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Friday, 27 February 2015

GC Assurance Statements: assuring better gambling businesses

By Paul Leyland, Founding Partner, Regulus Partners

The government are very keen on amassing statistics. They collect them, add them, raise them to the nth power, take the cube root and prepare wonderful diagrams. But you must never forget that every one of these figures comes in the first instance from the local village watchman, who just puts down what he damn pleases.
It is easy to dodge our responsibilities, but we cannot dodge the consequences of dodging our responsibilities.” Josiah Stamp

The Gambling Commission is currently consulting on a new Annual Assurance Statement, which would require the larger operators (over £25m UK revenue, which the Commission estimates to be c. 40 operators with c. 90% combined UK market share) to inform the Commission as to how they are understanding, measuring and mitigating the key risks captured in the Commission’s licensing objectives, notably:

·         Keeping gambling crime free
·         Protecting the vulnerable
The consultation documents can be found here:

I believe that this process is an important addition to the UK licensing regime for three reasons:
  • It puts operators’ social responsibility practises under clear and systematic scrutiny
  •  It should encourage operators to further increase the internal and external priority of social responsibility measures
  • It may start to resolve some the natural tensions between social responsibility best practice and (short term) profit maximisation
It will be tempting for some operators to see this as an unnecessary regulatory burden, or, worse, an attempt to gather (partial) information in order to justify increased regulation. If starting from that viewpoint, the resulting submissions are likely to be little more than desk exercises produced by ‘compliance people’. I think such a response would be both short-sighted and bad business.

Short-sighted because there will always be pressure from groups within society to curtail some or all forms of gambling activity; whether reasonable, well-meaning, protectionist or just plain atavistic. This pressure tends to get politicised when issues are denied or obfuscated, rather than tackled (convincingly) head on: if there is no problem then it is not unreasonable to demand evidence to demonstrate that fact, failure to do so raises concerns even from the previously indifferent.

Half-baked attempts to provide such evidence are at best unconvincing and at worst grist to the mill of tougher regulation. In order to escape current and future politico-regulatory issues the industry must be seen to be taking its social responsibility seriously: that is the reasonable expectation of large swathes of society; and now - election year after all - is the time to do it.

To see why it is bad business, let’s consider what the Commission is really asking for.

The Annual Assurance Statement essentially comprises six questions:
  • What control systems and governance does the operator have, especially relating to crime (AML, criminal spend, integrity) and social responsibility (fair, protecting the vulnerable)
  • What actions have been taken in the last 12 months to improve these
  • What plans are there to improve systems and governance in the next 12 months
  •  What is the operator’s narrative assessment of the extent to which its revenue potentially comes from harmful gambling
  • What tools are being used to identify problem and at risk gambling
  •  What actions have been taken and how is effectiveness and impact evaluated and improved

None of these questions are particularly onerous or dangerous and most operators should be doing some or all of the above already. Further, developed properly this can have significant positive impact on the business and the industry as a whole. We see five key business areas where this increased scrutiny and process should generate clear benefits.

Reputation is the most obvious starting point for a gambling industry which is regularly battered in Parliament and the press. A clear policy of focus and improvement is something forward thinking operators can use to demonstrate that they are on top of the problem, in a more sophisticated (and therefore convincing) way than before. The Gambling Commission and the industry can also reasonably argue that sufficient duty of care is being carried out. This could prove to be a key pillar in protecting the industry from further regulatory encroachment.

Risk management is another area which can prove to the benefit of the business. There have been several reported incidents where both remote and landbased operators have been caught inadvertently handling the proceeds of crime or assisting in money laundering. To state that this is bad business is to state the obvious (commercially, legally, reputationally) and systematically improved measures to prevent this bad business can only be a good thing.

Better customer understanding should come from enhanced problem gambling tools. Ladbrokes has flagged that it is rolling out its leading algorithm developed from its Odds On card. The temptation to believe that only card based or remote play is data rich is dangerously myopic, however – practically all forms of gambling are data rich and customer engagement is key. It has long been a valid criticsm of the gambling industry that it is not customer-centric enough (even in terms of customer service), a clear spotlight on customer behaviour should be used to accentuate the fun as well as reduce harm.

The Assurance Statement is clear that it is to be signed off by very senior executives (eg, CEO). This is important in ensuring that social responsibility is recognised as a key business driver right from the top (and when a CEO cares about something the organisation tends to). While all operators pay lip service to this, a pervasive culture of pushing problems the way of compliance is only just being overcome and any accelerant to this will make operators much stronger in being able to deal with issues of public concern, from both a cultural and operations management perspective (ie, minimise poor practice and mistakes, and handle the mistakes that do occur more effectively).

I am also encouraged that the Gambling Commission intends to take an active role in fostering and spreading best practice: this is an area where the industry will fail to gain from a lob-sided or patchy approach: even though some operators are already embracing this approach, they are in danger of being let down by the laggards. Effective coordination, and even leadership, is therefore vital.

In short, by fully embracing and embedding the purposes of the Annual Assurance Statement, the industry will not only justify the logic of relatively light touch regulation, it will also improve its reputation and produce more profitable and more sustainable businesses.

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