Should you really be eating that pie? New gambling rules
5 August 2019
GB-based gambling companies have to assess ‘affordability’ under new rules issued last week by the Gambling Commission and effective from Halloween. Operators believe they are already responsible; we will find out if they are responsible enough. We believe there is risk to revenue forecasts.
- New rules. On 31 July the UK Gambling Commission published new licence conditions and codes of practice (‘LCCP’) for the GB gambling industry. A summary of the changes can be found at this link. There are multiple detailed changes, but we found the most interesting related to affordability.
- Identity is one thing... Operators have already tightened up their Know Your Customer processes and, in the case of high spending customers, are undertaking Enhanced Due Diligence. Investors in the sub-sector will be familiar with these checks and the impact on revenue which they caused.
- ... affordability is another. Historically operators have used deposit and/or loss levels as triggers for responsible-gambling interactions. The UKGC says that this has resulted in the trigger levels for such interactions being “inappropriately high” and problems “not being identified sufficiently early”. The UKGC requires operators in the future to be aware of the difference between “disposable” and “discretionary” income and the undesirability of punters spending a significant proportion of the latter (lower) number on gambling. See paragraphs 2.8-2.10 of the formal guidance note at this link.
- Don’t pretend you didn’t know. Perhaps with the intention of eliminating the potential for confusion, the UKGC has set out data on average earnings and discretionary income. These imply that the average person has less than £500 per month to spend after housing, utilities and food, but before transport, phones, cars, insurances, clothing and personal care.
- New trigger limits required. The UKGC report, Raising Standards for Consumer (see p23 at this link), makes it clear that the UKGC expects deposit and/or loss levels that trigger customer interactions to account for average levels of income. Specifically: “we would recommend that operators revisit their framework on triggers and consider their customer base and their disposable income levels as a starting point for deciding benchmark triggers.”
- More care required with VIPs too. The Raising Standards report, referred to above, also identifies weaknesses in dealing with wealthy customers. Specifically, the UKGC criticises operators that have relied on the accounts of companies filed at Companies House even if the accounts were abbreviated, or the companies had low levels of cash or profitability. The risk here is similar to the leverage limits imposed on CFD trading companies.
The new LCCP may reduce revenue (we will not know for a while), but they may also contribute to making operators less vulnerable to criticism, more sustainable and more highly-rated by investors.