Gambling Commission and Third Party Websites

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Gambling Commission and Third Party Websites

• May-2020

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600,000 UK Gambling Commission regulatory
settlement highlights the importance of
appropriately managing all third-party websites
that a licensed operator may be responsible for
under white-label agreements.
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A regulatory review by the UK Gambling Commission
resulted in a 600,000 regulatory settlement.
Gambling businesses who allow others to use their
technology via a different brand, should contact
our specialist gambling lawyers for advice to
ensure their systems and processes properly
comply with the Gambling Commissions
requirements and with UK law. Our gambling
solicitors can be reached via 0800 170 1538.
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Contents

• 01 / Gambling Operators Warned Over Third
• Party Responsibility
• 02 / Breaches of AML Requirements
• 03 / Social Responsibility Failings
• 04 / Inadequate due diligence on third parties
• 05 / Good Practice

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01 / Gambling operators warned over third-party
responsibilities 
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Gambling operators warned over third-party
responsibilities

• The UK Gambling Commission announced via its
  website on 6 May 2020 that following the
  commencement of a review of its operating licence
  under section 116 in August 2019, FSB
  Technology UK Limited has been required to pay a
  financial penalty of 600,000 and the
  Commissions costs of 34,300 for its failure to
  ensure that several of its third-party
  websites complied with licence conditions and
  codes of practice.
• It has also had additional conditions imposed on
  its licence to ensure it conducts risk-based due
  diligence on new and current third-party partners
  it runs websites on behalf of.
• FSBs business model is based on a white
  labelling arrangement including the contracting
  of provisions of its licensed activities to third
  parties. This arrangement places responsibility
  on the licensee to ensure that its third-party
  partners comply with the Gambling Act and the
  requirements imposed by the Licence Conditions
  and Codes of Practice (LCCP). 
• However, the Gambling Commissions investigation
  discovered that FSB did not have sufficient
  oversight of several third-party websites and did
  not itself have effective anti-money money
  laundering and social responsibility policies and
  procedures in place. It also failed to comply
  with LCCP on numerous occasions including
  failings within FSBs processes aimed at
  preventing money laundering and protecting
  vulnerable people.  

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The three key failings included a breach of the
Licence Condition 12.11(2),(3) which require
measures to be in place to prevent money
laundering and terrorist financing, 
Gambling operators warned over third party
responsibilities
a failure to comply with Social Responsibility Cod
e 3.4.1 in respect of customer interactions, and d
ue diligence and control failings relating to the
white-labelling arrangement  supervision.
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02 / Breaches of AML Requirements 
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Breaches of AML Requirements

• The anti-money laundering failings included a
  situation where a customer had not been required
  to provide adequate source of funds evidence and
  had gambled and lost circa 282,000 over a period
  of some 18 months. Another situation involved one
  of the third-party websites operating without suff
  icient oversight of VIPs and with a VIP team
  manager employed by the third-party
  website acting without adequate oversight
  and without sufficient AML training.
• The Commission also found that FSBs own AML
  controls did not adequately address the risks
  posed by higher risk customers. These included,
  failing to establish and maintain appropriate
  risk-sensitive policies, procedures and controls
  relating to the management of its third party
  partners, a lack of adequate documentation and
  audit trail to demonstrate decision making, and
  inadequately resourced and trained compliance
  team and a failure to undertake account reviews
  to monitor the re-opening of accounts by
  third-party partners.  

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03 / Social Responsibility Failings 
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Social Responsibility Failings

• The social responsibility failings included
  failures to protect problem gamblers. Commission
  officials found that FSB were failing to carry
  out customer interactions in compliance with
  Social Responsibility Code 3.4.1. FSB were
  permitting staff employed by third-party partners
  to carry out customer interactions with
  insufficient oversight and training as a result
  FSB was not ensuring that appropriate and
  meaningful customer interactions took place or
  were properly recorded.
• Additionally, FSB failed to comply with Social
  Responsibility Code 3.5.3 in preventing one of
  its third-party partners from sending a marketing
  email to 2,324 customers who had previously
  self-excluded. This was compounded by FSB then
  emailing the affected customers with an apology
  rather than ensuring that no further contact
  emails were issued given that there should have
  been no contact with the self-excluded customers.

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04 / Inadequate due diligence on third parties
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Inadequate due diligence on third parties

• A further failing included a breach of Licence
  Condition 16.11 in permitting one of its
  third-party partners to use an inappropriate
  banner advertisement containing cartoon nudity
  which proved to be the unauthorised use of
  copyrighted material. The Commission found that
  FSB had failed to take reasonable steps in
  undertaking due diligence prior to entering into
  a contractual relationship with a third party.
  Had it done so, FSB would have identified obvious
  concerns that there was a risk the third-party
  could use such advertisements given its clear
  association to an unlicensed website with
  questionable repute.
• FSB accepted that it did not carry out sufficient
  due diligence which would have identified
  concerns with regard to the international
  operator of the brand name which included the
  fact that the ultimate ownership of the company
  was unclear and the relationship between the
  company and the ownership of the brand name used
  was also unclear. In one of the other cases, FSB
  failed to assess the risks of entering into
  third-party contractual arrangements where there
  were links to an individual who was a Politically
  Exposed Person (PEP).
•  As a result of these failings, a condition has
  been added to FSBs operating licence requiring
  it to conduct risk-based due diligence before
  entering into a relationship with a third-party
  partner, manage and evaluate its existing
  third-party relationships and carry out
  risk-based due diligence on all its third-party
  partners at least annually. 

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05 / Good Practice
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Good Practice
The Commission has highlighted that gambling
operators should take account of the failings
identified in their investigation and review the
following matters and has warned businesses that
they will face regulatory action if they do not
properly manage all third-party websites they are
responsible for   

• Is your governance, due diligence, contractual
  and audit arrangements effective and are you
  refreshing existing due diligence at least
  annually?
• Are your policies and procedures for identifying
  high risk customers for AML and SR customer
  accounts effective?
• Have you adequately resourced your AML and SR
  departments, so your staff are always able to put
  your policies and processes in place for all
  customers?
• Have your staff and your third-party partners
  received sufficient AML and SR training?
• Are you recording all customer interactions,
  including decisions not to interact with
  customers, and are these records available for
  colleagues to refer to when making decisions?
• Are your customers providing documentation to
  support their level of spend and loss, and not
  simply giving assurances?

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This case highlights the importance for gambling
businesses of engaging fully with specialist
gambling lawyers such as our team to avoid
compliance breaches.
Any gambling business that faces a compliance
assessment or receives notice of the commencement
of a section 116 review by the Gambling
Commission should contact our specialist lawyers.
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Our specialist gambling lawyers have detailed
knowledge of these provisions and can assist if
you have concerns or face a review of a gambling
licence, including a section 116 review. We can
be reached via 0800 170 1538.
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Thank you,in any case

• Andrew Cotton

• Office

• Ince Gordon Dadds LLP
• Aldgate Tower, 2 Leman Street, London E1 8QN
• DX 1070 London City
• T 0800 170 1538
• licensing_at_incelaw.com

• Director of Betting and Gaming