light-touch financial vulnerability checks, alongside a pilot of enhanced frictionless financial risk assessments. In line with the Government’s aims in the White Paper, the latter will only be rolled out if the pilot proves the checks can be carried out in a frictionless manner.

The light touch financial vulnerability checks will apply to gambling customers with a net deposit of more than £150 a month. The checks will involve the assessment of publicly available data (i.e. whether the customer is subject to a bankruptcy order, a county court judgment, an individual voluntary arrangement, a high court judgment, administration order or decree, or debt relief order – or equivalent). Following feedback from the industry, the new financial vulnerability checks will not require licensees to consider an individual’s personal details, such as postcode or job title.

With regard to enhanced financial risk assessments, the Gambling Commission will (as was previously announced on the regulator’s blog) carry out a pilot to test how frictionless assessments will work in practice, working with credit reference agencies (including Equifax, Experian and TransUnion) and gambling businesses to examine potential consumer impact. Through data collection, the Commission will also explore the exact financial thresholds at which assessments should be conducted – before they are rolled out in a live environment. It will also consider what actions should be taken while an assessment is taking place; and the validity period of an assessment should a customer meet thresholds again.

It is intended that neither the light-touch financial vulnerability checks nor the enhanced financial risk assessments will affect consumer credit ratings.

Timings

To ease introduction of the light-touch financial vulnerability checks (for both customers and licensees), the new requirements will initially come into force at £500 a month from 30 August 2024 before reducing to £150 a month from 28 February 2025.

The pilot (in which only operators in the three highest bands of operating licence fee categories will be required to be involved, i.e., J1, K1 and L1; alongside volunteers in lower fee categories) will last for a minimum of six months and involve testing data sharing in three stages:

1. in relation to customer accounts that are not currently active;
2. in relation to historical data relating to active customers; and
3. on the first occasion a customer meets a threshold within the pilot period.

It is expected that the pilot will take place between 30 August 2024 and 31 March 2025. However, the Gambling Commission can extend the pilot period to the end of April 2025, should this be necessary for practical reasons.  

Relationship with Industry Voluntary SR Code

The publication of the Industry Voluntary SR Code on the same day as the Summer 2023 Consultation Response is no coincidence. It has been developed jointly between BGC members and the Gambling Commission – with the aim of operating as a voluntary interim scheme that will bring consistency across the regulated sector until the frictionless financial risk checks proposed in the Summer 2023 Consultation Response have been developed, tested and implemented.

Specifically, the Industry Voluntary SR Code sets out what actions a BGC member must take when customers wish to make net deposits of:

1. more than £5,000 in a rolling month – in which case the operator must undertake a risk assessment of the customer to understand their financial situation and assess whether the customer is displaying any indicators of harm. It is intended that this will involve one or more of: a safer gambling interaction; a review of the customer’s affordability based on occupation, industry, job title and salary or savings/assets; a review of open-source information; a review of previous information obtained from the customer; and financial insights from third parties. As a result of the risk assessment, appropriate action must be taken when high risk activity is identified, which may include escalating to “a process of enhanced consideration”, which is similar to an enhanced due diligence check – where comfort cannot be obtained.
2. £25,000 in any rolling 12-month period – in which case the operator must promptly undertake “a process of enhanced consideration”.

The £5,000 threshold will be halved to £2,500 for 18- to 24-year-olds.  

When determining whether a customer has met the relevant threshold, their overall net position can be ‘considered’ over the previous 180 days, which effectively means that recycled winnings within that period may be taken into account.

If risk assessments do not take place (for example, because a customer has not responded to a request for an interaction), the customer should be prevented from exceeding the relevant monthly threshold on deposits. If the customer hits the deposit limit in three consecutive months without a risk assessment taking place, the operator must restrict the customer until the risk assessment has been completed.

The Industry Voluntary SR Code also sets out a non-exhaustive list of examples of actions which could be taken by operators between the threshold for financial vulnerability checks (as mandated in the LCCP) and before the need for “enhanced consideration” as required by the Industry Voluntary SR Code, which include one-way notices and messaging, interactive questionnaires, surveys, PGSI surveys, telephone and live chat interactions, requests to set a deposit limit, and sending an activity statement with acknowledgement required – noting that these actions should not require documentation to be provided by the customer and operators shall be free to select the  action that best fits with their current tool kit of interactions and at the threshold optimised  for the customer.

BGC members should also note that it is intended that the Industry Voluntary SR Code will be supplemented by a BGC code on anti-money laundering checks (the “Industry Voluntary AML Code”), to provide the same consistency across the sector in respect of AML measures.  The Gambling Commission and the BGC are actively working on the Industry Voluntary AML Code.

Insight

The stance taken by the Gambling Commission in relation to light-touch financial vulnerability checks and financial risk assessments is fortunately, a far cry from what the industry feared when the Summer 2023 Consultation was first published. The Gambling Commission should thus be credited for genuinely listening to all responses to the Summer 2023 Consultation and adopting a sensible pragmatic approach.

Regarding the light-touch financial vulnerability checks, the Gambling Commission has helpfully reduced the range of flags to be taken into consideration and clarified that it does not consider all flags should result in one type of action – giving the example that a county court judgment for a parking ticket should not be treated the same as a bankruptcy. It will be up to licensees to tailor actions to the nature and severity of all indicators of harm for a particular customer. Affected licensees should therefore take steps now to review their existing responsible gambling policies and procedures to determine how, when and why they should be updated to take into account both the light-touch financial vulnerability checks proposed in the Summer 2023 Consultation Response and, if they choose to adopt it, the Industry Voluntary SR Code.   

Regarding the pilot for enhanced financial risk assessments, this is an undoubtedly a wise step by the regulator. Without a pilot, there was a significant risk of unintended consequences of the new rules, which may have been irreversibly detrimental for the industry. It is further positive that, in introducing the pilot in the Summer 2023 Consultation Response, the Gambling Commission has reiterated that the financial risk assessments should be frictionless for “the vast majority of customers who undergo them”; apply to “only the highest spending remote gambling accounts”; and “would not be a cap on gambling”. If the Gambling Commission can stay true to these aims, this is good for the remote industry, which has long expressed concern that such checks would encourage gamblers to move to the unregulated black market.   One critical aspect of the journey ahead will be interpreting what is meant by “vast majority” in the context of the frictionless nature of enhanced financial risk checks – as we expect the Gambling Commission and the industry may have different views. 

We also welcome the Gambling Commission’s confirmation that the new enhanced financial risk check requirements, once determined, will not apply to betting on a track or at local high street betting shops – presumably following extensive lobbying by the industry.

Any operators that are not in the three highest bands of operating licence fee categories but are interested in participating in the pilot scheme can express their interest by emailing [email protected].

2. Remote games design – reducing intensity and increasing consumer understanding

Changes

New rules will extend requirements that already apply to slots to other online products and will ban:

1. features which speed up the time for a result to be shown or can give the illusion of control such as ‘turbo’ or ‘slam stops’ (but these changes will not apply to bonus features where no additional stake is wagered, or prohibit “crash games” or “scratch all” features);
2. game cycles of less than 5 seconds on casino products excluding slots (note that this is double the 2.5 second requirement that currently applies to slots under the RTS);
3. autoplay – but the ban on autoplay will not prohibit auto-dabbing in bingo or auto-posting of blinds in peer-to-peer poker (NB – three card poker against house would, on the other hand, be caught);
4. audio or visual celebrations of returns less than or equal to stake – extending an existing requirement that currently only applies in relation to slots;
5. operator-led functionality which facilitates playing multiple simultaneous products such as roulette and blackjack tables – this requirement will not apply to bingo, virtual betting and peer-to-peer poker.

Further changes include requiring operators to display to consumers in real time their net spend, and time spent gambling.

Timing

The new remote games design rules come into force on 17 January 2025.

Insight

The Gambling Commission has decided to proceed to introduce all the proposals in the Summer 2023 Consultation relating to game design, with only minor amendments to clarify when the new requirements do not apply to specific products. Please see our previous blog for commentary on the original proposals: White Paper Series: Gambling Commission’s remote game design proposals – simply following suit?

3. Direct marketing

Changes

Online gambling businesses will need to provide customers with options to opt-in to the product type (casino, betting and bingo) they are interested in and the channels (phone, email and text) through which they wish to receive marketing.

Timing

The new direct marketing rules come into force on 17 January 2025. However, customers will only be required to re-confirm their marketing preferences (consistent with the new rules) the first time they log in after the implementation date. Until then, marketing can continue based on the customer’s prior marketing preferences.

Insight

Notably, the Gambling Commission has, following feedback, removed:

1. lottery as a product type (following concerns raised about the lottery sector’s ability to rely on legitimate interests for wider fundraising activities); and
2. post as a channel for marketing (on the basis that this goes further than existing requirements under the Privacy and Electronic Communications Regulations).

It is also positive that licensees will be permitted to rely on previously indicated marketing preferences until the next time a customer logs into their online account – however, we query from a practical perspective how quickly and effectively operators are going to be able to communicate changes in marketing preferences to third parties that undertake marketing on their behalf.

There are, however, still many aspects of the changes which are controversial – particularly in relation to the effective removal of a “soft opt in” for gambling marketing – meaning that the industry now stands alone as the only sector where positive opt-in to marketing is always required. For discussion on the Gambling Commission’s original proposals in relation to direct marketing, please see our blog: White Paper Series: Direct marketing and cross-selling in the crossfire.

4. Age verification – tightening verification in premises

Changes

New rules will require all land-based gambling licensees, including smaller licensees, to carry out age verification test purchasing. The newly affected categories of licensees include those that hold Category A and B betting, bingo, family entertainment centre (“FEC”) and adult gaming centres (“AGC”).

The LCCP will also be updated to confirm that it is best practice for casino, AGC, bingo, FEC and betting operators to require staff to check the age of any customer who appears to be under 25 years of age (rather than under 21 years of age) – e.g. Think 25.

Timing

The new age verification requirements come into force on 30 August 2024.

Insight

This was one of the less controversial changes proposed in the Summer 2023 Consultation and so it is unsurprising that it will come into force as originally proposed and within a short period (i.e. with just a four month lead-in – however, for testing purchasing, this date is somewhat artificial as results only need to be submitted within 42 days of the end of each financial year, meaning the deadline for testing relevant premises is actually 31 March 2025).

We recommend that licensees impacted by the new testing requirements (that have not already been voluntarily submitting test results) consider how they will comply with this requirement when it comes into force, how much that will cost and whether they involve an independent third party. Many such licensees may be able to access testing services via their trade association. Staff training will also be essential before the “Think 25” requirement comes into force on 30 August 2024.

For prior discussion on the Gambling Commission’s age verification proposals, please see our blog: White Paper Series: Time to think – Gambling Commission consultation on land-based age verification measures.

5. Personal management licenses (“PMLs”) – extension of roles

Changes

The Commission has extended the operator staff management roles expected to hold a PML to include:

1. Chief Executive Officers, Managing Directors and equivalent positions;
2. Chairs of boards – unless that person only holds the position on a transient and short-term basis for individual meetings.

Timing

The extended requirements in relation to PMLs come into force on 30 November 2024.

Insight

Again, this change has been introduced as originally proposed, with only minor clarifications to make it clear that the requirement for the Chair to hold a PML only applies to those that hold fixed or indeterminate office – a necessary change that PML applications often take months to be determined by the Gambling Commission.

For prior discussion on the PML requirements and corporate culture, please see our blog: White Paper Series: Transforming corporate culture by “driving personal accountability and responsibility” for lookers-on seeing most of the game?.

Next steps

We obviously recommend that all licensees familiarise themselves with the Summer 2023 Consultation Response and consider how the new requirements that are relevant to their business will be incorporated into their existing policies, procedures and controls in time for the deadlines. In addition, licensees should consider whether they wish to adopt the Industry Voluntary SR Code as an interim solution pending the introduction of formal financial vulnerability checks and financial risk assessments… once the pilot has completed

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Please get in touch  with Harris Hagan to review your internal policies and procedures, provide PML training on the new requirements, or otherwise need legal advice on any gambling compliance matters.