Out-Law News | 17 Sep 2013 | 2:52 pm | 5 min. read
The Commission has set out draft changes to the Licence Conditions and Codes of Practice (LCCP) (53-page / 419KB PDF) that gambling operators regulated in Great Britain must adhere to in order to conduct business. As part of those proposals, the Commission has outlined 'player liquidity' plans which would allow operators to continue to pool both British and non-British players into single games, subject to a number of conditions being met.
Those conditions include ensuring that third party operators which bring British players to the game are licensed by the Commission, and that those which bring non-British players to the game have the relevant "licences or permissions" needed to operate in the country in which they are "domiciled or incorporated". In addition, the third party operators must have in place customer ID policies and procedures which, in the "reasonable opinion" of the network operator, are broadly equivalent to those required under EU anti-money laundering laws.
Gambling law expert Susan Biddle of Pinsent Masons, the law firm behind Out-Law.com, said that gambling operators have faced "commercial challenges" where the pooling of poker players has been restricted to players playing within national borders.
"If you charge too high a rate of tax or limit deductions such as bonuses from taxable profits, limit liquidity, or generally do anything that disadvantages regulated operators in comparison with those operating in the unregulated market, then you end up with a situation where the regulated operators cannot offer gamblers as good odds as they can get on the unregulated 'grey' market," Biddle said.
"In such a case, many gamblers may find the prospect of greater winnings in the 'grey' market more attractive than the consumer protections offered by regulated operators. In France, where tax is charged on turnover and player liquidity pooling is restricted on a national basis, the grey market is widely estimated to account for more than 50% of the entire gambling market. It is therefore to be welcomed that the Gambling Commission plans not to restrict player liquidity to within Great Britain," she said.
In its consultation the Gambling Commission said it took the view that gambling facilities “are used” in Great Britain – triggering the need for an operating licence to be obtained, even if there is no remote gambling equipment in Great Britain – if those facilities are used by a player "who is physically located in Britain when gambling facilities are used", regardless of the player’s residential address.
However, Biddle said that the Commission appears not to have taken account of revised proposals issued by HM Revenue & Customs (HMRC) and the Treasury last month on how the new 'point of consumption' (POC) remote gambling tax regime would work in practice. Under those plans, the obligation to pay tax would apply where there are arrangements between a gambling operator and a "UK person" for that UK person to participate in remote gambling, subject to some limited exemptions.
It was originally proposed that tax liability would depend on a customer's physical location at the time each gamble was made, However, in the light of consultation responses, HMRC has proposed that the test should instead be whether the customer is "an individual who usually lives in the United Kingdom, or a body corporate which is legally constituted in the United Kingdom".
"If the Gambling (Licensing & Advertising) Bill retains a different definition of 'British activity', some individuals' gambling activity may be taxed under the POC tax regime but considered to be outside the regulatory regime here – or may be regulated but not taxed here: both of which seem very odd," Biddle said.
The expert also questioned "potentially concerning" proposals to use the new licence conditions and codes of practice to widen the Commission's statutory powers to obtain information.
Currently the Gambling Act gives the Commission powers to obtain information where it will be used to determine whether there has been a breach of a licence condition or the suitability of a licensee, and to enter premises in Great Britain. Whether or not one agrees that the Commission might need wider powers, Biddle queried whether extension should not come via the Gambling (Licensing & Advertising) Bill or at least via secondary legislation under that Bill, rather than "by a backdoor".
Similarly the Gambling Commission has proposed that gambling licence holders would be required to "act in accordance with the Commission’s advice on the Proceeds of Crime Act 2002" previously issued to operators. Biddle said, though, that concerns might be raised that if such advice is updated in future, this could result in licence conditions being set which are too loosely worded or subject to change after less thorough consideration.
The Commission also wants to receive copies of any "Suspicious Activity Reports" (SARs) submitted to the Serious Organised Crime Agency (SOCA). Biddle welcomed the news that the Commission is exploring options to improve collaboration with SOCA, and said that if SARs are to be shared with the Commission, it would be helpful if SOCA made it clear this did not amount to an offence of "tipping off" under the Proceeds of Crime Act.
Biddle also questioned the broad rights the Gambling Commission plans to give licence holders to terminate contracts with third party suppliers and affiliates.
Under its plans licence holders would remain responsible for compliance with the licensing objectives where gambling facilities are outsourced to a third party supplier. Contracts must require those suppliers to act "as if they were bound by the same licence conditions and subject to the same codes of practice as the licensee". Contracts with suppliers must be terminable if the licensee believes, in its "reasonable opinion", that its supplier has acted in breach of contract, including those conditions and codes, or "in a manner which is inconsistent with the licensing objectives".
Similarly, remote gambling operators would also need the right to terminate the contract of an affiliate if "in the licensee's opinion" the affiliate is in "breach of a relevant advertising code of practice".
Biddle said that the rights to termination were very broad and that they would provide little "security of tenure" for prospective sourcing providers or affiliates. Suppliers and affiliates may want to recommend that these rights apply only if a breach is "material" and to require that the operator's opinion is supported by an opinion from the Gambling Commission (which pre-supposes the Commission would be prepared to issue such an opinion) or legal adviser.
Biddle also queried the expanded "information requirements" licensees would be subject to under the Commission's proposals. She said that there was a lack of detail about how the Commission would verify the information it receives from gambling operators, particularly in relation to offshore operators.
"Does the Commission intend to use local regulators in overseas jurisdictions to verify that the information provided by operators based there is accurate?" she said. "If so, does this not equate to a form of 'whitelisting' of jurisdictions which is what is being abolished under the Gambling (Licensing & Advertising) Bill? Licensees deserve to be told in more detail about how the Commission uses the information they provide and how it verifies this information."
Under the draft plans, operators would be require to disclose personal information about players where they suspect it "relates to" an offence committed under the Gambling Act. The data would need to be passed to the Commission "from the jurisdiction in which that data is physically located, whether or not that data has already been provided to the local regulator".
Biddle questioned whether the provisions could force operators to act against the requirements of an overseas national data protection authority in order to keep their Great Britain gambling licence.
The regulator's consultation on its proposed licence conditions and codes of practice amendments is open until 4 December 2013.