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, 03 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 04 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 05