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UK casinos under regulatory and financial pressure

Speculation is rife about the five UK casinos currently under review by the UKGC. Dominic Gates looks into the reasons why operators don’t follow anti-money laundering and social responsibility regulations.


22 Jan 2018

Speculation is rife about the five UK casinos currently under review by the UKGC. Dominic Gates looks into the reasons why operators don’t follow anti-money laundering and social responsibility regulations.

News that the UK Gambling Commission is investigating 17 online casino operators about their anti-money laundering and social responsibility practices is proof, if any were needed, that UKGC chief executive Sarah Harrison has no intention of leaving the job with a whimper.

Of those 17 casino groups, five of them could be subject to subsequent license reviews, with the real possibility that the Commission will withdraw them.

Harrison will be leaving her role as chief executive of the Commission at the end of February and the least that can be said is that she has totally changed the way the organisation regulates the gambling sector.

When she started in the role three years ago she made it clear she would make operators accountable for how they treat customers, in relation to their social responsibility duties, anti-fraud policies and, just as important, providing clear and easy to understand terms and conditions and not promoting misleading advertising.

What is undeniable is that she has been as good as her word with regard to those aims. She has got operators to put measures in place to address all those issues and has fined some of the country’s biggest gambling companies substantial amounts for major failings in all those areas.

Working for the clampdown

Some of the heaviest and high profile fines the Commission has issued include Paddy Power (now Paddy Power Betfair) to the tune of £280,000, Gala Coral for £2.3m and 888 for £7.8m. Those companies were all penalised for breaching player safety and social responsibility guidelines and not following best practice in terms of anti-money laundering.

The detail of why the fines were issued makes for excruciating reading for anyone interested in the issues. Importantly when it comes to detractors and anti-gambling campaigners, it also puts the lie to the polished image many of those operators present to the public and in their marketing material.

With regard to 888, it is widely acknowledged that the company’s failings could have cost it its UK operator license. And while there were mitigating circumstances, it notified the Commission of technical problems to its website which meant its system couldn’t recognize a player who had self-excluded from casino if they logged into its bingo site, the company still did not rectify those issues, so responsibility lies entirely with the gambling group.

The size of the fine imposed on 888 reflects the gravity of the company’s failings, yet the Commission did not rescind its license, despite it being the largest imposed financial sanction on a gambling operator by Harrison and her team.

Which leads to the question: what will it take for the Commission to take such a momentous decision and which operator will suffer that ignominious fate?

The letter it recently sent to the 17 casino sites stated: “It is vital that the gambling industry takes its duty to protect consumers and keep crime out of gambling seriously. The Gambling Commission’s new strategy sets out our vision for a fairer and safer gambling market. The action we are taking to examine online casino operators’ compliance with money laundering and customer interaction requirements is just one example of how we will be relentless in turning that vision into reality.”

The Commission means business and of the 17 operators it contacted, five are having their licenses reviewed and could lose them should it decide that the lack of AML and CSR practices at those companies was too high to justify them being allowed to carry on working in the UK.

Naturally enough, what many industry observers are wondering is: who are the five operators whose licenses might be reviewed and potentially withdrawn? It’s impossible to say with any certainty but most sources agree that it is not likely to be one of the major stock market-listed casino sites.

This is because if that was the case they would have had to issue an update to the markets and their share price would have tanked in the process.

The more likely scenario is that it is one the smaller license holders running a casino site off one of the big platform providers.

Cutting AML and CSR corners?

There are many reasons why so many UK operators do not follow strong corporate and social responsibility and AML guidelines and, essentially, regularly breach the codes of practice and license conditions set out by the Gambling Commission.

One obvious explanation is lack of enforcement. The fact that so many operators are being fined so heavily and in such high-profile cases is a demonstration of the tougher and more proactive stance taken by the UK regulator in the past three years.

Other factors would include many operators not taking a long view, short-termism in other words, which leads to taking players’ money with little consideration given to where the funds might have come from or how sustainable players’ activities are.

And, of course, commercial pressures put operators in the position of having to produce constantly growing results, for shareholders, investors and new owners alike.

The wave of mergers and acquisitions that has hit the sector, in the UK and further afield, is unlikely to quieten down anytime soon. That means those pressures will carry on rising.

As an example, a group like LeoVegas, originally a Scandinavian-focused casino operator, acquired the UK-facing casino group Royal Panda in October 2017 for €60m, with another €60m in potential earnouts; and most recently IPS, which operates sites such as 21.co.uk, Bet UK and Slotboss, for £65m. Some of you may have heard of those brands, but many others won’t.

That’s around £110m upfront, with another £50m potentially over the next few years for LeoVegas to stump up, which gives an idea of the level of investment needed to compete with any level of seriousness in the UK.

Of course we are not insinuating that LeoVegas would ever compromise its AML or social responsibility guidelines as set out by the UK Gambling Commission. It is a medium to large operator with cash reserves, however it is an example of the financial considerations and resultant pressures the industry is under in a hyper competitive market like the UK, while smaller groups don’t have those kinds of fall back options.

Which means that if the license reviews lead to some operators having their license withdrawn, it will be interesting to see what they are sanctioned for and what the financial amounts come to. After all, if 888 can be fined nearly £8m and still retain its UK license, what would it take for an operator to have it withdrawn?