Fine with that: Are the UKGC's punishments befitting of operators' shortcomings?

The Gambling Act 2005 review is drawing to a conclusion, and while the industry anxiously awaits the findings and what overhauls to the laws may be introduced, the UK Gambling Commission (UKGC) has been indulging in its own form of March Madness.

With the clock ticking down to the release of the government’s white paper, which will outline changes to the UK’s gambling laws, three prominent UK operators were slapped with seven-figure fines in the space of 22 days in March. Providing bad optics at the worst possible time, the nature and magnitude of the fines and the breaches to which they pertained drew unnecessary attention to the industry when it should have been keeping its head down.

Following the loss of its National Lottery licence (currently under appeal), Camelot was handed a £3.15m penalty on 22 March relating to three historical failures with the National Lottery app. The most damning of these saw 65,400 marketing materials sent to customers who had self-excluded or had been flagged as having gambling-related issues.

On 9 March, Sky Betting & Gaming was slapped with a £1.17m fine after Sky Vegas sent promotional emails to more than 41,000 players who had self-excluded, and another 249,000 who had opted out of marketing emails.

On 1 March, 888 was hit with a £9.4m fine – one of the largest issued to date – with the regulator citing “social responsibility and money laundering failings”. This followed a fine in 2017 totalling £7.8m for “failing vulnerable customers”.

Prior to these, in February 2021, it was announced that BV Gaming, trading as BetVictor, was to pay a £2m settlement to the UKGC following an investigation that found failings in “fairness, social responsibility and AML”.

Time after time

Questions remain as to why these operators continue to make the same mistakes and whether the punishments meted out are a real deterrent or viewed simply as an additional cost of operating in one of the world’s most regulated markets?

There are some that argue the fines handed out to operators do not befit the breaches committed, especially given that in the case of 888, the fine of £9.4m represented less than 1% of its 2021 revenue. In comparison, Sky Betting and Gaming’s fine equalled a paltry 0.03% representation of Flutter Entertainment’s £6bn yearly revenue.

Speaking to EGR Intel, Matt Zarb-Cousin, director of Clean Up Gambling, says that while the rules and regulations laid out by the UKGC were well-defined, they clearly do not act as a deterrent. “The Gambling Commission’s approach to regulation is ‘outcomes-based’. In other words, they are not prescriptive about the rules licensees are expected to adhere to and instead set various expectations. This approach can only work to change the culture of operators if the penalties are significant enough that they have a deterrent effect on bad practice.”

According to its statement of principles for determining financial penalties, the UKGC calculates fines based on a number of factors: the seriousness of the breach, whether the licensee knew (or ought to have known) the breach, repeat offences, the timeliness of any admissions, whether the breach was in a similar circumstance to a previous case and whether the breach was remediated in a sufficient manner. The UKGC also takes the financial resources of the offender into account.

Referencing the recent 888 fine, David Clifton, co-founder and director of Clifton Davies Consultancy, says: “The UKGC’s fines emanating from each successive operating licence review and regulatory enforcement case have to be assessed on their own respective merits.

“Factors that will be taken into account by the regulator include whether the operator in question has repeated previous failings, for example in relation to vulnerable customers, as was identified in the recent 888 public statement.”

He adds that, as a rule, the UKGC’s statement of principles for determining financial penalties states that “its financial penalties will eliminate financial gain or benefit on the part of an operator but will also be proportionate to the nature of the breach and the harm caused”.

What “proportionate to the nature of the breach” looks like is another matter, however. If someone parked their car illegally and received a fixed penalty notice, or saw their neighbour do the same, would they think twice about parking in that spot again?

Melanie Ellis, partner for betting and gaming at Northridge Law, comments: “One of the purposes of imposing a penalty is to deter future non-compliance both by the licensee and the other operators, so there is an element of ‘setting an example’.”

Despite this, Zarb-Cousin feels that the fines are not high enough to prevent repeat offences from occurring. “That’s precisely why there have been so many of late. At the moment it’s too much ‘a cost of doing business’,” he says.

On 7 April, 888 reported that the rival it is acquiring, William Hill International, has set aside £15m to pay any fine that may be forthcoming from a current UKGC licence review. In a statement tucked halfway into a 166-page document, 888 stated: “In November 2021, the William Hill Group notified the UKGC of separate areas it plans to address arising from challenges implementing cross-brand self-exclusion processes.

“The target business has recorded a provision of £15m in its financial statements for target FY 2021 to cover potential cash outflows resulting from any regulatory sanctions and associated costs resulting from this compliance assessment and licence review.”

As well as the question as to whether the fines are proportionate, all eyes are on the UKGC and if it is governing the industry in a fair manner. In January, the UKGC was labelled a regulator “gone rogue” by the Parliamentary All-Party Betting and Gaming Group. The group’s 178-page report suggested it had received evidence the UKGC had been a “failed” regulator for “a number of years now”.

The times they are a-changin’

If that is the case, how is the UKGC expected to operate in a post-white paper world? Ellis responds: “Increased regulatory oversight by the UKGC is almost certainly going to be one of the outcomes of the white paper and there is little doubt that it will need additional resources to implement this.”

Pointing to recent comments from the government, she adds that the “UKGC will be expected to receive and review data from gambling operators about player gambling activity, which will necessitate new software systems and additional personnel.

“Even under the current regime, to properly govern the industry the UKGC needs to significantly increase its efficiency. Either licence fees will need to increase further, or the government will need to divert tax revenues to add to the regulator’s funding,” she adds.

Clifton says that while he thought the UKGC’s future as the British gambling regulator was secure, following its “low point” in 2021 with the Football Index scandal, the regulatory body was well on the way to position itself in the post-white paper world. He did, however, add a word of caution, saying: “Whether the UKGC will truly be in a position to properly govern the industry in the future will depend to a very great extent on what results from the publication of the gambling review white paper.”

He also stresses the need for the UKGC to “collaborate with the industry and tackle the challenges of a new regulatory environment together”.

The government review will clearly cause some upheaval, but while the question of what will actually be included in updates to the gambling laws hangs in the air, an assessment of the UKGC is already underway.

Zarb-Cousin says: “The Gambling Commission was conceived of before remote gambling and didn’t regulate it until 2014. An effective regulator for remote gambling needs access to more resources for investigations, more data for real-time oversight, better technology to tackle the black market and emerging products that sit outside of regulation to prevent another Football Index.”

In its 2021 compliance and enforcement report, the UKGC announced that it had collected fines or settlements to the sum of £32.1m from 15 different operators, yet the same mistakes continue to be made.

Speaking at the time, Andrew Rhodes, UKGC CEO, stated: “I am impressed by the amount of enforcement work carried out, but it is also disappointing that it should be necessary. Looking back at enforcement in 2020/21, we see the same two weaknesses in almost every case – operators failing to adhere to social responsibility and AML rules.”

UKGC CEO Andrew Rhodes

A single customer view

So, what measures need to be introduced for the industry (or specifically the same companies) to stop making the same errors? Zarb-Cousin indicates that an independent single customer view (SCV) would help, especially if operated by “a new gambling ombudsman”.

Although, countering that statement, Clifton added that the UKGC operates well and will continue to do so. He says that “many of the negative national media headlines still hark back to historic failings by UK licensed operators”.

And while some mistakes will still be made, he adds: “Little further patience on the part of the UKGC can be expected where failings resulting from such mistakes are of a systemic, prolonged or repetitive nature or where they provide yet further examples of financially vulnerable customers sustaining ‘clearly unaffordable’ losses.”

Ellis also stresses that for the UKGC to progress, and for the industry to follow with it, the regulator should be “clearer about its expectations”. She stresses that operators should be able to determine what compliance measures need to be put in place without the need to “review and interpret numerous documents of unclear status and regulatory action about failures occurring two to three years ago”.

Would the UKGC benefit from someone like Zarb-Cousin sat around the table with them? When asked, he says: “After 10 years involved with gambling reform campaigns, I hope I can consider myself one of a handful of people with the level of knowledge on this subject that can inform public policy and regulation. I don’t mind whether that’s directly or indirectly, or if my role is formal or through more informal avenues. The important thing is we get it right.”

With the gambling industry in the UK standing on the precipice of major regulatory change, the question remains as to whether fines within the industry are having the desired impact in preventing failures to begin with.

In retrospect, the recent spate of fines suggests that the UKGC is clamping down hard on breaches by licensees, although in the same breath it could also be argued that the number of fines handed out shows that operators do not take them as seriously as they should.

Repeated failures come as a frustration to regulators, reformers and operators alike, and high-profile fines do nothing to improve the image of an industry that is under intense scrutiny at the moment.

There is no doubt that the landscape is soon to change, but to what extent? No one knows for certain.