Why the UKGC should avoid a ban on specific features and focus on game design regulation

The UK Department for Digital, Culture, Media & Sport (“DCMS”) has opened a public consultation which is based on recommendations from the UKGC and seeks views on proposals for changes to the regulator’s licence fees.

This proposal should not come as a shock to those who have been following the ongoing discussion about the reform of the UK gambling sector. There has been steady criticism about the lack of funding that the UKGC receives. A lack of funding was cited as a serious hindrance on the Commission’s ability to effectively regulate the gambling sector in reports published by the National Audit Office (February 2020), the House of Commons Public Accounts Committee (June 2020) and the House of Lords Select Committee on the Social and Economic Impact of the Gambling Industry (July 2020).

The UKGC has recommended that with effect from October 2021:

each annual fee band for remote operating licences (other than lottery and gaming machine technical licences) and for gambling software licences should be increased by 55%;
all remote licence application fees (i.e. applications for new licences, variation of existing licences and changes of corporate control) should be increased by 60%; and
the discounts on annual fees available for both remote and non-remote licensees who hold licences for multiple types of gambling activity will be removed.

It further recommends that with effect from April 2022, in consideration of the severe impact that Covid-19 has had on the brick-and-mortar sector, each annual fee band for non-remote licences, other than gambling software, should be increased by 15%.

However, the purpose of this piece is not to delve into the financial impact this will have on operators. Instead, I think it is pertinent to pick up on a curious point which has been included as one of the justifications for this hike in fees.

In trying to justify its proposals, the UKGC has identified a number of challenges which it needs to address, namely:

Increased technological developments including product and payment innovation
Changes in the size and shape of the market partially caused by consolidation, meaning operators it regulates are increasingly global operators
Increasing risks associated with unlicensed operators and the need to protect consumers and the industry from ‘black market’ encroachment

This third justification will have raised many an eyebrow given the fact that only last January Neil McArthur dismissed concerns about the impact of the black market, stating that the Commission’s own evidence suggested that the impact was being exaggerated. Now, just two weeks after McArthur made this statement, the UKGC has advised DCMS that it requires additional resources to better understand the threat which the black market presents to the sector.
Black-market inconsistency
While I make no quibble about the increase in fees and am completely subscribed to the idea that a well-funded regulator is absolutely necessary for the effective regulation of the sector, I found this inconsistent messaging on the black market curious.

The industry has long shown an appreciation for the premise that the provision of a safe gambling environment is in the industry’s own interest. However, it has long disputed that a draconian approach to regulation, such as outright bans of certain features, may in fact be counterproductive and actually drive players towards its unregulated competitors.

There is an argument to be had that instead of banning features, the Commission should take the time to study them so that they can be regulated to the extent that they are safe for players to enjoy. One example is the Bonus Buy feature which is currently prohibited in the UK. UK-based players who wish to purchase Bonus Buys or other prohibited features are necessarily forced to play at black-market casinos where they are not afforded the same protections as they are under UK law. Suppose instead that the Commission were to study the Bonus Buy feature and regulate the feature by limiting the amounts permitted to be spent on a Bonus Buy or the amount of times such features may be bought. Afterall, when one considers it, a Bonus Buy is just a big bet on a lower volatility game round. It is a combination of the bet in relation to the bonus round volatility. When one examines this proposal with consideration for the obligation operators have to ensure that their players play responsibly and the introduction of affordability checks, the argument in favour of allowing regulated Bonus Buy features becomes stronger.

This discussion becomes even more pertinent when one considers the introduction of the Commission’s new rules for online slot games published in February 2021, which introduce a ban on the autoplay feature – despite the requirement that customers set a loss limit before commencing gambling when utilising such feature.

I’m not sure where the line should be drawn but taking the time to study this matter and enact effective regulation may be one way to help fight black-market encroachment. With this hike in fees, one hopes that the Commission will be able to utilise some of its extra resources to take a closer look at such suggestions and work towards a more holistic approach to the regulation of game designs.

Paul Caruana Turner currently heads the legal and compliance department at Nolimit City. Prior to joining Nolimit City, he had spent over five years working in a number of advisory roles focusing mostly on financial and corporate services, gaming and fintech. During his career he has assisted a varied portfolio of local and international clients including payment services providers, gaming companies and blockchain companies with licensing, regulatory compliance, GDPR and various corporate and commercial matters.