Out-Law Analysis | 15 Nov 2016 | 10:45 am | 4 min. read
At the 'Raising standards' conference in Birmingham on 8 November, the Gambling Commission vowed to get tougher in its enforcement of gambling regulation generally, urging operators to put customers at the heart of their thinking when taking decisions and setting strategy.
Commission chief executive Sarah Harrison explained that the regulator will publish its proposals for consultation for changes to its enforcement strategy before Christmas with a view to implementation in early 2017, and vowed to use all the tools available to it to address non-compliance.
A crackdown on AML failings and unlicensed e-sports betting appears to be at the top of its list of priorities.
At its conference the Commission referred to the fact that it is engaged in live case work in the area of AML, and provided examples of "lessons learned", providing a stark reminder to operators that the regulator takes compliance with AML rules very seriously.
This is also reflected in the fact that gambling operators face AML obligations under the Commission's newly reformed licensing conditions and codes of practice. Subsequent to the conference, the Commission has also released guidance (39-page / 331KB PDF) for all gambling operators, other than casinos, to help them address the risk of money laundering.
At the conference the Commission said that it has seen an improvement in the way operators are addressing money laundering risk. However, there, and in its new guidance too, the Commission emphasised the need for operators to adopt a risk-based approach to tackling the issue and to "step up the pace of change".
In a session that delivered practical tips on the expectations the Commission has of operators on AML compliance, the regulator gave examples of the types of changes in customer behaviour that operators should pick up on.
It said operators should have systems in place to take into account all relevant information that they need to address the risk of money laundering and be capable of critically assessing that data.
Identifying suspicious activity is challenging, but the Commission made it clear that it expects operators to be wary of customers that increase the value of the bets they typically place, widen the scope of events that they place bets on, increased losses they experience and unusual account deposits.
The mantra, the Commission said, is 'record, retain, review'.
E-sports and gambling regulation
The topic of e-sports and gambling regulation was addressed in an afternoon break-out session, where the Commission was looking at emerging markets and products.
E-sports betting is a growing market, and is a bi-product of the increased inter-connectivity in computer gaming.
The demographics within the e-sports market, where players tend to be young, tech-savvy males between 18 and 34 but sometimes younger than 18 which, with limited exceptions, is the legal age for betting in the UK, present particular risks that the Gambling Commission noted.
The Commission identified the risk of under-age and unlicensed betting, as well as concerns about betting integrity, alluding to the fact that the e-sports market lacks many of the controls and systems of monitoring associated with betting on traditional sporting events.
Sports betting is heavily monitored by sports governing bodies and regulators in partnership. The government recently opened a consultation (7-page / 149KB PDF) on extending the list of sports bodies with whom the Gambling Commission can share information. This type of mechanism is missing in e-sports at the moment, which opens the door to unlicensed betting and potential unscrupulous activity on e-sports platforms.
The Commission said there can be a blurring of the lines that exist between competitive play and gambling activity in e-sports. It said it is keen to see a clearer distinction being made by site operators and vowed to take action if it becomes aware of unlicensed facilities for gambling. This approach ties in with its promise to take a tougher stance on enforcement.
On e-sports, the Commission also flagged the fact that there remains legal uncertainty over the status of 'skins' – in-game items that players can buy, sell or trade with other players. In some cases skins can be proffered as stakes in a game of risk where possible returns are other virtual assets.
The Commission said that if skins can be treated as money or money's worth then it would be possible to classify certain trading of skins as gambling activity. The issue boils down to whether or not in-game skins can be cashed out, in the same way casino chips can be substituted for real world cash, it said.
The legal questions could be addressed in a landmark case set to come before Birmingham Magistrates' Court early next year.
The Commission's clampdown on unlicensed betting in the e-sports market is already underway.
Some of the e-sport gaming platforms already prohibit commercial gambling in their terms and conditions. Those terms need better enforcement.
Customer claims and complaints
There was also an interesting presentation at the conference on the public perspective on gambling regulation. This was delivered by Walter Merricks, commissioner at the Gambling Commission.
Merricks stressed the need for operators to treat customers fairly and to only rely on fair terms and conditions. He suggested that claims consultants could look for business among gambling market customers in future, warning that the industry risks a situation analogous to that in the lucrative payment protection insurance (PPI) claims market if problems persist.
Recently the Competition and Markets Authority (CMA), acting on evidence shared by the Gambling Commission, opened an investigation into online gambling operators' compliance with UK consumer protection rules, focusing, among other things, on whether operators are cancelling bets or altering odds after bets have been placed in a way which is unfair or misleading.
Merricks suggested that a gambling ombudsman could be established to handle complaints, in the same way as the Financial Ombudsman Service (FOS) serves to help consumers find remedies for issues in the UK financial services market. Merricks was the inaugural chief ombudsman at the FOS.
Audrey Ferrie is an expert in gambling regulation and licensing at Pinsent Masons, the law firm behind Out-Law.com.