Gambling

Written evidence submitted by the Gambling Commission (GA 68)

Summary

· From a regulatory perspective, t he Gambling Act 2005 (the Act) provides a set of tools that are broadly fit for the purpose of regulating gambling , although it can be improved in places , notably in relation to remote gambling . The system of shared regulation, with a single national regulator (the Commission) and very many local regulators (Licensing Authorities and Boards) is still not fully understood or supported and therefore present s a challenge to the Commission and local regulators to make it work effectively.

· The flexibility of the Act offers considerable scope to the Government of the day to determine the approach to regulating gambling in Great Britain. Secondary and tertiary legislation can be used as well as the primary Act to support a wide range of strategic policy objectives.

· The regulation of gambling is improving over time. This is partly a result of the embedding of the Act, learning and improvements by the Comm ission and industry and partly the nature of the regime which allows a broad range of regulatory responses.

· The Commission takes a risk based approach to regulation, in line with principles set out in the Hampton Report [1] . We keep our approach under review to spot and mitigate emerging risks to the l icensing o bjectives while keeping regulatory burdens to a minimum .

· While the Commission has a significantly broader remit than its predecessor , [2] its operating costs are closely comparable . The Commission is wholly funded through fees paid by the industry. Pressures on costs are rising as a result of the increasing volume and complexity of regulatory issues and cases.

· Recent research shows that the rate of gambling participation has increased in recent years and problem gambling has probably also increased. A better understanding is need ed of ways in which harm from problem gambling [3] could be minimised.

· The Responsible Gambling Strategy Board (RGSB), with input from the expert panels, should prove to be an effective way of obtaining the necessary advice on research, education and treatment (RET) for the Commission and government. At this stage, the voluntary arrangements are not working in practice as well as we would have hoped.

Introduction

1. The Gambling Commission (the Commission) is the national regulator for all forms of commercial gambling in Great Britain except for spread betting and the National Lottery. Funded by licence fees, the Commission is an independent non-departmental public body sponsored by the Department for Culture, Media and Sport (DCMS). It is also a prosecuting authority, is the money laundering supervisory body for the casino sector and has a statutory duty to advise central and local government about gambling and its regulation.

2. The Commission operates under the three licensing objectives prescribed by the Gambling Act 2005 (the Act): to keep gambling crime free, fair and open and to protect children and other vulnerable people from associated harm. The Commission has an overriding obligation to pursue and have regard to the objectives, and to permit gambling so far as it thinks it is reasonably consistent with them. General ‘sponsorship’ of the industry is not part of our role, but clearly we do take into account economic impact when considering the proportionality of regulation.

3. A risk-based regulator, the Commission licenses operators and individuals and ensures compliance with the Act and with the licence conditions and codes of practice (LCCP) [4] ; taking enforcement action where necessary.  The Commission is primarily focused on high impact operators and issues (including illegal activity) of a regional or national significance.  

L egislative framework for gambling

4. The Act introduced a new licensing regime for commercial gambling, which brought casinos, bingo, betting, arcades, lotteries and remote gambling into a unified regime.

5. The Commission first published its statement of principles for licensing and regulation in 2006. Pursuit of the licensing objectives is integral to the new regime, which in turn means that they should be integrated into operators’ policies and procedures.

6. The Act created a system of joint regulation between the Commission and licensing authorities (LAs). As such, it was never foreseen that the Commission would take a role in compliance and enforcement issues of a local nature and indeed was not resourced on that basis. We provide technical support and expertise to LAs, local police and other organisations, while concentrating our own regulatory effort at a regional and national level.

7. While the Act seeks to accommodate commercial and technological changes, there are some limitations in the current legislation. Remote gambling is one example. Another example, where our concerns are shared by stakeholders in Scotland including COSLA [5] and SOLAR [6] , is the different licensing authority arrangements that exist in Scotland, which create difficulties in implementing a shared regulation model, as local authority officers in Scotland do not have the same powers of entry as their English and Welsh counterparts.

8. Equally, the Commission considers that there may be scope for further deregulation in some areas. The nature of the Act is that much detail is not contained in primary legislation and there may also be scope for changing the balance currently enshrined in secondary legislation. One area where the Act does specify detailed rules is in relation to small lotteries where it arguably imposes burdensome requirements on small lotteries that make it harder for small charitable enterprises to use lotteries to raise funds for ‘good causes’.

Regulatory approach

9. The Commission’s regulatory approach focus es on outcomes in relation to the licensing objectives . We avoid prescriptive detail – although we find that our requirements are sometimes ‘translated’ into more detailed requirements than intended . We keep our approach under review as our knowledge and expertise and that of operators and ou r regulatory partners increases. T his enables us to improve our effectiveness and to reduce , wherever possible , the regulatory burden on the industry. This is illustrated, for example, in our recent review of the casino games trial approval process [7] .

10. The Commission has a range of regulatory tools; we tailor their use for maximum impact given our finite resources. Our regulatory powers are used to stop, disrupt and deter non - compliant behaviour : we give advice, we issue formal warnings, fi nancial penalties are used where licence conditions have been breached and , where we have serious concerns about suitability , we suspen d or revoke operating and personal licences . Where necessary we prosecute .

11. We have invested considerable effort to ensure an understanding of and compliance with the new Act. We have provided advice and guidance, visited and talked with operators, built strong relationships with trade associations, faith groups and we have collaborated with other regulators and law enforcement bodies. This investment is paying off with the overwhelming majority of licensed operators compliant and understanding the requirements of the Act so that we can increasingly target our resources towards high impact operators and issues, including illegal gambling provision, i.e. those of regional or national importance.

12. While the licensing objectives are increasingly well embedded in the regulated industry, there can be a gap between policies and practice and it is a key part of the Commission’s role to identify such gaps and to work with the industry to address them. For example, in 2009 the Commission tested the age verification procedures in a sample of betting shops run by the largest operators and initially found a 98% failure rate. We called on the industry to implement immediate remedial measures. Critically, the larger operators also put in place their own arrangements to check the effectiveness of their training in this area. Subsequent retesting showed a great improvement in the proportion of shop staff correctly challenging and refusing service to an under age person. [8]

13. Another area of risk is the integrity of sports betting. We have established a Sports Betting Intelligence Unit, which collects information and acts as a hub for intelligence about potentially corrupt betting activity involving sport within Great Britain and abroad. About 200 betting integrity issues have been referred to the Commission since September 2007. Working with the police and sports governing bodies our aim is to stop, disrupt and deter betting corruption.

14. Recognising the importance of all partners working together to tackle issues concerning sports betting integrity, we have worked closely with sports governing bodies, the betting industry and other enforcement bodies to ensure that the necessary components of an effective strategy are established. These include sports having rules, education and sanctions in place to take swift action, betting operators making it hard for corruptors to profit (through the implementation of mechanisms to spot them, report them and withhold pay-outs), the Sports Betting Intelligence Unit managing the intelligence generated and the Commission taking enforcement action where appropriate. This is underpinned by information sharing. While domestically this is largely in place, further work is needed internationally to ensure successful cross-jurisdictional working. In addition, the Parry report [9] identified a role for Government in reviewing the powers contained in the Act.

Fees and costs

15. The Commission’s initial five year financial plan was for application fees and annual fees to recover the Commission costs over that period, so that fees could be held broadly constant in real terms. We expect changes to the fee structure to reflect the planned shift of emphasis away from smaller operators – as we come to the end of the initial period of education and capacity building – and more towards managing regulatory risks and issues of more national significance.

16. In 2003/4 the Gaming Board employed 75 people and regulated 850 venues with a gross gaming yield (GGY) [10] of £3bn at a cost of £4.1m (of which £1.9m was paid by the industry). In 2010-11 [11] the Commission had 203 employees, regulated 12,000 venues with a GGY of £8.4bn [12] at a cost of around £13m [13] . Including the GGY of UK consumers using overseas sites (on which the Commission still has to advise the government and monitor their impact) the cost of the Commission as a proportion of GGY is around 0.15%. This compares to the Gaming Board (around 0.14%).

17. While we consider that the costs recovered from industry are soundly based, we continue to work on ways to improve our efficiency. We have streamlined and improved our working practices. This has enabled us to reduce our costs whilst increasing our capacity to provide advice on issues, such as the implications of changes to the regulation of remote gambling, and changes to stakes and prizes.

18. W e have r educe d operating costs by around £1.9m over the course of the last two fiscal years . In future, we expect costs to remain at a similar level but our expenditure profile will change . As our work becomes eve n more focussed on hig her impact issues and operators , we expect to need to use more specialised staff and resources and the costs of prosecution s or complex regulatory c ases are likely to remain a significant upward pressure.

Remote gambling regulation

19. The Gambling Act restricted the advertising of remote gambling in Great Britain to those operators licensed by the Commission or by other EEA States, Gibraltar or jurisdictions on the government’s ‘white-list’. Only those operators with remote gambling equipment in Great Britain can be licensed by the Commission. Operators wishing to target the UK market may therefore choose instead to be regulated in one of the fiscally more attractive jurisdictions.

20. Since 2007, a number of large remote betting operators have decided to relocate some or all of their business offshore. The size of the remote market regulated by the Commission has reduced from around £890m to around £630m [14] . The majority of those now licensed by the Commission are small to medium in size, with the vast majority of UK customers’ online gambling provided by operators regulated overseas.

21. The Commission assisted the DCMS with its review of remote gambling regulation and its subsequent consultations on the proposal to move from the current ‘point of supply’ basis to ‘point of consumption’ in line with other countries which now regulate remote gambling. These proposals to extend Commission licensing to cover those who target British consumers were designed to address the weaknesses identified which include:

· operators in Britain (both remote and non-remote) being undercut by their overseas counterparts facing less stringent regulatory and fiscal requirements,

· while many overseas operators comply, those responsible for the majority of UK customer online gambling activity are not directly subject to the Commission’s regulatory requirements; cannot be compelled to make suspicious activity reports to British anti-money laundering authorities; to report suspect betting activity directly to the Commission (or relevant sport governing body) even where that activity involves British sport or British consumers; or to provide data on gambling provision; or to contribute to research, education and treatment of problem gambling in Great Britain,

· consumers’ confusion about which regulator can help them - approximately 45% of calls to the Commission’s contact centre about remote gambling are customers seeking to complain about operators licensed overseas,

· it is increasingly difficult for the Commission to advise government on remote gambling owing to the limited information on a significant proportion of the market and reduced licence fee income to finance, for example, age verification test purchasing.

Gaming machines

22. The Act introduced a new regime for gaming machines, including a new definition of gaming machine together with powers to prescribe categories. Although the new framework has made it simpler to accommodate new product developments within the regulatory framework, its focus on controls built into the machine – for example, stake and prize limits and technical standards – has arguably worked against innovation in the industry. In addition, the approach to regulation of machine numbers – with strict limits on the number that can be made available in different types of premises, but no overall limit in the community – has led to some unintended outcomes – for example, the creation of ‘split premises’, or artificial conversions to different types of premises with greater machine entitlements.

23. The Commission has managed some of the issues that have arisen as a result by, for example, provid ing guidance to LAs on premises splitting and ‘primary gambling activity and introduc ing a licence condition to ensure that the activities taking place reflect the nature o f the licence held.

24. In the longer term, however, it is an area of law and policy that may need to be reconsidered. The Commission has been encouraging the industry to consider t he future of machines regulation. In particular, there may be scope to consider whether it may be possible to harness technology to move from a system of blanket controls built into the product (for example restrictions on stake s and prizes) to one in which the player is encourage d and enabled to take control of his or her play (for example through feedback of information about time and money spent), and where player data might be used to tailor interventions around individual players. There is potential to deliver both improved regulation and protection for the vulnerable a nd freedom for the industry to innovate.

25. In the meantime, the Act does provide sufficient flexibility to manage issues within the framework as they arise . For example the Commission worked with the industry and HMRC to develop advice and characteristics to help the industry stay the right side of the regulatory boundary between skill with prizes machines (not regulated) and skill and chance combined machines (regulated). We are able to use tertiary legislation to provide detailed management of the framework, as exemplified in our recent consultation on changes to the category C technic al standards based on proposals from BACTA.

Problem gambling

26. The issue of problem gambling is central to the delivery of the third licensing objective. A small proportion of gamblers and their families are harmed by their gambling behaviour. The risk and impact of problem gambling is managed through a combination of prevention (which may take a variety of forms, including education and information, intervention by gambling providers, regulation etc) and treatment, although research on what is effective is currently very limited. For these reasons, the Commission has embedded a series of outcome based requirements in its social responsibility codes. With evidence from research and experience, the Commission expects to develop further best practice advice.

27. In 2007 the Commission published its first British Gambling Prevalence Survey (BGPS), which mirrored a similar study carried out in 1999. The survey collected baseline data on gambling behaviour in Britain before the introduction of the Gambling Act in September 2007. We repeated the survey in 2009/10 and published the results in February 2011 [15] providing comparable results and trends in gambling participation and the rates of problem gambling.

28. The BGPS 2010 showed that there had been an increase in overall gambling participation with 73% of the population gambling in 2010 compared with 68% in 2007. Further exploration of the data shows that the number of frequent gamblers has also increased over that period, although it has not been possible to determine whether there has been an increase in the rate of problem gambling among this group.

29. The problem gambling measures [16] in the 2010 survey showed an increase in the rate of problem gambling in Britain, though the independent authors noted that it is not possible to say whether this represents an upward trend or a temporary fluctuation. The rates observed are similar to those in other European countries where this has been measured (Germany, Norway and Switzerland) and are lower than countries including the USA, Australia and South Africa.

30. The Commission is focused on improving our understanding of the reasons for the apparent correlation between problem gambling and regular gambling on a number of activities.

Research, Education and Treatment (RET)

31. Following our Review of Research, Education and Treatment (RET) [17] , we established the Responsible Gambling Strategy Board [18] (RGSB) in late 2008 with Baroness Julia Neuberger as chair. This was to ensure the Commission and through us, DCMS, had expert, authoritative advice on the RET elements of a national responsible gambling strategy. 

32. As part of the agreement with government to continue to rely on voluntary fundraising and not to impose a levy [19] to raise money for RET, the Responsibility in Gambling Trust (RIGT) accepted the Review’s recommendations for improving the credibility and effectiveness of the research, education and treatment programmes. It separated its fundraising and distribution functions.

33. Under the new tripartite system The GREaT Foundation committed itself to raising funds of at least £5m per annum with a target of over £18m in the first three years from 2009/10 and the Responsible Gambling Fund (RGF) set out to distribute the RET funds raised by GREaT in line with the strategy recommended by RGSB.  Also to avoid duplication and reduce costs the RGSB, a non executive advisory body funded by the Commission [20] , and RGF agreed to share a secretariat and the use of expert research, education and treatment panels.

34. The three year voluntary fundraising targets and underwriting commitments were to be reviewed and agreed annually following consultation. This has not however happened and the three year agreement between GREaT and RGF ends in March 2012. To date, GREaT has met its £5m minimum commitments but has not reached the targeted amounts. Uncertainty over future funding hampers the RGF’s ability to implement the strategy recommended by RGSB, in particular its ability to award three year rolling contracts for services or to commission larger research projects.

35. While the tripartite system has secured some real advances, notably in the improved identification and treatment of those at risk of gambling related harm, there are concerns about cost of overheads and about delays in implementing the strategy. This may be caused in part by uncertainty over future but also by some resistance to the move to seeking better value for money in exchange for industry funding. These concerns are being addressed by GREaT and RGF.

July 2011


[1] Reducing administrative burdens: effective inspection and enforcement , report by Philip Hampton, March 2005

[2] Gaming Board for Great Britain (GBGB)

[3] Broadly defined as gambling behaviour which results in adverse consequences for gamblers and their families (eg financial hardship, breakdown of relationships etc)

[4] LCCP is available on our website at http://www.gamblingcommission.gov.uk/pdf/Licence%20conditions%20and%20codes%20of%20practice%20-%20consolidated%20March%202011.pdf

[5] Convention of Scottish Local Authorities

[6] Society of Local Authority Lawyers & Administrators in Scotland

[7] http://www.gamblingcommission.gov.uk/pdf/Types%20and%20rules%20of%20casino%20and%20other%20games%20responses%20-%20March%202011.pdf

[8] in retesting, a person under 18 years of age was prevented fr om placing a bet at the counter in 65 % of the 160 shops visited. Media release : http://www.gamblingcommission.gov.uk/gh-media/latest_news/2009/mystery_shopping_part2.aspx

[9] Report from the Sports Betting Integrity Panel, chaired by Rick Parry, 2010.

[10] GGY is calculated by subtracting customer winnings from customer stakes

[11] As at 31 March 2011

[12] remote gambling facilities not regulated by the Commission but on which we retain the duty to advise - some studies suggest that Great Britain has the largest consumer market in Europe for remote gambling (eg H2 Gambling Capital 2008) with GGY of over €1.9billion.

[13] Our total income from fees and other sources was £13.3 million in 2010-11, of which £481,000 was received from DCMS as grant in aid to support our research programmes. This funding wil l not be available from 2011-12 and is excluded from the calculation to enable comparison with GBGB costs.

[14] As at March 2010

[15] http://www.gamblingcommission.gov.uk/gh-media/latest_news/2011/bgps_2010.aspx

[15]

[16] Problem gambling was measured using two screening instruments. These are the PGSI and the DSM IV. Problem gambling, measured as a percentage of adults shows that, with the DSM IV screen, prevalence of problem gambling was higher in 2010 (0.9%) than 2007 and 1999 (0.6% in both years). This finding was at the margins of statistical significance. The second tool, the PGSI screen, showed a lower level with around 0.7% of the adult population being affected in 2010 against 0.6 % in 2007. This finding is not statistically significant.

[17] http://www.gamblingcommission.gov.uk/research__consultations/consultations/closed_consultations_with_resp/rret_2.aspx

[18] http://www.rgsb.org.uk

[19] As provided for in s123 of the Act

[20] £250,000 per year

Prepared 1st August 2011