May 26, 2017

The Gambling Commission has published part 2 of its response to its consultation on regulatory data.  The response generally sets out proposals to change certain parts of the regulatory data that it asks its licensees to provide (largely through the regulatory returns process).

The Commission intends to remove the jurisdiction section of regulatory returns form, and will instead introduce a new requirement to notify the Commission upon becoming aware that the revenue derived from a jurisdiction (by any entity within the licensee’s group) exceeds 3% of the group’s total revenue (or 10% of the group’s total revenue where the group’s total revenue is less than £5m).

1. Why can the UKGC ask for data from entities it does not license?

The reality is that vast majority of GB-facing operators and suppliers hold British licences to supply their services to British consumers only (following the change to a point-of-consumption regime in 2014). The Commission acknowledges that many international online gambling operators and suppliers will hold licences across a number of different entities in a number of jurisdictions.  A number of respondents to the consultation pointed out that the Commission regulates entities holding British licences, and not entire corporate groups, and questioned whether it was appropriate for the Commission to seek jurisdictional data about entities which it does not license.

However, the Commission explains that entities within corporate groups “often share funding arrangements, expertise and in some cases gaming liquidity“.  It points out that “although the licensee itself may not directly trade in other markets – it may benefit from sister companies doing so“.  The Commission gives the example that “revenues generated in ‘grey’ markets could be used to gain a commercial advantage in Great Britain, for example by funding marketing spend in GB“.

The Commission justifies its request for this information on its licensing objective to “keep crime out of gambling”, which it says drives its concern around the legality of funding or liquidity to its licensees from other group companies trading in other jurisdictions.

As a result, the Commission will require licensees “to submit data on revenues for the group as a whole“.

2. What is changing?

The regulatory returns form will be amended to remove the jurisdiction section.

The Commission will amend licence condition 15.2.2 of the LCCP to introduce a new requirement to report to the Commission where there has been a significant or sustained change in the group’s revenue profile by jurisdiction.  The proposal suggests that the reporting requirement will be triggered where the revenue derived from a jurisdiction passes 3% or 10% of the group’s total revenue (the latter threshold applying to groups with total revenue of less than £5m per annum).

The Commission will maintain the requirement to notify the Commission of any group company actively targeting a new jurisdiction.[1]

3. When will the changes be introduced?

The change will take effect for regulatory returns due to be submitted in April 2018.  It is, as yet, unclear when the new LCCP notification will be introduced.

4. Comment

Since 2014, the Commission has required licensees (both operators and software suppliers) to be able to demonstrate a coherent risk rationale.  At the application stage, applicants are asked to demonstrate why they think the supply of services to players is not illegal in markets which represent a material amount of revenue, or those actively targeted.

The changes to be introduced are therefore consistent with the Commission’s disclosure requirements at the application stage.   It makes clear that the demonstrating a coherent risk rationale is an ongoing obligation, and highlights the importance of continuing to assess the consequences of deriving revenues from grey markets.   Operators and suppliers should have systems in place to monitor revenues on a per jurisdiction basis, and should satisfy themselves of the legal basis for continued supply in markets where the legality is uncertain, and at the very least before such revenues reach the prescribed global turnover thresholds (3%/10%) or before a country is specifically targeted.

Whilst an increasing number of regulators are prepared to examine and assess legal rationales for the support of global revenues, only two regulators have made public statements with respect to suitability having regard to the derivation of .com revenue, being the Gambling Commission and the Division of Gaming Enforcement in New Jersey.   Questions will continue to be raised as to whether the Commission should be concerned with the business of entities which are not (directly) within their regulatory purview.

[1]  The specific requirement in licence condition 15.2.2(1)(c) of the LCCP is that “Licensees must also notify the Commission…[of] their becoming aware that a group company which is not a Commission licensee is advertising remote gambling facilities to those residing in a jurisdiction in or to which it has not previously advertised.”