Why the industry should not call the bluff of the Gambling Commission

Why the industry should not call the bluff of the Gambling Commission

Monday, July 4, 2016 Posted by Andy McCarron
John Hagan says the Gambling Commission should not have its bluff called

Anyone doubting the seriousness of the mid-June public statement from the UK Gambling Commission issued in the wake of finding Betfred to be severely lacking in money-laundering and social responsibility controls within its online operation should take a look at the language of the official release.

The recent censure over a case involving the theft by an individual of over £800,000 from their employer, much of which was subsequently gambled on the Betfred website, saw the Commission admonish the company for failures in its anti-money laundering (AML) and social responsibility controls. The failures were serious enough for the Commission to consider that Betfred had “breached a condition of its operating licence”.

Laying out where the company was deficient, the Commission found mistakes in a number of areas. Alongside the failure to adhere to the current money-laundering regulations – which themselves are set to be updated substantially later this year – it was also found the company had failed to comply with customer due diligence procedures, neither making “adequate enquiries” as to the source of the funds in question nor taking “sufficient steps” to identify their legitimacy.

The Commission also found evidence of insufficient ongoing monitoring and said that the company had failed to apply enhanced due diligence properly, that it’s record keeping was not up to scratch and that it had “failed to establish and maintain” appropriate risk-sensitive policies and procedures.

Throughout the public statement the Commission keeps pointing to areas where it believes all operators should take heed of its concerns and make sure they take the appropriate steps internally to ensure the same mistakes aren’t replicated at their organisations.  

Nevertheless, as John Hagan, partner at law firm Hagan Harris, points out, as with previous decisions from the Commission – notably the recent cases against Paddy Power, Coral and Rank – while the Commission’s intention is clear there is less certainty that the message is getting through.

“The problem for the Commission is whether the operators are really learning from the mistakes of other operators,” he says. “But with this decision, it also included a licence review. That is different. None of the other recent decisions included this. The Commission really doesn’t want to be reviewing licences. But in this case it would appear they had no option. The message to the industry is to not call the Commission’s bluff.”

Picking up on the same theme, Martin Pashley, chief commercial officer at data screening provider W2 Global Data, points out that what the Commission says about undertaking of proper due diligence is telling. “In the judgment the Commission makes clear that enquiries about a customer that are merely ‘informal and ad-hoc’ are not good enough,” he says. “It shows how you need systems in place.”

Another legal source with expertise in the gambling sector points out that where the operators need to improve is in ensuring that regulatory best practice is understood across each individual company as a necessary condition of doing business. “Where there is data generated across the business, it really needs to be shared right across the company,” the source adds. “The end game for the operators it to truly adopt a systematic approach to KYC and social responsibility.”

This isn’t a one-off process, says Pashley. “It’s also about doing this on an ongoing basis. Monitoring is what it means – paying attention at all times.” Indeed, the Commission findings reiterate the point. It says it expects operators to “demonstrate that the level of enhanced due diligence and ongoing monitoring applied to customers has been determined on a risk sensitive basis”.

In its press release announcing the Betfred findings, programme director at the Commission Richard Watson said the wide range of cases over the last 10 months had led to circa £3.75m in penalty packages. He added: “The outcomes and findings in these cases provide a clear signal to operators of the need to learn the lessons from these for social responsibility and money laundering controls, or risk facing tougher sanctions.” 

Hagan says he sees signs of the operators understanding what needs to be done. “Operators are reading this statement and seeing what they can do to avoid situations like this,” he says. “They will all be reviewing their procedures.”

Totally Gaming Says: "The UK Gambling Commission took a collaborative approach in its early years, working closely with the industry in order to be more efficient. The recent spate of operational fines, and now this first licence review for a major operator, shows that it is starting to flex its muscles more and that operators have to up their game."

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