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Gambling sector must respond to tough new rules on harm

Andrés Galiñanes Andrés Galiñanes

The Gambling Commission is enforcing new rules on gambling operators from this month. Andrés Galiñanes explains what the regulator is looking for and how financial penalties for non-compliance will be assessed.

From 12 September 2022 the UK Gambling Commission is enforcing tougher rules on social responsibility following failings of online casinos and bookmakers to adequately protect vulnerable customers, including people with gambling addictions. Where previously it has left firms to decide how to protect these consumers, the new rules set out the Commission's expectations regarding identification of vulnerable people, monitoring indicators of harm, using automated systems and processes, and evaluating the impact of customer interactions.

The new guidance is detailed in provision 3.4.3 of the Gambling Commission's Licence Conditions and Codes of Practice.

Suite of sanctions on gambling sector

Failure to follow the new guidance will result in enforcement action being taken. In May 2022, Gambling Commission Chair Marcus Boyle outlined the intention to ramp up enforcement work and the penalties that would come with it. He wrote in The Times that the Commission could no longer tolerate “an attitude of lowest-possible compliance being sufficient” and will be introducing “a suite of sanctions aimed at changing behaviour.”

In August alone, the Commission delivered several enforcements and penalties for social responsibility and anti-money laundering failings, totalling £20 million.

As part of enforcement, firms are increasingly required to undertake third-party audits to examine whether anti-money laundering and social responsibility policies, procedures and controls have been implemented in accordance with regulatory requirements.

Following a minimum standard of compliance, failure to proactively identify breaches and timely inaction will not be accepted. As the Gambling Commission's CEO Andrew Rhodes announced in April 2022: "We expect operators to identify and tackle gambling harms with fast, proportionate and effective action, and we will not hesitate to take tough action on operators who fail to do so."

How will financial penalties be imposed?

In exercising its powers to impose financial penalties, the Gambling Commission will look at:

  • the seriousness of the breach of condition
  • whether the licensee knew, or ought to have known, of the breach
  • if the breach is an example of repeat behaviour by the licensee
  • if the breach arose in similar circumstances to previous cases, which resulted in the publication of lessons to be learned for the wider industry
  • the nature of the licensee – including the licensee’s financial resources
  • the timeliness of any admissions made by the licensee and actions taken to remediate the breach.

Further detail can be found in the Statement of principles for determining financial penalties.

Knowledge-sharing and keeping up to speed with the changing regulatory environment is essential.  This includes sharing best practice examples among firms in safe environments and closely following enforcement decisions and good practice guidelines issued by the Gambling Commission.

From recent enforcements, we can see where common poor practices lie in social responsibility and anti-money laundering – and where firms need to focus in order to meet the new standards.

Social responsibility – four areas of focus

1 Ineffective customer interaction

Such as not sufficiently recording and evaluating customer interactions, and not interacting (or being too slow to interact) with customers exhibiting signs of potential harm associated with gambling.

2 Poor control environment

For example:

  • A lack of reasoning or explanation around controls in place to monitor and identify customers at potential risk of experiencing harms associated with gambling
  • Failure to put restrictions on all accounts associated with customers where social responsibility concerns were raised
  • Ineffective monitoring allowing customers to lose significant amounts of money over a short period of time
  • Allowing customers subject to enquiries and restrictions arising from responsible gambling concerns to open accounts with the firm’s other brands
  • Marketing to vulnerable customers

3 Issues with enacting internal policies

This includes failure by front-line staff to escalate potential concerns with customers for safer gambling reviews.

4 Not following Gambling Commission practice guidelines

Firms failing to take into account Commission guidance on customer interaction when building and operating their social responsibility framework.

Anti-money laundering – four areas of focus

1 Poor implementation and documentation

Failure to adequately implement policies and clearly document what's expected as part of source-of-funds checks.

2 Lack of proper controls

Inappropriate controls allowing significant levels of gambling spend to take place within a short space of time without sufficient knowledge of the customer's financial situation, including:

  • failure to conduct timely enhanced customer due diligence, enabling customers to deposit significant funds before completion of source-of-funds checks
  • placing reliance on open-source information and self-declaration of income rather than source-of-funds checks
  • allowing customers to stake substantial amounts of money over a significant period of time before carrying out due diligence checks
  • allowing customers to continue to deposit funds despite providing incomplete or insufficient evidence of source of funds.

3 Poor risk assessments

Inadequate risk assessments of online business being used for money laundering and terrorist financing. 

4 Inadequate financial thresholds

Inadequate financial trigger thresholds for anti-money laundering reviews.

Questions for gambling operators to consider

The Gambling Commission has set out the following good practice questions which firms need to consider when appraising their social responsibility and anti-money laundering framework.

  • Do you have formal processes in place to measure the effectiveness of your anti-money laundering and safer gambling policies and procedures, and are findings adequately recorded?
  • Do you efficiently record all compliance decisions and are you able to demonstrate, on request, evidence of ongoing assessment, evaluation and improvement?
  • Do lessons learned from public statements flow into your policy and processes?
  • Are your customer risk profiles formed by, or linked to, your money laundering and terrorist financing risk assessment?
  • Do you have a formalised process for analysing the effectiveness of customer interactions to ensure the types of interaction are effective?
  • Do you log the types of behaviour which have triggered a customer interaction and keep sufficient records of interactions, along with decisions not to interact, especially the level of detail provided?
  • Have your staff received sufficient anti-money laundering and social responsibility training?

Establishing a robust combined social responsibility and anti-money laundering framework will be key to maintaining a sustainable business that protects vulnerable customers and prevents money laundering. Firms that proactively assess their compliance frameworks, follow best practice and comply with regulators will be able to avoid future reprimand and fines by the Gambling Commission.

For further insight and guidance on social responsibility and anti-money laundering, get in touch with Andrés Galiñanes.