Changes to the licence conditions and codes of practice on High Value Customers
9 - Other issues
We noted several recurring observations within the responses concerning a number of wider issues. The responses to each of these topics and our final position are summarised in the next section. There was concern that elements of the guidance, notably the requirement for source of funds checks for all prospective HVCs, would have the unintended outcome of driving higher spending customers towards unlicensed gambling businesses.
Risk of consumers migrating to unlicensed licensees
It was suggested that we adopt the approach set out in the industry voluntary code, which committed to enhanced know your customer and sustainability of spend checks or that we introduce IP blocking software to reduce the risk of consumers accessing unlicensed licensees online.
This consultation is concerned with raising the standards of consumer protection offered by Gambling Commission licence holders. Consumer protection is not helped in our view by suppressing standards in the licensed market because of an unsubstantiated risk that consumers will seek out illegal operators. The response to that risk is to tackle unlicensed operators alongside improving standards in the legal market.
Where unlicensed licensees are identified and found to be targeting British consumers, we will act to ensure they cease these activities.
Status of guidance
Respondents generally agreed that the proposed guidance provided helpful direction to licensees whilst retaining the flexibility associated with outcome-based regulation. In some instances, however, concerns were raised around the effectiveness of guidance over more formal regulatory requirements.
The absence of a clear distinction between what is required under regulation and efforts to drive standards beyond minimum requirements was considered at odds with established public law principles of clarity, precision and consistency.
Several respondents referred to the use of the term should as potentially limiting the guidance’s enforceability or – based on how the term has been defined – placing the guidance on equal footing with a mandatory requirement, which could result in the imposition of new onerous requirements without sufficient industry engagement.
It was suggested that the Commission publish a checklist of measures that needed to be implemented, with guidance used to inform the development of good practice and staff training.
Some respondents called for greater transparency in the sanctions that would be imposed for specific breaches such as a clear reference table of financial liability for non-conformity with sanctions to include refund of losses and a penalty in order of magnitude greater than the losses. It was further suggested that the nature of sanctions be guided by a sliding scale of enforcement action based on the severity of a breach.
We consider the wording of the guidance to be consistent with an outcome-based approach and avoids a prescriptive ‘one size fits all’ regulatory requirement. Business models and approaches vary across different sectors of the gambling industry but the guidance makes clear the minimum standards we consider are necessary to minimise the risks that are inherent with incentivising highly engaged gamblers.
We consider that the provision of a checklist or prescriptive set of procedures intended to cover all scenarios and business models would be counter-productive.
We also acknowledge that a number of respondents favoured an outright ban of HVC schemes given the manner in which they have been found to operate in the past.
The effectiveness of the approach we are taking relies upon licensees taking responsibility for ensuring they operate their businesses to comply with both the letter and the spirit of the requirement. Licensees are on notice that where this approach fails to deliver the outcomes required, we will propose more prescriptive requirements either for specific licensees or through additional general licence conditions. Further details on the criteria used to assess the severity of regulatory actions is set out in our statement of principles for determining financial penalties.
Clarification of terms
There were calls to further define several other terms included in the guidance to ensure behaviours align with our expectations, specifically:
- Reference to additional specific controls relating to customer checks, noting that failure to meet this expectation would put the operating and personal licence at risk.
- Expanding on what type of vulnerabilities are covered within behavioural vulnerability.
- The term notable events in the oversight and accountability section and whether, in the interest of proportionality, such events should cover customers that have not been contactable over a prolonged period of time.
- Clarification as to what the reasonable steps needed to verify information and conduct ongoing checks would entail, given the likelihood that customer would be unwilling to divulge sensitive information.
- Clarification as to what proportion of a gambler's disposable income can reasonably constitute "affordable" losses.
- Requests to further define the need for up-to-date information in order to ensure consistency and a level playing field in the application of this requirement.
The nature of the controls applied in any given instance will depend on the outcome of a customer’s risk assessment. However, where there are concerns that a consumer’s circumstances have changed a licensee will need to review the appropriateness of their HVC membership and ensure necessary protections and safeguards are put in place (for example, limiting customer spend, suspending further incentives and/or terminating the HVC membership).
Behavioural vulnerability is used to describe individuals with a higher than standard level of trust or high appetite for risk. These qualities could make someone more susceptible to the influence of third parties or likely to make decisions that could result in more serious consequences.
The guidance is seeking to prevent scenarios where such vulnerability is exploited by licensees to encourage unaffordable gambling.
Our upcoming consultation on customer interaction is likely to explore consumer vulnerabilities in more depth and we will reflect any additional guidance that arises from that process to further support licensees.
We consider it important, for audit purposes, that licensees maintain a record of instances where a customer has not responded to an attempt by the licensee to make contact.
In relation to the term reasonable steps, licensees must be able to evidence that they have made a conscious effort to verify the information provided to them is accurate and conducted additional checks where there is doubt. We see regular evidence of such checks being undertaken for commercial purposes and would expect the same rigour to be applied to regulatory checks.
It is not possible to provide a single figure as to the amount of disposable income individuals are able to spend on gambling or what would constitute an ‘affordable loss’. By their nature HVCs are often spending atypical sums on gambling which would be unaffordable for most of the wider customer base.
Given licensees are seeking to derive the commercial benefit from these customers it is incumbent on them to ensure the amounts customers are spending are affordable and are not as we have seen in several cases, sustained through problem debt and/or the proceeds of crime.
The Commission will shortly be exploring themes including ‘affordability’ more extensively in a consultation on customer interaction. Any changes to requirements which apply to all customers will also apply to HVCs as a subset of the wider customer base.
Licensees should review the evidence it holds on a customer is updated to reflect any changes in personal circumstance. In the absence of any change in the risk assessment, licensees should, at a minimum, undertake a review of an HVC’s account at least quarterly.
The purpose of this guidance is to avoid scenarios where a significant change in a customer’s circumstances, such as bankruptcy, conviction, or recorded markers of harm, goes undetected and unactioned for an extended period.
There were requests for the Gambling Commission to provide a clear overview of our approach to measuring the effectiveness of any new measures implemented by industry, as described in our industry challenge progress report. One respondent expressed concern that gambling related crime be used as an indication of the effectiveness of certain controls when an increase in affordability and KYC checks could lead to an uplift in detection and prosecution of criminal activity. Such an outcome, should it transpire, could give the false impression that the situation has worsened.
It was noted that even full compliance with LCCP would not resolve the likelihood of certain individuals experiencing gambling-related harm. A similar observation was made in relation to preventing gambling related crime. One respondent highlighted the challenges of measuring impact where the requirements have not been applied consistently, further highlighting the need for a clear measurable policy objective.
Once the new requirements are in place, we will measure their effectiveness through compliance assessments and by monitoring the volume of enforcement casework related to HVCs from the point at which the requirements take effect. We will also explore what data can be collected to monitor any changes in the number of HVCs, their contribution to licensees gross gambling yield (GGY) and how many customers are subject to and fail to meet the new due diligence criteria.
We consider the proposed code and guidance gives us a clearer basis to raise standards and we will monitor the effectiveness of the guidance through our ongoing compliance and enforcement work. If this approach fails to deliver the outcomes required, we will revisit the need to impose more prescriptive requirements for specific licensees or general requirements.Previous section
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HVC Response 10 - Annex A: Amended social responsibility code provision