On 10 July 2025, the Gambling Commission (the “Commission”) published the response to its December 2023 consultation (which closed in March 2024) on the proposed amendments to the Statement of Principles for Determining Financial Penalties (“Penalty Principles”). The Commission’s goal was “to bring greater clarity and transparency to the way penalties following enforcement action are calculated”. This applies equally to regulatory settlements where a payment is made in lieu of a financial penalty.

The Commission states that the changes to the previous incarnation of the Penalty Principles is “significant” and that the changes make “the Commission’s approach to financial penalties more transparent and address stakeholder concerns about the lack of transparency and consistency with regards to the existing approach”.

As will be seen from our commentary below, the vagaries of the drafting of the current process (enshrined in the current Statement of Principles for Determining Financial Penalties, published in 2017) arguably remain. As such, we will only find out if the Commission has succeeded in its objective once we see the Penalty Principles applied in practice.

What’s new?  

The revised Penalty Principles will introduce a sequential seven-step process within which the Commission will determine financial penalties. Financial penalties will consist of two elements: the Disgorgement Element (Step 1) and the Penal Element (Steps 2-7).

Step 1 – Disgorgement element

• Any financial detriment to consumers and / or financial gain an operator would have made from the breach is first calculated and added once the amount for the penal element is calculated after Step 5.
•  When a financial gain or consumer detriment cannot be calculated, no amount will be added under this Step 1 for the disgorgement element and instead the disgorgement element will be combined with the penal element in Steps 2-5.
• Calculating “gain” can be impossible due to the inability to extrapolate identified failings within a cohort of reviewed customers across a licensee’s entire customer base. Regulatory Panel processes we have advised on have confirmed this.
•  Clearly, though, there will be instances where the benefit can be identified (such as where a self-excluded customer has been able to circumvent safeguards and play).
•  The more common approach of the Commission in the past is likely to remain, namely an acceptance that there is no calculable disgorgement element, with “seriousness” then doing all the heavy lifting.

Step 2 –  Assessing seriousness as the starting point for the Penal Element

• The Commission has introduced five levels of “seriousness” (with level 5 being the most serious). The description of the levels can be seen here. The level of seriousness depends on a number of factors such as the impact on the licensing objectives, the nature and scale of the breach and number of customers that are likely to have been affected by the failing.
• We consider seriousness to be reflective of the regulatory failing itself and its consequence. We consider factors that make it worse or that, in the circumstances, warrant an inflated penalty, should be considered under aggravating factors in Step 3 below. As such, it is not ideal that some of the factors included as criteria for assessing seriousness are, in our view, more appropriate as aggravating factors (e.g. whether the breach was carried out deliberately or recklessly (2.11(k)) or whether there was any attempt to conceal the failure (2.11(l))). The danger here is double counting and duplication of factors, an issue the new Penalty Principles aim to avoid.
• Responses to the consultation stated it would have been helpful if the Commission could illustrate the different levels of seriousness by giving practical examples from its own extensive case work. This could have removed uncertainty. However, this was not reflected. The current proposal leaves a considerable degree of uncertainty as to where a particular breach would fall across the five-levels. How will the Commission distinguish between what it views as a ‘serious breach as opposed to what would constitute a ‘very serious breach?
• Then, once it is determined, the “level” will map across to an escalating percentage of Gross Gambling Yield (GGY) generated through the relevant licence during the period of identified non-compliance, as follows:

• The Commission adds in additional uncertainty by stating, in the context of Level 5, that “in exceptional circumstances the Commission retains the discretion to increase the upper limit higher and should it do so will provide rationale for this”. On the basis that Level 5 is already “very serious”, we await the first time the Commission uses this discretion to ratchet up the penalty even further. The ability to apply a higher percentage than 15% provides scope for the Commission’s decisions to be challenged on the basis that such a decision is not proportionate, is opaque and could lead to inconsistent decisions.
• The ranges are significant. Given levels 4 and 5 represent around 5% of GGY over a period, there would be a significant difference in the amount of a fine if an operator is fined at the lower end of the scale for a Level 4 fine vs the lower end of the scale of a Level 5 fine. The Commission will need to be prepared to justify why.
• The Commission seemingly ignored valid consultation responses that suggested Net Gaming Revenue (NGR) should be the relevant revenue for the starting point for determining the level of a financial penalty (i.e. GGY, less any operational fees and taxes). This would be a more accurate way of assessing the gain a licensee would have derived from a breach.
• Respondents also suggested that breaches in relation to marketing should also be added to the list of examples of instances where it would not be appropriate for the starting point to be based on a percentage of GGY. The Commission incorporates examples of circumstances where it may not be appropriate for the starting point to be based on a percentage of GGY, but expressly chose to leave marketing breaches off that list.
• It is going to be interesting to see how the Commission will determine a penalty when circumstances do not fall squarely into one seriousness level but may have a number of factors across different levels of seriousness.

Step 3 – Aggravating and mitigating factors

• The Commission may then increase or decrease the sum calculated at Step 2 based on “aggravating” factors or “mitigating” factors.
• The Commission rightly identified in the consultation that its current approach to aggravation and mitigation leads to double counting, due to the Commission omitting to properly distinguish between the seriousness of a failing, and factors that then aggravate the circumstances surrounding the failing when constructing a penalty. The Commission must address this issue to ensure transparency and proportionality. As mentioned above, the Commission cannot determine factors to be “aggravating” if they are the very factors it relied upon to determine the seriousness of any breach. To do so would be an error in law in double-counting those factors in such a way as to both establish the severity of the breach and then aggravate it.
• Finally, in our experience the Commission can cause itself difficulties when presenting proposed penalties where is conflates aggravating and mitigation factors to arrive at a single figure, as opposed to a specific figure for aggravation and one for mitigation. This makes it impossible for the licensee to make informed representations. The Commission must separate aggravation from mitigation in its workings.

Step 4 – Deterrence uplift

• In this Step 4, the Commission has another opportunity to increase the financial penalty if it considers that the sum after Step 3 is insufficient to deter against future non-compliance. The rationale for including this is that non-compliance should be “more costly than compliance”.
• Once again, the Commission did not explain how it would adjust the penalty to include a deterrent, such as whether it would apply a percentage to uplift the fine. The Commission has unfettered discretion to increase fines at this stage of the process.
• Whilst we may accept that the Commission may want to retain a degree of discretion to ensure it adequately upholds the licensing objectives, we expect this open-ended ability to increase a fine may cause the Commission future problems.

Step 5 – Discounts for early resolution

• The Commission may apply a 5-30% discount for early resolution. Practically speaking, “early resolution” is defined as within the 28-day period for making representations.
• It is unclear how this discount will be applied given that the range of 5-30% is such a wide range. How the discount is applied is determined by the “insight, cooperation and speed of resolution” demonstrated by the operator. The wide range of percentages of discounts (which could have a material financial impact) could result in inconsistencies in the decision-making process and is certain to lead to representations to the Commission demanding transparency.

Step 6 – Affordability review

• The Commission may then reduce the fine if it considers the fine would cause “serious financial hardship”.
• Whilst respondents pointed out that the Commission should not include financial resources of the wider group and the ultimate beneficial owner (“UBO”) in this step, the Commission disregarded these comments and maintained the position that the financial resources of any parent or group company or UBO will be taken into account in this Step 6.
• In our view, the Commission is out of step with how other regulators approach affordability in the context of regulatory fines in that it should not be entitled to pierce the corporate veil up to the UBO when assessing a licensees affordability, but stop at the parent undertaking as the FCA does.

Step 7 – Proportionality checks

• Lastly, the Commission will consider whether the penalty should be adjusted to ensure that it is “proportionate”. Once again, it is unclear what the Commission understands proportionality to mean and whether it will apply a subjective test. It is unclear whether this will result in an increase or decrease in the financial penalty.
• Observers will note that Step 7, that may potentially act as a kicker to increase a fine, with the Commission citing “proportionality” was not included in the original consultation. The Commission points to various respondents requiring the proposals ensure there is proportionality in the decision making. It does not then follow that the Commission should introduce a new step, that it didn’t consult on, that may operate to run a coach-and-horses through its transparency aims. Were this step used to inflate a fine materially, one could envisage the licensee pointing to this procedural awkwardness in any legal challenge.

Comment

The Commission must be able to demonstrate how (and if) each step has been applied and each step must be clearly distinguished to avoid double counting of factors that would render a decision procedurally unfair and liable to challenge from a licensee.

Whilst we welcome a structured approach to the assessment of financial penalties, it remains to be seen whether this new structure will indeed provide much needed clarity to the way the Commission calculates financial penalties.

The Commission retains a wide margin of discretion at every step of the process. At Step 2, the Commission retained the right to increase the GGY % in exceptional circumstances. The Commission may then increase the fine in for aggravating factors (in Step 3) and again in Step 4 if it considers a deterrence uplift is needed. And the, there is a further ability to ratchet up if the overall figure is not “proportionate”.  The mechanism as to how these increases are calculated has not been published and we can see a time where there will need to be industry visibility of how this new Penalty Principles are actually applied.

When considered as a whole, the lack of clarity as to the Commission’s approach and process at (almost) each distinct step may undermine the new framework and beg more questions and challenges from operators with respect to the methodology behind the calculation of a financial penalty.

In the past, the regulator has said there is no formula that underpins its calculation of penalties (although cynics may have disbelieved that). Now, there clearly is one. Ultimately, the success of the new approach meeting its objectives of “clarity and transparency” will be dictated by how transparent the Commission actually wants to be. And directly linked to that will be the risk of legal challenge.

The new Penalty Principles come into effect on 10 October 2025.  On or after this date, where the Commission notifies the holder of an operating licence that proposes to require it to pay a penalty the revised Penalty Principles will apply. As such, they may apply to the enforcement cases that are currently in flight.

The response to the consultation can be accessed here.