What would effective UK loot box regulation look like?

Loot boxes continue to be big business for the games industry and generate roughly $15bn a year, according to Harvard Business School. The majority of the highest-grossing video games continue to use loot boxes as a way of monetising in-game features, despite calls for increased regulatory scrutiny.

While the Gambling Commission has identified loot boxes as a “potential risk to children and young people”, the regulator does not classify them as a form of gambling under the Gambling Act 2005 for the purposes of enforcement.

The Department for Culture, Media and Sport recently published a comprehensive white paper focused on gambling reform which reiterated the government’s position on loot boxes, stating that industry-led protections should be favoured.

As a result, the Association for UK Interactive Entertainment (UKIE) published new principles and guidance for loot boxes on 18 July 2023. Its principles focus primarily on improving protection for children and young people, such as having clear spending controls, the need for parental consent for loot boxes purchased by under-18s and lenient refund policies.

UKIE also shared guidance for best practice, which includes using the following descriptor from the Pan-European Game Information (PEGI) ratings system to disclose paid loot boxes: “In-game purchases (includes random items).”

While industry-led self-regulation has its advantages, it can pose enforcement problems, since there are not always legal consequences arising from breaches.

Other enforcement bodies, such as the Advertising Standards Authority (ASA), have assisted in filling the enforcement gap by upholding various complaints in relation to the advertisement of loot boxes and games containing loot boxes. However, even these rulings depended on the proactive efforts of Leon Y Xiao, an academic researcher of game regulation, to bring the issues to the ASA’s attention.

Looking out and ahead: was gambling regulation a side quest all along?

At present, the UK’s self-regulation approach for the industry is strikingly different to approaches taken elsewhere. There is general momentum across other territories to regulate loot boxes for the purpose of protecting children and young people through legislation.

Some countries in the EU and Asia go further – Taiwan, South Korea and Italy all require probability disclosure, with the Netherlands requiring the real-money purchase price to be displayed in addition to probability disclosures. Belgium has an outright ban on loot boxes (though this is reportedly not properly enforced in practice).

However, a report by the European Parliament called for PEGI to provide recommendations on the way forward in the EU, suggesting that there may be a push towards an industry-led approach taken by the UK.

To date, the focus on regulation of loot boxes has been through a gambling lens, which has led to significant variations between territories (depending on how widely they define gambling). However, there is merit for considering loot boxes more widely within consumer protection.

In the EU report, the European Parliament suggested a coordinated approach to be examined from the perspective of consumer protection legislation. This could be more effective as it ties back to the principles of regulating loot boxes in the first place (ie. protecting children and young adults) rather than fitting the mould of gambling regulation.

Time will tell whether the legislation-based or industry-led approach (or both) works better, but a more holistic approach to loot box regulation through consumer protection legislation could be the way for the UK going forward.

Nick Breen is a partner at international law firm Reed Smith, advising across a range of regulatory, commercial and copyright matters. He focuses on digital media, music, advertising, video games, blockchain and NFTs.