UK Law: Operators must justify grey market business

In a series of articles, David Clifton, director at licensing and gambling consultancy Clifton Davies, takes a look at the changes to the UK’s gambling licensing laws which are due to be in place by October.

The UKGC said it wants operators to justify their involvement in any markets which provide more than 3% of revenues. Has there been any steer in how this will be applied to the licensing process?

Yes there has been, although it is not just an operator’s existing markets on which the Gambling Commission will focus attention. It is also concerned with jurisdictions that an operator is actively targeting for future business.

It is all about the Gambling Commission aiming to:

• deter those it licenses from supporting in any way those who compete illegally with Commission licensed B2C operators servicing the British market,
• ensure probity and responsible behaviour on the part of its licence-holders, who are expected to exercise due care and to have a reasonably coherent rationale for what they are doing, and
• establish how honest and open an applicant has been during the application process

Instead of issuing a list of jurisdictions in which British licensed operators must stop providing gambling facilities or services, the Commission is placing the onus on all such operators:

• to put controls in place to ensure they meet legal requirements in other jurisdictions and
• to make reasonable attempts to stop access by customers in jurisdictions where no justifiable arguments exist that an operator can lawfully continue with such activities, on the basis that failure to do so may reflect on a licence-holder’s integrity and therefore continuing suitability. In this respect, the Commission has made it clear that it will not consider it acceptable for operators “to hide behind wilful ignorance or implausible assumptions or arguments at the application stage or subsequently”.

The reasons for the Commission’s interest in the sources of gambling related revenue is twofold:

• the implications for financial risk if a significant proportion of an operator’s business is with grey markets and
• the implications for an operator’s probity/likelihood of responsible behaviour if they are knowingly or recklessly flouting the laws of another jurisdiction.

The Commission has said that if businesses are relying on legal advice as part of their evidence of responsible due diligence on their part, it will expect them to disclose by whom they have been advised. The Commission will not expect to see legal opinions as such but wishes to be able to understand the legal rationale relied on.

It is not just B2C operators who are facing this new regulatory requirement. The Commission has made it clear that it also has an interest in the financial risk of a B2B operator seeking a licence (in terms of both its ability to meet its financial obligations and its dependency on revenues derived from particular markets) and in the probity of the B2B operator (including where a material proportion of revenue is likely to be from sources that the Commission deems to be unacceptable).

Tomorrow I will be looking at the requirements for gambling software suppliers under the new licensing regime.

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Anyone wanting to contact David about the issues raised in this week’s series of Clifton Davies’ articles can email him at [email protected] or via the website at www.cliftondavies.com