April 6, 2022
The Gambling Commission (“Commission”) has warned operators that, from July 2022, it will be taking a stricter approach on late submissions of change of corporate control (“CoCC”) applications and will refuse requests for extensions of time where it does not consider that an “adequate or reasonable” explanation has been given, resulting in licences being revoked. Given the potentially catastrophic effect this can have on a business, licensees need to heed this warning very carefully.
You can read the Commission’s fortnightly e-bulletin here.
A CoCC takes place when a person or entity becomes a “controller” of the licensee. The definition of “controller” is prescribed under Section 422 of the Financial Services and Markets Act 2000 which, in summary, provides that a controller is a person or entity which:
- holds 10% or more of the shares in the licensee or in a parent company of the licensee;
- holds 10% or more of the voting power in the licensee or in a parent company of the licensee; or
- is able to exercise significant influence over the management of the licensee.
The Commission requires that licensees notify the Commission of a CoCC by means of a key event within 5 working days of the event taking place and to submit a CoCC application within 5 weeks of the change taking place.
The Commission is required under Section 102 of the Act to make a binary decision when in receipt of a CoCC application to either (i) sanction the CoCC; or (ii) revoke the relevant licence(s).
A CoCC application can be submitted in advance in respect of someone who is expected to become a controller under Section 103 of the Act, which allows for a licence holder to seek a “minded-to-approve” confirmation from the Commission that the relevant licence(s) will continue to have effect before a CoCC occurs (and so avoid a negative determination leading to a licence revocation).
Late CoCC applications
Under Section 102(5) of the Act, the Commission may extend the period within which a licensee must submit a CoCC application (and it can make that decision either before or after the 5-week period has expired). Currently, in respect of late CoCC applications, licensees are typically given an opportunity to explain the delay to the Commission and to request an extension of time to submit a CoCC application where (in the Commission’s words) “adequate and reasonable” explanations can be provided.
However, the Commission has now stated that, from July 2022, it will adopt a stricter approach. Where the explanation is not considered to be adequate or reasonable, the Commission has said that it will refuse to grant an extension of time and will revoke the relevant operating licences where the new controller: (i) does not already hold an operating licence from the Commission; (ii) is not regulated by the Financial Conduct Authority (or equivalent in the EEA); or (iii) is not an immediate family member entering a small family business.
Why the change in attitude?
This change in attitude is driven by what the Commission considers to be an increase in the complexity and number of CoCC applications. Businesses that have been through recent CoCC processes with the Commission will be all too aware that these can be very lengthy processes, typically drawn out by extensive requests for further information about the licensee’s new shareholders and where the money they used to acquire their shares came from. The change in attitude to late applications seems therefore to be justified by the increased burden of work such requests for further information places on the Commission’s licensing team.
Considerations for licensees
There can be any number of reasons why a CoCC may have occurred without being known to a licensee’s compliance team. Licensees often have complex ownership structures and reorganisations of the way in which an ultimate beneficial owner holds their interest can technically trigger a CoCC, even where such interest is held indirectly and occurs without the knowledge of involvement of a licensee. Presumably application deadlines inadvertently missed in these types of cases are more likely attract an “adequate or reasonable” explanation, but the potentially disastrous consequences of a licence revocation (and absence of clear guidance from the Commission of the meaning of “adequate or reasonable”) means that licensees should revisit the internal control measures they use to monitor changes in their ownership to ensure that CoCCs are identified and application deadlines are met.