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High stakes reform: Four practical considerations for gambling operators

In February 2023, we wrote about what gambling operators can learn from financial services. Now that the Government's long-awaited gambling white paper has been published, operators and those working with the industry are considering next steps. This blog outlines areas where operators can focus energy and resources to make progress in advance of new legislation and regulation.

The forthcoming consultations on changes proposed in the white paper are due this summer. Tim Miller, the Gambling Commission's Executive Director for research and policy, described the scale of work outlined as "significant, and rightly so." The variety of responses will undoubtedly leave policymakers with many factors to balance and reconcile when designing a framework with the right harm-prevention level whilst providing a frictionless consumer experience.

Amongst the proposed measures, aspects of good practice can be taken from the financial services industry. We explore four of these below:

1. Proportionate risk checks : In due course, the Gambling Commission will consult on the obligation to conduct checks to understand if a customer's gambling is "likely to be harmful in the context of their financial circumstances." These are expected to be "moderate" at first, and the use of credit-referencing agencies or open banking mechanisms to facilitate "unintrusive checks" would build on an increasingly effective and efficient use of shared data, which is discussed further below. It remains to be seen whether "in the context of their financial circumstances" will be subject to a narrow definition focused on affordability or whether it might be interpreted more broadly. Citizens Advice has reported the beginnings of a toxic cycle where people are increasingly gambling to try and fix their financial situation.

The white paper emphasizes that age is a presumed indicator of vulnerability, with more stringent measures proposed for 18 – 24-year-olds and further age restrictions on certain types of gambling. In our earlier blog, we highlighted that a more stringent and structured affordability test which considers objective aspects of vulnerability, for example, age, applied consistently across operators would reduce the conflict of interest, which could incentivize operators to allow individuals to overextend themselves. Operators should seek to consider the broader characteristics of vulnerability as established by the Financial Conduct Authority in their customer due diligence.

2. An effective Ombudsman: In the Gambling Commission's advice to government, they recommend that an Ombudsman with legislative underpinning is introduced to allow "consumers greater and more transparent access to redress". Currently, individuals must take legal action to prove the operator was at fault and should have prevented their gambling activity if they wish to seek redress. An effective Ombudsman can significantly reset the balance of power between customers and operators in how complaints are handled, and precedents set. The industry may fear a significant increase in complaints following the introduction of an Ombudsman, and operators may be looking to examine their processes around complaints handling to ensure they are fit for a new regime.

The Financial Ombudsman was established by the Financial Services and Markets Act 2000 and has been subject to periodic reviews about its effectiveness. The time taken to resolve and deal with huge volumes of complaints with a particular public interest has been challenging. The 2021 review contains insights on the broader societal shift to digital communication and its effects which would be of relevance to any new Gambling Ombudsman. These include how consumers interact with the Ombudsman and how products and services are accessed online in an industry described by ministers as "increasingly high-tech".

3. Data sharing: The Gambling Commission and the Government have been looking into data sharing for a number of years, with pilots for data sharing currently running. Per the paper, the Gambling Commission will consult on making data sharing on high-risk customers mandatory for all remote operators "once a suitably effective and secure platform is in place".

Within financial services, there has been a recognition that information sharing is critical in the fight against financial crime. Utilities and information-sharing platforms concerning fraud risk have been in place for a number of years, helping the industry to save billions.

Money laundering and broader economic crime can be more challenging to detect. While pilots are still testing different approaches within the industry, it seems inevitable that such processes will become part of BAU activities.

Research carried out by Cifas revealed that 1 in 7 people have committed online gaming fraud or know someone who has. We see the potential for information sharing to detect and prevent financial crime, to broaden in the future across firms in the regulated sector.

In our previous blog, we also noted that banks and payment providers might be able to use customer information to spot and help to address issues through customer nudges and information sharing. Banks and other financial services businesses increasingly provide an array of prompts for app users to promote the existence of support services or to help with budgeting. The white paper also suggests that the gambling industry should work with financial services firms to enable the blocks to be extended to other payment methods like bank transfers.

4. An emphasis on product design: There has been a call for products which are "safer by design" to prevent harm at source and reduce reactivity and detection of harm after it has occurred. To do so, operators will have to consider the relative sophistication and risk appetite of their customers so they can design products that meet their needs. The principles within the Financial Conduct Authority's (FCA) Consumer Duty, which requires regulated financial services firms to demonstrate how they deliver "good customer outcomes," could provide useful guidance to operators in this regard.

This might include the need to think about customers both individually and collectively. Under the FCA's rules, firms must consider the appropriate target market for products, as well as the 'negative target market' (the groups of customers that the product would not be appropriate for). This analysis is undertaken to mitigate the risk of harm from products being purchased by unsuitable customers and must be completed to a sufficient degree of granularity. Suitability, or unsuitability, in this context, can rely on numerous factors, from the product's utility and quality to the risk of it causing harm or poor outcomes.

As we previously noted, the access to customer data which enabled preferential treatment under VIP schemes could be used to establish triggers for intervention and prevent playing rather than to encourage customers to keep spending.

Operators should also consider how transparent their disclosures of risk around different products are and whether it is reasonable to assume the customer would understand these disclosures. In financial services, the rising bar now requires firms to design and test communications (including customer journeys) to ensure appropriate signposting and disclosures are included at the right points in time; that information is clearly structured and in one place (rather than spreading it between documents or webpages); and to ensure that they do not exploit customers' behavioural biases. In performing these reviews, firms are asked to consider introducing friction into the sales journey where appropriate and to remove 'sludge practices' which create barriers to customers acting in their own interests.

These areas are just a few of the opportunities for the gambling industry to mirror good practice and benefit from the lessons learned within financial services over the past fifteen years. If you would like to discuss further, please get in touch below.