Recent headlines in the UK concerning the casino industry have concentrated on the Department of Culture, Media and Sport’s Casino Advisory Panel, and the publication on May 26, 2006 of its shortlist of proposals for the two types of casinos to be licensed under the Gambling Act 2005 (the “Act”) and the subsequent fall out as disappointed bidders for the regional (“super”) casino licence in particular review the Panel’s decision. This has taken attention away from the recent work of the Gambling Commission, which has been busy publishing consultation papers on its implementation of the Act.

Their two key papers are: Licence Conditions and Codes of Practice The Act is due to be implemented in full by September 2007, with the Gambling Commission as the industry’s regulator to issue the various licences described in the Act and to enforce compliance with those licences.

Consequently, the Gambling Commission published on 10 March 2006 a consultation paper on the licence conditions to be contained in the various licences available under the Act and its statutory codes of practice on those licences (“Licence Conditions and Codes of Practice”, available on the Gambling Commission website: www.gamblingcommission.gov.uk). The consultation period for this paper closed on 2 June 2006.

Licensing, Compliance and Enforcement

In addition to publishing licences and being the body responsible for the grant of licences, the Gambling Commission as the industry’s regulator will be the body responsible for enforcing compliance with those licences. Consequently, the Gambling Commission published on 31 May 2006 a consultation paper on this licensing, compliance and enforcement (“Licensing, Compliance and Enforcement”, also available on the Gambling Commission website). The consultation period ends on 22 August 2006. This article gives a briefing on these papers in so far as they affect the casino industry in the UK.

Licence Conditions and Codes of Practice

Currently, under the Gaming Act 1968 there are 140 casinos operating in the UK. Each of them is fairly small, and they are restricted in the areas in which they can operate. Following the implementation of the Act, one regional casino, eight large and eight small casinos will be added to the existing 140, under licences to be published and regulated by the Gambling Commission. The Gambling Commission has emphasised the general principles that will guide it in its regulatory role. None of these are controversial: it will expect casino operators to conduct their business with integrity and to act with due care, skill and diligence. They will be required to take care to organise and control their affairs responsibly and effectively, with adequate risk management systems to combat crime and disorder. They will be required to maintain adequate financial resources but have due regard to the interests of customers and to treat them fairly, with due regard to their information needs. All this is motherhood and apple pie. The Gambling Commission state that casinos must communicate with customers in a way that is clear, not misleading and allows customers to make a properly informed judgment about whether to gamble. Would any reputable casino want to operate in any other way?

In addition, casinos will be expected to manage conflicts of interest fairly and to deal with the Commission in an open and cooperative way, and disclose to the Commission anything relating to the casino which Commission would reasonably expect notice. In the consultation paper the Gambling Commission sets out its principle aims: to protect children and vulnerable people, to make sure that casino gaming is fair and open, to keep crime out of casinos and to ensure financial robustness of casino operators.

The licences conditions and codes of practice that will address the aim of protecting children and vulnerable people are in fact measures to address the issue of problem gambling. This will require, amongst other things, for casinos to have published policies and procedures for promoting “social responsible gambling”, and will be required to contribute into research into the prevention and treatment of problem gambling. Conditions will be included in licences to require casinos to provide assistance to problem gamblers, including providing information on the help available in the gaming area and in discreet places such as toilets. There will be training requirements for employees to enable them to identify problem gambling. Operators will not be permitted to give credit or facilitate credit arrangements or the lending of money between customers. The Gambling Commission will also require casinos to ensure that alcohol is not used as an inducement to encourage gambling.

Advertising will be required to comply with a code of practice, which will require that advertisements are not directed at those under 18 or feature those that appear to be under 25. There will be strict requirements for the verification of the age of gamblers. The conditions and codes proposed to make sure casino gaming is fair and open will require casinos to display the rules of games, odds or house edge, average return to the player and the casino’s dispute and complaints procedure. Records of complaints and disputes must be submitted to the Gambling Commission at least quarterly.

In addition, licensed staff will not be permitted to accept tips from customers and customers should be prohibited from providing them. Key staff will be subject to greater scrutiny in that they will require a personal licence, in order to keep unsuitable persons out of gaming. These will include managing directors and directors of finance, compliance and marketing. Operators will be required to have anti-money laundering procedures, essentially requiring customers to be identified and all transactions above specified levels recorded. All suspicious activity will need to be reported to the relevant organisations. Lastly, casinos will need to provide evidence of adequate financing and satisfactory arrangements for control of cash and credit. In particular, customers’ money must be ring-fenced and available for immediate withdrawal.

In addition to the operation of casinos, the consultation paper includes proposals for the regulation of gaming machines. There will be four main categories of gaming machine under the Act: Category A machines may only be sited in the regional casino and will have unlimited stakes and prizes. Category D machines (which may be played by children and young people) will have a stake and prize limit of 10p and £5 cash, or 30p and £8 when non-monetary. To date regulations have not been published to define Category B and C machines.

The rules governing the number of each type of machine that a casino operator may deploy are dependent upon the type of licence held by the operator – the details are included at section 172 of the Act (not yet in force).

As the Gambling Commission’s principal aims set out in the paper apply equally in relation to the deployment of gaming machines, casino operators who follow the conditions and codes described in the outline above will not have any additional regulatory burden. Manufacturers, suppliers and maintainers of gaming machines, however, will be regulated, needing “gaming machine technical operating licences”, so that it will be incumbent upon casino operators to ensure that their gaming machines come from a licensed provider.

Licensing, Compliance and Enforcement

The Gambling Commission paper on its proposals for granting licences under the Act, monitoring compliance and enforcing all relevant legislation is presented in three parts:

Part 1 - Licensing

The two types of licences that an operator requires under the Act are described. These are the operating licence, which is required by an operator providing facilities for gambling (including remote-gambling operating licences), and the personal licence, which is required by any individual working as an operator or a manager for a gambling operator. The paper includes draft application forms for these operating and personal licences. For personal licences, the Gambling Commission has made clear that it will be looking for evidence of integrity and competence of applicants. It will also check the activities of partners and spouses. Holding a conviction for a relevant criminal offence (as set out in Schedule 7 of the Act) will bar an applicant from obtaining a personal licence. When assessing financial position, the Gambling Commission will be interested in the applicant’s business plan and a host of other references. After an initial assessment, the Gambling Commission will decide with the information submitted under certain headings (identity, integrity and competence, criminality and financial position) to score the applicant as “adequate” or “inadequate”. An applicant will need to achieve an “adequate” rating in each area in order for an application to be approved in principle. It is intended that the application and award process will be electronic. Appeals against a finding of “inadequate” lie to the Gambling Appeals Tribunal.

Part 2 - Compliance

In an attempt to establish common compliance standards across the whole industry, the Gambling Commission is keen to develop a process that is essentially self-regulating, in that it hopes operators will establish business processes or new or enhanced gambling products in line with the Gambling Commission’s clear licensing objectives. It hopes that it will not have to intervene on a regular basis. It will carry out paper-based or desk-based reviews of operators’ procedures and policies whenever these will achieve its aim of adherence to the licensing objectives, on a risk assessment review. It intends that site visits will, however, continue to be a part of the compliance function, with site visits (both risk-based and random, announced and unannounced), meeting with senior managers and other key personnel, and exchanging information with other law enforcement agencies and regulators. The Gambling Commission is aware that as part of its function it will acquire extensive and wide-ranging business records of casino operators. However, it is keen to emphasise that it must adhere to the Data Protection Act 1998. Sadly, the Gambling Commission does not discuss the potential impact of the Freedom of Information Act 2000 on its ability to retain these business records out of the public domain. This may be particularly important when it comes to the proposed licence condition for operators to maintain a register of breaches (and near misses), which should be available on demand by the Gambling Commission. It is possible that this could be deemed to be held for and on behalf of the Gambling Commission to come within the remit of the Freedom of Information Act 2000. Also, as part of its compliance function, the Gambling Commission will require operators to submit complaints figures on a quarterly basis.

Part 3 - Enforcement

It should not be a surprise that the Gambling Commission intends to take action both to stop illegal gambling and where the required regulatory standard or effective remedial action to correct regulatory failings have not been maintained or undertaken. The Gambling Commission will have the option to conduct regulatory and criminal investigation processes which may result in either the imposition of a regulatory sanction or the laying of criminal charges – in particular failure to operate in accordance with the terms and conditions of an operating licence will be a criminal offence. To assist in its enforcement, the Gambling Commission will conduct standard non-covert methods of investigation and, where appropriate, covert (but not intrusive) methods of surveillance, such as test purchasing and directed surveillance. If the Gambling Commission undertakes a regulatory review under section 116(2) of the Act, it may impose a penalty that will not normally exceed 10% of the operator’s annual turnover arising from the licensed activities. In the case of a personal licence, the Commission will not normally impose a financial penalty that exceeds 10% of the licensee’s gross annual income from the employment to which the licence relates. Note that this suggests the 10% limit is not a maximum.

Conclusion

The real issues for the industry may amount to no more than the concern of the type of information which must be submitted in support of a licence application, and the prospect of a “dawn-raid” style visit from the Gambling Commission and the high financial penalties for licence breaches that could in the extreme be imposed. However, lawyers for casino operators may consider brushing up on the Freedom of Information Act 2000 to ensure that they can argue their client’s case if the Gambling Commission receives requests to disclose information on their clients.

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