Gambling Act White Paper: upping the ante for the UK Gambling Sector
How the industry responds to the consultations coming out of the white paper will play a key role in the future of the UK gambling sector
The gambling sector in the UK has changed significantly since 2005. The industry is a front-runner in the use of new technology and digital products, which has caused certain commentators to argue that existing legislation seems increasingly analogue. While the land-based sector has struggled to compete with its online rivals due to the impact of statutory constraints and, latterly, Covid-19, the huge growth of the online industry has shifted the focus of the regulator increasingly to consumer protection.
The Government, in its review of the Gambling Act 2005 (the 2005 Act) and the resulting white paper setting out its policy proposals, aims to: examine whether changes are needed to gambling regulation, particularly due to technological advances; ensure that there is an appropriate balance between consumer freedoms and consumer protection; make sure customers are suitably protected whenever and wherever they are gambling; and promote an equitable approach to the regulation of online and land-based industries.
We explore below some of the likely short and long-term implications of key policy proposals in the white paper, including those for online protections, changes to land-based gambling, and changes to Gambling Commission (Commission) powers and consumer redress. We also address the next steps for the industry, including how operators can positively influence the outcome of the white paper consultation process.
A striking feature of the white paper is the Government’s determination to adjust the regulatory balance in favour of land-based gaming. While it proposes significant restrictions on the online industry, restrictions on land-based gambling are being eased, albeit conservatively.
The 2005 Act imposed restrictions on both the number of gaming machines permitted in casinos, and on the number of new casinos for which licences could be issued. This resulted in the creation of different categories of casino, which were each permitted to offer a different number of machines, and subject to different table-to-machine ratios. These limitations placed casinos licensed under the Gaming Act 1968 (the 1968 Act) at a significant competitive disadvantage relative to ‘small’ 2005 Act casinos, and small casinos at a disadvantage relative to ‘large’ casinos. They also meant that a maximum of 16 new casinos could be licensed under the 2005 Act (of which only seven have since opened).
Such limitations on supply make little sense now that customers can access a range of casino games from their mobile phones. The white paper goes some way to remedying this, with headline proposals increasing the maximum number of gaming machines from 20 to 80 in 1968 Act casinos (subject to commensurate licence fees and conditions), and a uniform ratio of machines to tables of 5:1, making it easier for smaller casinos to make full use of their machine entitlement. Furthermore, the proposals contemplate unused 2005 Act casino licences being reissued by different licensing authorities, and casinos of all sizes will be permitted to offer sports betting. The Government also intends to work with the Commission to consult on cashless payments in the land-based sector – a much-needed step into the digital age.
There are currently 137 active 1968 Act casino licences and 49 dormant licences, each of which can be relocated within the relevant licensing authority area. There are also seven active 2005 Act licences. Of the remaining nine casino licences which were authorised to be issued under the 2005 Act, one was issued but the casino subsequently closed; the other eight have never been issued. The increased gaming machine allowances, adjusted table ratios, and the introduction of sports betting across all casinos, clearly have the potential to reinvigorate investment in the land-based casino sector, although whether these measures will be sufficient to add much needed life to a part of the industry which is a key employer across much of the UK, remains to be seen.
Whether the white paper will achieve its aim of making gambling legislation ‘fit for the digital age’ in the online sector is doubtful. References to how emerging technologies such as blockchain and cryptoassets might impact the industry are minimal, and no proposals are made for a change to the Commission’s (conservative) approach to the use of crypto, despite the impact of such technologies forming part of the Government’s call for evidence.
With a focus on the significant increase in online gambling in recent years, the white paper introduces a raft of policy proposals intended to increase the protection of online
customers, including financial risk (formerly known as ‘affordability’) checks, online slot stake limits, safer online slot design, and increasing the uptake of player-centric safer gambling tools (such as mandating the use of deposit limits). The white paper also states that the Commission will review the design and targeting of customer incentives to ensure they do not ‘encourage excessive or harmful gambling’.
The real impact of these policy proposals is difficult to predict. While the Government seeks to strike a balance between consumer protection and consumer freedom and has produced in many respects more ‘business friendly’ proposals than many critics had advocated for, much of the detail is to be determined through public consultation, which could produce a range of potential outcomes.
Some of the most significant proposals are those around financial risk checks and stake limits, which we will now look at in more detail.
Financial risk checks
The white paper proposes a consultation on a prescriptive model to tackle three key ‘affordability’ risks previously identified by the Commission: binge gambling, significant unaffordable losses over time, and financial vulnerability. The proposals include ‘financial vulnerability checks’ (using information from public sources) at £125 net losses within a rolling month or £500 net losses within a rolling year, and ‘enhanced spending checks’ (which would require access to more detailed personal data) at net losses of £1,000 in a rolling 24-hour period or £2,000 net losses within a rolling 90-day period. These proposed monetary triggers would be halved for 18–24 year olds. The white paper suggests that most checks will be ‘frictionless’ and unintrusive, with any requirement to obtain documents from customers to be a ‘last resort’; though whether this is achievable in practice remains to be seen. The white paper adds that neither the Government nor the Commission will set universal rules on what proportion of a customer’s income they should be permitted to gamble.
Some anti-gambling groups had lobbied for more extreme measures – some, for example, advocated for ‘affordability’ checks with a cap of £100 which would be overseen by an independent ombudsman. On the other hand, others would question whether it is necessary and proportionate in a democratic society for the State to require some form of monitoring in relation to the leisure pursuits of adults.
The proposals do at least introduce a degree of certainty. The Commission has previously sought to hold the industry to largely undocumented ‘affordability’ standards. This has presented huge challenges to operators and resulted in inconsistent regulatory enforcement outcomes, which many view as unfair. In that sense, the proposals appear to temper the Commission’s current direction of travel with regard to ‘affordability’ checks, particularly as many operators have already implemented basic checks at lower levels of spend.
However, the ‘enhanced spending check’ has the potential to have a significant impact both on revenues and consumers. While the Government asserts that most customers will not be impacted by such checks, the backstop check at £2,000 net losses in a rolling 90-day period clearly has the potential to impact more than just ‘VIP’ customers. The outcome of the Commission’s discussions with the financial services sector, and of its consultation on potential safeguards for the use of open banking protocols, will be of critical importance in establishing how such checks might work, and whether they really can be seen as ‘unintrusive’.
The Government has assessed the impact of financial risk checks as potentially reducing online slots GGY by 6-11 percent, but in doing so has assumed that 80 percent of ‘enhanced spending checks’ will be frictionless. If truly frictionless checks are not feasible, this policy proposal is likely to have a far more significant impact on the customer experience, and, consequently, GGY. While these checks are intended to enhance the protection of vulnerable customers, experience shows that many customers are unwilling to hand over bank statements and other personal information to operators, and even if they do, blocks are likely to be required unless they can clearly afford ‘enhanced’ spending. There is therefore a real risk of a race to the bottom where customers increasingly decide to use unregulated operators. That these are likely to include many of the most vulnerable customers is all the more concerning.
There are currently no statutory limits on stake sizes in the online gambling sector. Conversely, gaming machines in the land-based sector are subject to stake and prize limits. Currently, the maximum stake is £5 for category B1 machines (available only in casinos), and £2 for categories B2 and B3.
A number of vocal commentators have lobbied (and continue to lobby) for online slots to have a fixed stake limit of £2. However, the white paper acknowledges that there is a wider system of protections in place for online gambling that, taking an ‘equitable approach’ to product regulation, may justify a higher limit for online products. The Government has, on that basis, proposed to consult on a range of limits from £2 to £15, along with a separate ‘preferred’ limit of £2 for 18-24 year olds.
Notably, however, the Government also indicates that evidence of an association between higher staking on slots and risk of harm justifies action ‘on a precautionary basis’. A ‘precautionary’ policy approach centres on the idea that caution should be taken where there is the potential for harm to be caused, despite there being a lack of conclusive evidence. This approach is regularly invoked by policy makers to protect the public from potential harm. There is, however, a risk that the lack of conclusive evidence on the potential for harm in this case may lead the Government ultimately to adopt a disproportionately low maximum stake. It is vital that respondents to the consultation on stake limits provide persuasive data analysis and other evidence to ensure that the ultimate decision is not made on a purely precautionary basis.
The effect of online stake limits, wherever the ultimate decision lands, is clearly going to be significant. The white paper cites Morgan Stanley and NERA estimates that a £2 limit would reduce online slots GGY by 22 percent or 23 percent. The Government itself estimates that a limit set at £8.50, a midway point of the range of limits proposed, would reduce online slots GGY by between four percent and six percent. Combined with the impact of financial risk checks, the Government estimates a total decrease of between 8-14 percent in GGY for all online gambling products. An impact assessment is due to be published alongside the DCMS consultation. This should be considered carefully by operators, alongside their own data, to help frame responses to the consultation.
Longer term, one question is whether the consultation might include the possibility of future reviews of stake limits. Under the 1968 Act, triennial reviews of land-based stake and prize limits were carried out – in part to ensure that the limits kept up with inflation. There are strong arguments to be made against stagnant stake limits which would continually increase the impact on operator revenue in the years to come. The white paper acknowledges calls for the reinstatement of such reviews, but does not make any specific proposal in respect of the same.
A further significant feature of the white paper is its policy approach to young adults; it proposes lower stake limits and financial check thresholds for 18–24 year olds. This approach will bring regulation into line with the Commission’s existing view (which has fed into its enforcement action in recent years) that young adults are more likely to be vulnerable, and is likely to have a ripple effect on gambling regulation in the years to come.
Online protections: Where does the UK stand on the global stage?
The introduction of financial risk checks for consumer protection purposes is unusual among regulated markets. Most regulated jurisdictions in Europe do not require financial risk or ‘affordability’ checks for individual customers, though some do enforce, for example, blanket mandatory deposit or loss limits. In that sense, the Commission is tasked with consulting on a novel method of protecting customers, with the accompanying risks of overreach and unintended consequences – although the proposals are not far removed from the approach to customer affordability that the Commission has been enforcing (with limited legal justification) for several years. Low stake limits are also uncommon, though they do exist – German regulations mandate a €1 stake limit per spin on online slots, for example.
Regulators globally will be watching with interest to see where the ultimate policy decisions land, and the extent of the impact of those decisions on customers and the industry in the UK.
Of additional interest is how changes in the UK may impact other regulated markets. Three of the most recent jurisdictions to establish online gambling licensing regimes – the Netherlands, Sweden, and Germany – also have some of the most stringent responsible gambling regimes. This points to a pattern of emerging regulated, or soon to be regulated, markets, adopting stricter social responsibility requirements, particularly as new regimes will be focused on the potential risks associated with online gambling. Changes to UK regulations are therefore likely to have an impact beyond our borders.
Regulatory standing & consumer redress
The Commission’s powers and global standing
The Commission has an ambition to be regarded as a global leader in gambling regulation and Tim Miller (Executive Director of the Commission) recently spoke about the need for the Commission to work more closely with other regulators “in lock step across international borders.”
However, the white paper indicates that the Commission does not yet have sufficient resources to achieve its regulatory objectives in Great Britain. The white paper has sought to enhance the Commission’s position in several ways:
• The Government believes that the ‘black market’ accounts for around 2.5 percent of remote gambling in the UK. The Commission has previously commented that ‘black market’ risks to the regulated sector lends itself to increased cross-jurisdictional cooperation, for example where two or more regulators can take coordinated regulatory action for illegal activity in one regulated jurisdiction to have regulatory consequences in another. In Great Britain, the Commission can currently only request third party service providers (for example, ISPs and payment providers) to cease to provide their services to ‘black market’ operators, whereas the Government proposes to legislate to give the Commission powers to require third parties to stop providing such services.
• The Government will consult on the introduction of a statutory levy to be paid by operators to the Commission. The levy will be used to support research into the prevention and treatment of gambling-related harms, and this increased research will indirectly assist the Commission in its regulatory remit to protect vulnerable persons from being harmed or exploited by gambling. While the largest four operators already make significant voluntary contributions in this regard to the independent charity GambleAware, the Government wants to ensure that this funding is subject to greater Governmental control.
• The white paper states that the Commission intends to start collecting more data from operators and invest in its data systems, to develop a more active method of monitoring regulatory compliance by operators. However, the Commission acknowledged in its Evidence Gaps and Priorities programme (published in May 2023) that there are currently gaps in its approach to ensuring that regulatory change is supported by appropriate evidence. The Commission has introduced a three-year programme to address such evidence gaps, however this raises some concern that the output of the white paper may not be satisfactorily evidence-led, culminating in a precautionary set of regulations, which may be difficult to revise in the future.
• The Government intends to review (and possibly increase) the Commission’s licence fees during 2024.
The conclusion that can be drawn from these proposals is that the Commission has requested a significant increase in its resources, which it hopes will enhances its reputation as a global leader in gambling regulation, particularly in the context of tackling the ‘black market’. From an industry perspective, the Commission already has wide-ranging enforcement powers to effectively regulate in Great Britain, and operators may instead prefer that the Commission focuses on collaborating with operators and evaluating its own approach to achieving effective regulation, in addition to ensuring that the output of the white paper will be driven by accurate data and statistics.
A key proposal in the white paper is the formation of a gambling ombudsman, to adjudicate complaints related to social responsibility and gambling harm that an operator has itself been unable to resolve.
The white paper takes the view that there is currently a gap in the customer redress framework to resolve social responsibility complaints. Whilst the Commission has the authority to initiate enforcement proceedings against operators for alleged failures to comply with social responsibility obligations, it cannot directly resolve consumer complaints and order repayment to customers. Similarly, alternative dispute resolution (ADR) providers deal with contractual disputes only and the adjudication of social responsibility complaints is out of scope of existing ADR provision. The Government estimates that some 2,000 customer unresolved complaints per year referred to ADR providers which relate to alleged social responsibility breaches. The introduction of a gambling ombudsman is an attempt by the Government to improve redress for customers and enhance the industry’s approach to customer protection.
The Government has proposed the creation of a non-statutory ombudsman, and the industry (through the Betting and Gaming Council (BGC)) has been challenged to deliver a credible scheme in this regard. The Government wants the process for appointment of the ombudsman to begin in 2023, and the Government’s expectation is that the ombudsman should be accepting complaints within a year. We consider that there are several key issues that the industry must consider and resolve over the coming months, including:
• Clarifying the role of the ombudsman, and how it will sit alongside the enforcement functions given to the Commission and other regulators.
• The ombudsman must be impartial and independent from the Commission to ensure procedural fairness, and the Commission must not be able to influence the outcome of customer complaints.
• The remedies available to the ombudsman should be clearly identified, avoiding overlap with the Commission’s own regulatory enforcement powers.
• The Government has suggested a very short timeframe for the establishment of the ombudsman, but it is critical that the ombudsman is given enough opportunity to fully understand the complexities of dealing with social responsibility complaints.
• It is not yet known how the gambling ombudsman will be funded. If the industry will be expected to fund the ombudsman, then an assessment of the industry’s contribution should be considered alongside the introduction of a statutory levy, to ensure that the industry’s financial commitments flowing from the white paper proposals are not unfairly burdensome.
What must the industry do now?
The next 12-18 months provide a key window of opportunity for operators to engage with the white paper consultation process. We would encourage operators to focus their resources on planning for potential adjustments to be made to their internal compliance procedures, while at the same time ensuring that they engage with the consultation process to positively influence the outcome of the white paper proposals.
Quantity and quality of responses
When evaluating consultation responses, we know that the Commission places a particular emphasis on the number of respondents for and against a particular proposal, and the levels of engagement with a consultation generally. When engaging with the white paper consultation process, we therefore encourage operators and other businesses to submit individual responses to the consultations, alongside those of the BGC and other industry stakeholders. Consistency of message is also important, especially in respect of certain key themes, and we encourage industry stakeholders to engage with the BGC, which should have a pivotal role – though numbers also matter.
It is also paramount that the industry focuses on the quality of consultation responses. When producing responses, the industry should have regard to the Commission’s Evidence Gaps and Priorities programme and its desire to be a “people focused and evidence-led regulator”, and generate responses which reference accurate, independent academic research and other expert evidence to ensure that the proposals are proportionate and evidence-led. Industry stakeholders should also have regard to certain public law principles in order to effectively influence the outcome of any proposals:
‘Good regulation’ and ‘good consultation’ principles
The Commission has a statutory obligation to have regard to certain ‘good regulation’ principles, including that it will act transparently and proportionately, consult on proposed changes to the regulation of the industry, avoid imposing unnecessary regulatory burdens, and use the least intrusive approach to ensure regulatory compliance. There are also established ‘good consultation’ principles under English law that the Commission must comply with.
It is vitally important that the Commission and the Government adhere to such ‘good regulation’ and ‘good consultation’ principles, to ensure that operators are treated fairly and transparently during the consultation process. The adherence to such principles is particularly pertinent given that Tim Miller previously acknowledged the industry’s perception that the regulator takes a scattergun approach to conducting consultations, as well as the industry’s concern that their consultation responses do not actually influence the outcome of the Commission’s proposals.
When consultation responses are being formulated, the industry should also keep in mind that the consultation process could be a useful opportunity to lay the groundwork for future legal challenges if there are procedural flaws in the consultation process and the aforementioned principles have not been adhered to.
The Government claims that at the heart of the white paper is striking the right balance between consumer freedoms and choice on the one hand, and protection from harm on the other. Going forwards, it will be important for the Government and Commission to ensure that a proportionate, evidence-led approach is taken towards shaping future regulation, as the proposals for online protection and a new avenue of consumer redress could change the landscape significantly in terms of social responsibility and the protection of the most vulnerable. The steps taken towards parity for the land-based industry, or at least increased competitiveness, are to be welcomed – though whether they are sufficient to kick-start new investment, particularly following the damage done by Covid-19, remains to be seen.
There are also some notable omissions. For an industry that is so prolific in its use of new technologies, the content of the white paper is relatively light on innovative thought about the future of the industry. In some respects it is backwards looking, seeking to fill in regulatory gaps and belatedly account for changes to the industry that have been developing, at pace, for two decades. There are also areas that would have benefitted from more information before proposals were made: the Government’s proposals for ‘enhanced spending checks’, which have been made without a full understanding of how such checks might be carried out, risk encouraging the most high-risk customers to move away from the regulated market. While the white paper proposes increased powers for the Commission to tackle ‘black market’ activity, these are very unlikely to be a complete solution to an increasing problem.
As a final note: the industry has a critical role to play in ensuring that the final policy decisions stemming from the white paper are proportionate, balanced, and evidence led. With the principles of ‘good consultation’ and ‘good regulation’ in mind, businesses from all corners of the sector should dedicate resources to engaging meaningfully with the Government and Commission consultations over the next 12-18 months.