The UK Licensing Reviews – How are They Impacting on the Marketplace?

Posted by Harry Kane on Tuesday, December 22, 2020

Ever since the UK Gambling Commission (UKGC) announced the protection of vulnerable players as its core strategic objective through 2021, we’ve seen a number of measures proposed to help achieve this goal.

This includes stringent and frequent licensing reviews, which simultaneously help to both raise industry standards and ensure compliance from operators across the length and breadth of the UK.

In this post, we’ll review some of the most recent licensing reviews and their findings, while asking whether wider changes to the Gambling Act of 2005 will significantly change the responsibilities of online casino brands?

Which Brands Have Recently Come Under the Microscope?

According to the most recent reports, the UKGC have been investigating a total of three online gambling operators.

Worryingly, two of the brands reviewed have failed their licensing reviews in one way or another, creating a scenario where the regulator has had to impose special conditions on the operators in question.

The Commission’s most recent reviews looked deeply into the operations of BGO Entertainment Limited, NetBet Enterprises Limited and GAN PLC, with the findings suggesting that all three brands were required to improve their procedures and policies while also making financial contributions to the National Strategy to Reduce Gambling Harms.

However, it was only BGO Entertainment and GAN PLC that had new conditions imposed directly as a result of their licensing reviews, with the former widely known as the brand behind Vegas Luck, Power Spins, Chilli and (of course) BGO itself.

According to the regulator, the company failed to implement effective procedures and policies to adequately safeguard players, at least during the review period between September 25^th, 2018 and March 23^rd, 2020.

More specifically, BGO Entertainment failed to protect potential problem gamblers by recognising and responding to the signs of compulsive behaviour, with this fundamental lack of structure and proactivity making it hard for brands to comply with the existing regulations.

Not only this, but the Commission also stated that BGO’s anti-money laundering controls were ineffective and inadequately resourced, and this remains a common and worrying theme when we cast our eyes back over the raft of UK licensing reviews carried out since 2017.

For example, UK gambling firms paid out a record £19.6 million in penalties following comprehensive licensing reviews by the UKGC, the vast majority of which related to the failure to protect problem gambling and effectively tackle the issue posed by money laundering.

In the case of BGO, the company will now be required to carry out additional anti-money laundering and social responsibility checks on all of its customers, while contributing a total of £2 million to help fund the UKGC’s flagship National Strategy to Reduce Harms.

Interestingly, the operator was contrite in its response, admitting that it had failed to implement effective problem gambling policies and struggled at times to identify the signs of compulsive behaviour within its customer base.

What these findings suggest is that even premium and established casino brands are struggling to comply with the Commission’s increasingly stringent and constantly evolving guidelines, particularly when it comes to curtailing problem gambling and stopping money laundering at source.

Of course, they also highlight the importance of the UKGC’s regular licensing reviews, so it should come as no surprise that a more sweeping review of the 2005 Gambling Act is being proposed at Parliamentary level.

What’s the Issue with the Gambling Act 2005

The so-called “Gambling Act 2005” was a key piece of legislation introduced by the New Labour government, and it was based on the premise of unlocking the potential of online gambling and creating a lucrative stream of tax revenue for the UK Treasury.

New Labour also opined that by creating legislation to open up the marketplace and creating an independent regulatory body (the UKGC), they could strike the ideal balance between optimising growth and ensuring that protections were put in place for players.

However, the legislation was introduced at a time when the iGaming marketplace and its underlying technology was in its infancy, which means that the measures and stipulations put in place were designed to cope with the challenges that presented themselves in real-time.

Since then, it has been widely observed that the pace of growth and technological advancement within the marketplace have caused it to quickly outgrow the existing legislation, with even the recent changes imposed by the UKGC not enough to bridge this increasingly cavernous gap.

As a result, senior politicians have increasingly raised concerns about the viability of the Gambling Act legislation, with former Labour Deputy Leader Tom Watson leading the charge. He described the act as “analogue legislation in the digital age”, with this sentiment echoed by the Sheffield Institute for Policy Studies.

Even the current Conservative government (which you’d expect to take a more liberal approach to regulating private sector businesses) repeated the same point in their 2019 election manifesto, triggering a wider push to update the current legislation.

One of the key drivers involved in this process is the All-Party Parliamentary Group (APPG) for Gambling Related Harm, which features prominent members such as Tory MP and former Conservative leader Iain-Duncan Smith.

This group has proposed a number of radical and comprehensive measures to tackle the issues that arise as a result of problem gambling, with two of the most eye-catching being a complete overhaul of the Gambling Act and a change in the licensing criteria for UK operators.

Clearly, there’s a significant crossover between these two sweeping measures, particularly as even operators with an existing license would most likely have to re-apply and meet the new conditions as part of the review.

What Licensing Criteria Could Change in the New Gambling Act?

We’ve already seen operators accept a large number of new regulatory measures over the course of the last three years or so, with casino brands now required to verify the identity of players before they wager and unable to accept payment via credit card.

There was good reason for these measures too; particularly when you consider the challenge posed by underage gamblers and the fact that up to 20% of all online casino deposits were processed using a credit card back in 2018.

In the near-term, it’s expected that new and existing casinos will be compelled to participate in the GamStop scheme, which allows UK players to enter into a self-exclusion program and avoid the type of targeted marketing material used by operators.

Previously, the initiative has been undermined by the fact that participants could still access gambling sites simply by changing their username and password, with this problem further compounded that not all brands were included in the GamStop database.

However, by making GamStop participation a central requirement of qualifying for a UK license, the initiative will become far more efficient and capable of achieving its core objective.

Ultimately, this shouldn’t be a significant issue for operators, especially those that are reputable and intent on securing a long-term license form the UKGC. However, there are some potential measures that may prove more damaging, or at least require a significant to the business model that defines certain brands.

For example, one potential measure could see a complete overhaul of existing VIP schemes, which the market leading operators tend to rely on for the bulk of their income.

This widely held suspicion was borne out by explosive reports carried out by The Guardian, although the extent of the issue will undoubtedly have come as a surprise to both regulators and players alike.

The study, which focused on a small selection of the market leading casino brands in the UK, found that one anonymous operator earned 83% of its total deposits from its VIPs, who in turn made up just 2% of its total consumer base.

Another respondent said that 58% of it deposits came from the 5% of players who were VIPS, while a third reported that its 3% VIP demographic accounted for 48% of all deposits.

There’s a clear trend here, and there’s no doubt that both the regulator and the APPG for Gambling Related Harm has highlighted this as a clear cause for concern amid the exponential and continued growth of the iGaming market in the UK.

With this in mind, any review of the Gambling Act and licensing conditions would focus on tackling the reliance on VIP demographics, most likely through a number of small and impactful measures that operators would have to take on-board.

Firstly, operators would probably have to agree to stringent player affordability checks, far in excess of the provisions currently accounted for. The goal here would be to ensure that players only ever spend an amount that they can afford to lose (or disposable income), and this may require brands to request proof of earnings and occupation data from individuals who want to participate in VIP schemes.

Make no mistake; any new legislation or licensing review would also place the responsibility for carrying out such checks and verifying player information squarely on the shoulders of operators, who may ultimately be required to hire Senior Executives with ‘Personal Management Licenses’ to oversee the new processes and accept accountability for any subsequent failures.

VIP schemes may also be made unavailable for players aged 25 or under, and the failure to comply with this could well see significant financial sanctions and (in the worst-case scenario) the removal of licensing approval.

Although these measures may seem considerably more robust, even they pale into insignificance when compared to those at the more extreme end of the spectrum.

More specifically, there has been some discussion about tackling the problem posed by VIP wagering by introducing stringent online betting caps, similar to the one rolled out for FOBT gambling in the spring of 2019.

One of these has clearly been created with VIP gambling behaviour in mind, as it would impose a £100-a-month spending cap on players. This would be enforced widely throughout the UK, while high rollers who wanted to wager considerably more would have to follow the type of stringent checks referenced earlier in the piece.

In some respects, this would actually make it easier for operators to enforce the new rules regarding VIP wagering, as the vast majority of players wager considerably less than £100-a-month anyway.

As a result, brands could turn their attentions to the small percentage of players who want to wager more, ensuring that they can meet the new verification processes without exceeding their existing resources.

Beyond this, there have been calls to simply roll out a £2 betting cap online, in a move that mirror the aforementioned changes imposed on bookmakers and FOBT gaming. This relatively extreme measure would all but eliminate VIP gambling in its current form, while dramatically reducing the revenues banked by operators.

Interestingly, this wouldn’t necessarily impact on operator profit margins (as payouts would presumably decline in line with the new stake limits), but it would definitely lower turnover and potentially the amount paid out on consumption tax in the UK.

The Last Word

While there are many who would support this type of extreme measure, it would arguably be counter-intuitive to the iGaming market and the economy as a whole.

After all, this fast-growing marketplace continues to employ in excess of 100,000 people in the UK alone, and the decision to slash operators’ turnover will surely see this number shrink in the future.

Not only this, but such a move would also dampen long-term growth prospects and the amount that operators can pay in the form of both taxation and contributions to the measures aimed at countering gambling-related harm.

Sure, some may say that the latter is less important if you tackle problem gambling at source, but we should remember that some initiatives also carry out detailed research into precise issues that trigger compulsive behaviour online and how brands can tackle these directly.

Ultimately, there’s no doubt that operators must brace themselves for further and potentially more stringent regulatory changes, with comprehensive reviews of both the 2005 Gambling Act and existing UK licenses likely to take place over the course of the coming months.

While the more measured proposals are unlikely to decimate the market, operators will certainly become more accountable for the safety of their players while also having to factor in changes that impact directly on their business model.