Annex A
Letter from Rt Hon Hugh Robertson MP, Minister
for Sport and Tourism, to Philip Graf, Chair, Gambling Commission,
dated 9 July 2013
We are in the process of developing the Management
Agreement between DCMS and the Gambling Commission reflecting
the Gambling Commission's merger (subject to Parliamentary approval)
with the National Lottery Commission.
The Management Agreement should be ready for the
commencement of the merged operation. To enable you to make the
necessary preparations, and given on-going interest in how the
merged Commission would manage perceived or real conflicts of
interests, I wanted to set out in advance of Parliamentary debates
on the merger the Department's expectations in relation to the
Gambling Commission's governance. As you will understand, DCMS
Ministers need to be confident—and be able to assure Parliament—that
arrangements are in place, or have been readied, to successfully
manage any conflicts, or perceived conflicts, should they arise.
We have both been clear that any such challenges
should be readily manageable. The current legislation is structured
so that there is no read-across between the specific statutory
functions conferred in respect of the National Lottery and the
specific statutory functions relating to other gambling activities;
moreover, the amendments to existing legislation made by the merger
Order will preserve these differences. In so far as concerns have
been expressed, these are essentially directed at separating decision
making processes and managing any perceptions of bias. This can
be addressed by ensuring that the Gambling Commission introduces
safeguards to ensure that its actions are transparent and not
vulnerable to challenge. For example, the duty in respect of maximising
returns to good causes must only apply to decisions on National
Lottery matters, and will continue to be an irrelevant consideration
in the exercise of functions under the Gambling Act 2005.
We have previously determined that it will be important
for the merged Commission to ensure:
- Clear delineation of National
Lottery and gambling decision making, as required by the founding
legislation
- Effective management of the potential for misuse
of commercially sensitive data, whether by using information held
to inappropriately inform a decision in another area or by releasing
information held to a rival operator
- Transparency and accountability when decisions
are taken
DCMS is of the view that being unnecessarily prescriptive
as to precisely how the merged Commission should approach governance
matters in its expanded regulatory role would give rise to inflexibility.
The Department's Management Agreement with the Gambling Commission
will require the Gambling Commission to keep the Department sighted
on governance arrangements and any planned changes of significance,
in addition to existing reporting requirements. At our quarterly
performance discussions, I would like to analyse the operation
of these governance arrangements, and explore how any risks that
arise are being mitigated.
I would expect the Gambling Commission to put in
place arrangements to ensure that:
- Only relevant considerations
are taken into account when decisions are being taken and it is
able, where required, to give adequate reasons for its decisions
by routinely spelling out the legislative provisions being applied
and who has seen the material.
- Commissioners and employees are alert to the
possibility that the merged body's statutory functions may occasionally
give rise to conflicts and appropriate information barriers are
in place to avoid actual, or perceived, conflicts arising in relation
to the exercise of its functions under the relevant legislation.
- Those engaged in handling operator specific information
are properly trained in data security principles and protocols.
In addition, those arrangements should make clear
to interested parties that while the merged Commission will provide
a single source of factual advice on regulatory and economic implications
for various sectors of changes to legislation, the on-going oversight
and review of legislation would remain for Ministers and ultimately
Parliament to determine.
This Management Agreement is still under development.
However, I annex a draft of the relevant section for your consideration;
this sets out what we would expect from the Gambling Commission's
governance arrangements. Whilst the Management Agreement will
define the principles that will ensure the transparency of your
dealings, I expect the GC to outline the specific governance arrangements
that it will put in place. I understand that the Commission is
already giving thought to establishing a National Lottery subcommittee
to enable commercially sensitive investment and performance National
Lottery issues to be considered in detail before recommendations
are made to the main Board.
I am certain we can expect a high degree of public
and commercial scrutiny around decision-making whilst procedures
for the newly merged organisation bed down. I welcome this scrutiny
as it will provide opportunities to address any concerns or misperceptions
that persist. We will continue to monitor lottery income figures
to ensure that this merger has not negatively affected the money
available to good causes. As has previously been the case, I would
like to continue our periodic performance meetings to monitor
the effectiveness of the Commission in implementing these safeguards.
These and any other appropriate matters (including
finance) will be set out in the Management Agreement—as
is the routine practice between the Department and its other Arms
Length Bodies.
9 July 2013
Draft Governance Arrangements for Management Agreement
There are three areas of risk to consider:
i. Operational conflicts of interest, where the Commission
should only consider relevant factors during its decision making.
For example, the duty to maximise returns will only apply to National
Lottery functions and not to those exercised under the Gambling
Act. This risk, like the other two, can be readily managed.
ii. Perceptions of bias, where the Commission has
come to a decision properly applying the relevant legislation
but where the outcome results in a perception of bias. This will
need to be mitigated by transparency about decisions taken and
how they were arrived at.
iii. The handling of commercially sensitive data,
either by using information held to inappropriately inform a decision
in another area or by releasing information held to a rival operator.
These will need to be mitigated by having in place clear and open
data handling protocols.
When exercising its functions the Gambling Commission
will need to ensure that:
(1) It exercises its functions in relation to the
National Lottery in accordance with the requirements of the National
Lottery etc. Act 1993 (as amended) and any relevant secondary
legislation and/or direction from the Secretary of State.
(2) It exercises its functions under the Gambling
Act 2005 in accordance with the requirements of that Act, any
relevant secondary legislation issued under that Act and the statement
of principles for licensing and regulation, issued pursuant to
section 23 of the Act.
(3) Only relevant considerations are taken into account
when decisions are being taken and that suitable protocols are
in place to provide assurance to DCMS and others that this is
the case.
(4) There are no reasonable grounds for suggesting
that it, or anyone exercising delegated decision making powers
on its behalf, has been biased, partial or that a decision is
not well founded in any way and that its decision making processes
meet the requirements of the Human Rights Act 1998 and the principles
of natural justice.
(5) Appropriate information barriers are in place
to avoid any actual, or perceived, conflicts of interest arising
in relation to the exercise of its functions under the above legislation.
(6) Its Commissioners and employees are alert to
the possibility that the merged body's statutory functions may
occasionally give rise to conflicts, as a key aspect of minimising
the effects of conflicts of interest is to be open and transparent
about such situations when they arise, however rare.
(7) Those engaged in handling operator specific information
are properly trained in data security principles and protocols,
as whilst holding sensitive commercially confidential information
does not, of itself, give rise to a conflict of interest care
will be needed to ensure that such information is used appropriately.
(8) It is able, where required, to give adequate
reasons for its decisions. Papers dealing with commercially sensitive
decisions routinely spell out the legislative provisions being
applied and who has seen the material.
(9) It should make clear to interested parties that
while the merged Commission will provide a single source of advice
on the implications for various sectors of changes to legislation,
the on-going oversight and review of legislation would remain
for Ministers and ultimately Parliament to determine.
Letter from Philip Graf, Chair, Gambling Commission
to the Rt Hon Hugh Robertson MP, Minister for Sport and Tourism,
dated 18 July 2013
Thank you for your letter of 9 July 2013, in which
you set out the Department's expectations in relation to the merged
Commission's governance.
I can confirm that we fully agree with the principles
as set out in the Annex to your letter. We believe that they should
be incorporated in their entirety into the Management Agreement
between the merged Commission and the Department. We have been
discussing these for some time and, as noted in the evidence to
the Select Committee, the two Commissions have considered a number
of scenarios to double check their robustness. We believe the
principles provide an appropriate guide for both the merged Commission
and interested parties into how we will exercise our functions
and should help to allay concerns about the potential for conflicts
of interest, or the perception of such conflicts, arising.
The Culture, Media, and Sport Select Committee recommended
that the Gambling Commission publish its governance arrangements
in advance of the debate in the House on the Order. We agreed
that it was important for Parliament to understand the principles
that will underpin the merged Commission's approach. The Gambling
Commission will ensure that these principles are adopted in our
governance arrangements, which will be subject to Board and audit
oversight. These arrangements will also build upon existing best
practice in terms of data management and will, as now, be published
on our website. I am also clear that it will be important for
us to engage with interested parties to explain the principles
and the practices we will adopt so that they are understood.
Your letter referenced our thinking about establishing
a sub-committee to consider matters related to the National Lottery.
I can confirm that our intention is to create such a Committee,
and I wanted to put on record our rationale for that, which stems
from the fact that we recognise the need for commercially sensitive
information to be carefully handled in order to preserve the confidentiality
of the information. As we said in our evidence to the Culture,
Media and Sport Committee, allowing staff in the merged organisation
to use information collected for another purpose from commercial
rivals when considering National Lottery commercial proposals
would be likely to breach the duty of confidentiality owed to
those licensees and may deter such licensees from dealing openly
with their regulator. Equally though the merged organisation needs
to access to both streams of information for wider purposes, such
as understanding trends in the gambling market, and there will
need to be strict protocols in place to safeguard commercially
confidential information about the National Lottery.
We consider that setting up a sub-committee, which
would then make recommendations to the Board of the merged body
will be an important safeguard in relation to the handling of
sensitive information, in particular on commercial matters. The
rationale for the recommendations put forward to the Board would
need to be clearly set out, but the Board would be unlikely to
require commercially sensitive data in order to reach a decision.
This is familiar for Commission staff who already deal with a
large volume of commercially sensitive information, and are therefore
trained in relation to information security and business rules
including the sharing and release of data. The Commission will
provide additional guidance to staff to reflect the supplementary
consideration required post merger.
Clearly, however, the way in which conflicts of interest
will need to be managed will be case specific and may reflect
the nature or scale of the conflict. The Commission will therefore
need to retain a degree of flexibility about how to manage the
risks, whilst maintaining a culture of openness and transparency
whereby any conflict can be managed appropriately.
As you acknowledge, I share the assessment that any
conflicts, or perceived conflict or bias, can be readily managed,
and believe that the principles you have set out are very helpful
in providing additional assurance to those concerned.
18 July 2013
| 
