UK
Majority of revised UK LCCP
changes come into effect
On 4 August, the UK Gambling
Commission enacted a raft of wideranging changes to the Licence
Conditions and Codes of Practice
(‘LCCP’), with which all operators
licensed by the UK Gambling
Commission must comply. In this
article, Andrew Danson and
Elizabeth Dunn of K&L Gates
discuss some of the key changes,
what they might mean for
operators, and the basis on which
they are being introduced.
Whilst operators already licensed
by the UK Gambling Commission
(‘Commission’) should already be
complying with these amended
requirements, the many operators
who will be applying for a licence
in preparation for the coming into
force of the new point of
consumption regime on 1 October
2014 will need to demonstrate to
the Commission in their licence
applications that they will be in a
position to comply.
Customer funds protection
Prior to 4 August 2014, the
Commission took a caveat emptor
(buyer beware) approach to all
forms of funds held by operators,
requiring operators only to inform
customers about what level of
protection was (or was not)
provided. However, following a
number of high profile incidents
where customer funds held by
operators have been put at risk, the
Commission has addressed this
issue and introduced amendments
to strengthen the protection of
customer funds.
In licence condition 4, the
Commission has introduced:
! a requirement for remote
gambling operators to hold
customer funds in a client account
separate from other company
World Online Gambling Law Report - August 2014
accounts. This is a minimum
requirement for all remote
gambling operators and an
operator may choose to implement
additional protections, for example
using insurance and/or an
independent trust account;
! enhanced disclosure
requirements to customers through
the use of a standard rating system
for assessing the level of protection
of customer funds by each
operator. This rating and
information about the protection
of customer funds must be
displayed prominently on the web
page used for depositing customer
funds;
! an obligation to require
customers, at the point of
depositing funds for the first time,
and after any change to the
operator’s terms in relation to the
protection of customer funds, to
confirm that they have read and
understood the potential risk to
their funds before being able to use
the funds for gambling;
! an obligation to notify
customers in advance of any
changes in the operator’s policy for
protection of customer funds; and
! a new key event, which will
require operators to notify the
Commission if there is any change
in its arrangements for the
protection of customers funds and,
where it holds customer funds in a
separate bank account, any deficit
on reconciliation of such bank
account.
Of all the Commission’s changes,
this is perhaps the most readily
justified, and should lead to
increased consumer awareness and
decreased consumer risk. It is
possible that it could also lead to
consumers preferring to gamble
with operators offering increased
protection measures, especially
once a rating system is introduced,
although the extent to which that is
likely to outweigh one or more of
better odds, prizes, customer
experience and/or brand
recognition is questionable.
Responsibility for
subcontractors
The Commission has introduced
social responsibility provisions
(code provisions 1.1.2 and 1.1.3),
requiring all operators to take
responsibility for third parties with
which they contract for the
provision of gambling related
services. Operators are required to
impose certain terms in contracts
with such third parties, including a
termination right (subject to
compliance with any dispute
resolution provisions of the
contract) for acting in a manner
inconsistent with the
Commission’s licensing objectives.
Remote operators will also be
required to ensure that: (i) third
parties who provide user interfaces
comply with the Commission’s
technical standards, with a right of
termination if they do not; and (ii)
contracts with affiliates include a
right of termination if the affiliate
is in breach of a relevant
advertising code (in each case with
such termination rights being
subject to compliance with any
dispute resolution provisions of
the contract).
The Commission has stated that
this provision is a means of
ensuring that each party to the
contract is clear on its roles and
responsibilities under the contract,
and on the possible consequences
of failure to meet those
responsibilities. The Commission
also considers that the
introduction of these social
responsibility provisions is a way of
protecting operators in serious
situations where an inability to
terminate a contract could place
the operator’s own licence at risk.
However, these provisions also
constitute a significant incursion
by the Commission into contracts
between two commercial entities,
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UK
and have the potential to be
particularly disruptive to an
operator’s commercial
relationships. As these
requirements would apply to
existing as well as future contracts,
licensees and applicants will be
required to consider which of their
(possibly many) contracts are
affected by this requirement, and
need to be amended in order to
ensure compliance, which is likely
to require the other contracting
party’s consent. Operators should
also ensure that any standard form
contracts maintained by the
operator (or contracts currently
under negotiation) are amended to
reflect these requirements.
Network operators
The Commission has introduced a
new licence condition (3.1.2)
requiring all network operators
(including poker and bingo
network operators) to have
effective measures in place to: (i)
ensure that each player in Britain
plays only with a Commissionlicensed operator (whether the
network operator or another
Commission-licensed operator);
(ii) ensure effective information
sharing to enable all parties to
comply with their regulatory
obligations; and (iii) ensure that
arrangements between the network
operator and any British remote
casino licence holder through
which players in Britain access
their facilities, and with operators
not licensed by the Commission
through which players use their
facilities outside Britain, provide in
clear terms as to which operator is
to be responsible for the handling
of which categories of customer
complaint and dispute.
The Commission has also
introduced a new licence condition
(3.1.1), which applies to peer to
peer (i.e. poker) network operators
only (and not bingo or other
network operators), when pooling
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British players with players from
outside Britain that have entered
via a non-Commission licensed
operator, to have effective measures
to: (i) ensure that such nonCommission licensed operators
hold the appropriate permissions
in the country in which they are
domiciled or incorporated; (ii)
approve such operators as being
suitable, having conducted their
own due diligence enquiries; and
(iii) satisfy themselves that such
operators have in place measures to
identify customers that are broadly
equivalent to measures required by
the Third Money Laundering
Directive.
These requirements will require
many network operators to carry
out increased due diligence on the
operators with which they deal as
part of their business, both
currently and in the future, and to
carefully review the policies,
procedures and controls that they
have in place to ensure that these
are sufficient to ensure the
operator is compliant with these
new requirements. They also
require poker network operators in
particular to act as quasi-regulators
of the operators on their network.
Key events
The Commission has expanded the
key events which must be reported
to the Commission according to
licence condition 15, including new
requirements to notify the
Commission of: (i) the grant,
refusal or withdrawal of any licence
in any jurisdiction; (ii) any changes
in their payment processing
arrangements; and (iii) the unique
reference number of any suspicious
activity report made by the
operator under the Proceeds of
Crime Act or the Terrorism Act.
It will be important for operators
to ensure that the individual(s)
responsible for notifying the
Commission of key events is made
aware of any relevant changes to
the business, which will need to be
reported, and that all potentially
relevant employees are also made
aware of these requirements.
Consumer terms
The Commission has amended
licence condition 7, which requires
operators to publish consumer
terms that are fair and open, to
extend it to require operators to
also comply with those terms. The
Commission received a number of
responses to its consultation on
this proposed amendment to the
LCCP from operators that
considered that this amendment
was unnecessary, not least because
any consumer would be likely to
have a direct right of action against
an operator that failed to comply
with its own terms and conditions.
However, the Commission has
maintained that the change is
necessary because, in the past, it
has found itself unable to take
sanctions against operators in
situations where a business’ terms
and conditions do not reflect the
practical operation of that
business, ultimately disadvantaging
the customer.
Operators should, of course,
already be careful to check their
terms and conditions regularly to
ensure that they accurately reflect
the practicalities of the manner in
which the gambling services are
provided to the consumer. If that
exercise is given greater priority
because of the new regulation, as
opposed to contract and consumer
law, consequences, then that would
be a positive outcome.
Other changes
The Commission has also
introduced the following changes
to the LCCP (this is not an
exhaustive list):
! a new ordinary code provision
1.1.1, which requires licensees to
work with the Commission in an
open and cooperative way, and to
World Online Gambling Law Report - August 2014
UK
disclose anything that the
Commission would reasonably
need to be aware of. This seems
like a ‘catch all’ provision that the
Commission could use against
licensees for a wide variety of
suspected indiscretions;
! an addition to licence
condition 1.2, which relates to
personal licences, which specifies
that individuals occupying the
management office of regulatory
compliance must not, except with
the Commission’s express
approval, occupy any other
specified management office. This
applies to all gambling operators
other than small scale operators,
and may require licensees and
applicants to restructure their
management teams and apply for
new Personal Management
Licences;
! a new licence condition 5.1,
which requires remote gambling
operators, if they accept payment
by a method falling within the
definition of ‘payment service’
under the UK Payment Services
Regulations, to ensure that the
payment service provider is
properly regulated in the EEA. The
purpose of this is stated to be to
require remote gambling operators
to conduct due diligence into the
payment methods, and payment
processors, which they use, and to
ensure they are appropriate, which
again appears to transfer a quasiregulatory responsibility to
operators;
! an amended social
responsibility provision (code
provision 6.1), which requires
licensees to have arrangements in
place for customers to refer, free of
charge, disputes not resolved to the
customer’s satisfaction by use of
the operator’s complaints
procedure to an independent
person offering alternative dispute
resolution (‘ADR’), and to make
information about it readily
available. A copy of any decision by
World Online Gambling Law Report - August 2014
Following a
number of
high profile
incidents
where
customer
funds held by
operators
have been
put at risk,
the
Commission
has
addressed
this issue and
introduced
amendments
to strengthen
the
protection of
customer
funds
the ADR body must be provided to
the Commission, as well as the
outcome of any material adverse
decisions against the licensee
anywhere in the world. This seems
to be a great result for ADR bodies,
and may well require operators
and applicants to revise existing
dispute resolution processes;
! a new ordinary code provision
(code provision 8.1.2), which
clarifies the Commission’s
expectations about reporting
suspicions of match-fixing and
cheating, and has been widely
welcomed by the sports industry;
and
! an amended ordinary code
provision (code provision 2.1.2) on
the prevention and detection of
money laundering, which will
require licensees to take into
account the Commission’s advice
on the Proceeds of Crime Act
2002.
Software suppliers
The new licence condition 2.2,
which requires all gambling
software used by a licensed
operator to have been supplied by
a holder of a gambling software
licence from the Commission, will
come into force on 30 January
2015 (and has, therefore, not been
discussed further in this article).
Further consultations
The Commission opened a further
consultation in August 2014 on
proposed amendments to the
social responsibility provisions in
the LCCP, which it says reflects
developments in social
responsibility practice and the
significantly improved
understanding of risk since the
LCCP was first introduced in 2007.
With further amendments in the
pipeline, it seems the
Commission’s licensees will be
required to cope with additional
regulatory requirements in the
near future.
Analysis
The introduction by the
Commission of these additional
requirements for licensees
strengthens and deepens the
regulation of gambling services
provided to customers in Great
Britain and is, in many ways,
laudable. However, increasing
regulation needs to be balanced
with the burden this places on
licensees and, for many operators
(particularly those who are already
licensed in at least one other
jurisdiction), compliance with the
revised LCCP will create an
increased cost and time burden on
already heavily regulated
businesses.
The question of whether these
changes will really have a material
effect on consumer protection
remains to be seen. It would
certainly be interesting to know
what (if any) evidence there is of
consumer harm that has occurred
in the last seven years, during
which the industry has operated
under the previous LCCP (and the
point of supply regime), which
would have been prevented if all
operators providing services to
British customers had been subject
to the revised LCCP. Indeed, cynics
might wonder whether these
changes were motivated most by a
pressing need to remedy an
existing consumer protection
problem, prevent future issues, or
to provide an EU-law compliant
justification for the introduction of
the new point of consumption tax.
Andrew R. Danson Partner
Elizabeth J. Dunn Associate
K&L Gates, London
andrew.danson@klgates.com
elizabeth.dunn@klgates.com
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