Gambling regulator to issue guidance on 'gambling software' after imposing new licensing conditions on its supply

Out-Law News | 06 May 2014 | 5:07 pm | 3 min. read

Remote gambling operators in Great Britain (GB) will be forced to ensure that they source their gambling software from a GB licensed provider to remain compliant with a new licensing regime being brought into force.

The Gambling Commission has set out plans to ensure that the manufacture, supply, installation and adaption of gambling software is only carried out by holders of gambling software licences. However, in a slight softening of previous proposals, the regulator said that it will not require "each and every business within an extended supply chain to hold a gambling software licence".

The restrictions are "important both to ensure the integrity of gambling software and to keep crime out of gambling", it said.

"By 1 January 2015 operators will have to cease using gambling software manufactured, supplied, installed or adapted by any entity that should ... hold a gambling software licence, but that does not hold such a licence," the Commission said. "Operators should therefore enter into dialogue with their suppliers to ensure that relevant businesses hold a gambling software licence by 1 January 2015 and gambling software businesses should consider with their advisors whether they need a licence."

"Gambling software businesses that will need to obtain a gambling software licence but who also run or operate the software for B2C or other B2B operators (for example those providing platforms or networks) are likely to be providing facilities for gambling. They will also need to consider if they are eligible for and indeed need a continuation licence to continue operating software used to provide facilities for gambling in Britain," it said.

The Commission said that it would issue new guidance later this month on what it considers to constitute 'gambling software' and its manufacture, supply, installation and adaptation.

"The further advice that the Commission will issue, to generally assist the industry, will cover: what we consider to be ‘gambling software’ and what activities we consider amount to the ‘manufacture’, ‘supply’, ‘installation’ and ‘adaptation’ of gambling software; and [reiterate] the Commission’s position on the difference between providing facilities for gambling and operating a gambling software business," it said.

The plans were unveiled as part of a wider raft of reforms to the Licence Conditions and Codes of Practice (LCCP) that gambling operators in Great Britain must adhere to. The changes, apart from the provisions around gambling software, will come into effect from 1 August.

Under the amended licensing conditions, remote gambling operators, with limited exceptions, would be required to hold customer funds in a separate bank account or accounts from other company funds. The measure is designed to protect players against the risk of losing money should operators experience insolvency.

"Although we recognise that this will bring additional costs for some operators, we consider it appropriate that there is a clear distinction between funds held in customer accounts and company funds," the Gambling Commission said. "This provision has an important deterrent effect - to prevent operators dipping into funds which they hold for players to use for gambling. It is not intended to provide underwriting for winnings."

The Commission admitted that the measure would not completely protect players against the risk of not receiving their winnings and as such said remote gambling operators would need to ensure account segregation "is implemented alongside visible and meaningful disclosure to customers to ensure that customers are not given false assurances about the level of risk which remains in the event of insolvency".

"This approach allows customers to choose a level of risk which they consider appropriate to their circumstances, such as the amount of funds they will deposit with an operator, the potential impact a loss of funds might have on them, and an assessment of the risk of insolvency," the Commission said.

"In response to a number of individual queries, we can clarify that the requirement to segregate customer funds applies only to remote gambling and only to circumstances where customers’ funds are held (for example for future gambling). These are frequently (but not always) account-based and therefore attributable to individual customers. Customer funds do not include prize pots that have yet to be won," it said.

Gambling law expert Audrey Ferrie of Pinsent Masons, the law firm behind Out-Law.com, said that the amended LCCP "does not provide any real surprises" and that the finalised conditions were in line with what the Commission had initially proposed and consulted on. However, she said she could forsee "difficulties and additional costs for operators in managing the segregation of customer funds".

Earlier this year the Gambling Commission set out other forthcoming changes to the LCCP which will, among other things, introduce an obligation that remote gambling operators inform it where their "key equipment" is based. The Commission said that it will be a condition of licence that the companies apply for permission to relocate their key equipment to another jurisdiction.

The licensing reforms accompany a wider package of changes to the way remote gambling will be regulated in Great Britain. A new 'point of consumption' (POC) regulatory framework is set to be introduced once the Gambling (Licensing and Advertising) Bill is brought into force. Under the Bill, all gambling operators, wherever they are based, would be required to obtain a remote gambling licence from the Gambling Commission if they wished to provide remote gambling services to consumers in Great Britain.

The UK government has also decided to implement a new tax regime for remote gambling which follows a POC approach.