Affiliate compliance: Learning the lessons of regulatory scrutiny

As a method of routing players to online gambling sites, affiliates are an invaluable resource which can provide useful revenue generation without the need for excessive overheads. Simply by providing affiliate partners with media such as logos for web pages, exclusive offers and specialised web links, operators can do twice the advertising, but with half the budget.

The problem comes in managing the activities of your affiliates, and in today’s increasingly regulated gambling industry the actions of operators’ affiliate partners can be treated by regulators just as stringently. Indeed, the reported actions by affiliates on behalf of some operators during the last few years have prompted some operators to cut back on affiliates or close their affiliate programmes entirely.

Sky Betting & Gaming hit the headlines late in 2017 when it announced the decision to close its affiliate marketing programme, known as the ‘Affiliate Hub’, following a strategic review which highlighted “growing regulatory concerns”. All commission and player referrals ceased, with the operator asking its affiliate partners to remove all existing marketing materials from their respective websites.

Releasing a statement concerning the affiliate programme closure, SBG cited the increasing regulatory obligations of affiliates as the reason, adding that “the management of the output of affiliates presents a significant risk to our business from a regulatory perspective. It is for this reason that we have chosen to terminate the Programme”.

The closure of one of the highest performing affiliate programmes by one of the biggest operators in egaming sent shockwaves through the affiliate industry, causing many operators to turn inward and look at their own affiliate programmes. But that was just the tip of the iceberg.

Shifting landscape

Following the increased scrutiny, Paddy Power Betfair introduced a one-strike policy for its affiliate partners, under which any violations were met with an immediate suspension from the operators’ affiliate programme. Under the one-strike policy, restrictions were introduced on the methods of marketing, the data conveyed to players accessing sites through affiliates and the types of messaging that were to be included with all affiliate ads.

Going one better, bet365 introduced a zero-tolerance policy for its affiliates, leading many to wonder if the affiliate industry itself was on the brink of a paradigm shift in how it worked going forward.

Flash forward to today, how has the affiliate landscape changed? Giving its assessment of the last 12-18 months in the affiliate sector, Matthew Robins, head of regulatory compliance at SMP eGaming, believes there has been a “huge change” in the way the industry looks at compliance.

Expanding on what effect this might have on operators Robins adds: “Some operators have scaled back or cancelled their affiliate programmes due to the regulatory pressure on operators, to ensure affiliates are compliant with advertising requirements and the size of the fines being imposed on those operators for instances of non-compliance.”

Ian Sims, founder of affiliate compliance company Rightlander, says no affiliate which is serious about its compliance will have emerged “unscathed” from the increased focus on affiliate operations during the last two years. Although Sims says there are some “very positive side effects” for the affiliate industry in that “a good percentage of affiliates will have left the market, a reduction on predatory bonuses should instil more trust among consumers and stricter KYC requirements may well encourage more brand loyalty”.

These sentiments were echoed by Charles Gillespie, CEO of power affiliate Gambling.com Group, who agrees that the scrutiny on balance “has been positive as it has culled a number of smaller, non-compliant affiliates that were at risk of giving the whole industry a bad name”.

Indeed, the actions of a few bad apple affiliates and the resulting fines levied against their operator partners was the straw that broke the camel’s back for many operators, as for most the prospect of a regulatory fine and the associated reputational damage far outweighed the damage caused by merely closing their affiliate programmes.

But are regulators right to target the operators involved rather than their affiliates? Scott Collins, head of corporate communications and corporate responsibility for Raketech, believes the fines were just as “the licence holder will always be accountable for paying fines linked to their business. The fines in question were for quite serious and unethical practices that needed to be stopped”.

Now that the affiliate sector has been ‘through the wash’ of increased scrutiny and regulatory fines, the temptation is to gravitate back to a pre-clampdown ‘Wild West’ stance, which most would agree is unsustainable in the long term. So, what is the best way to ensure that the affiliate industry learns the lessons and moves forward in the right way towards a more compliant industry?

Keeping a watchful eye

Looking beyond the headlines, the event which started the ball rolling on industry-wide scrutiny of the affiliate industry was the actions of the larger affiliate operators. Can these industry motivators now take up the baton and as Gillespie says: “Get the message out there that they are actually providing a useful, and frankly important, consumer service?”

Reflecting on how increased compliance has changed the way larger affiliate operators work, Collins says that where affiliates used to rely on operators to drive their compliance this has now changed, and affiliates are more “educated and proactive” when it comes to compliance.

Discussing this period, he adds: “After the Gambling Commission came knocking, we soon found that operators were not properly checking campaigns or branding outside of their own websites and apps, so third-party compliance was a mess. You would find incorrect information, outdated bonuses, no wagering requirements, content encouraging excessive gambling, images that would appeal to children and even fake winner stories in the worst cases.”

Irrespective of the size of the affiliate, it is increasingly important to instil a culture of compliance, which can be as simple as implementing robust marketing and communication policies aligned with the relevant codes of practice and providing training on the same for awareness.

Sims believes trust is essential if the affiliate industry is to work well going forward from a compliance perspective as “an operator needs to 100% trust an affiliate and the affiliate needs to 100% trust the operator”.

So where does trust begin in the affiliate industry? Trust exists where operator and affiliate can sing from the same hymnsheet, where both parties know where they stand, what is expected of them and what will happen if they screw up. An argument could be made that this will already exist when the operator signs the agreement with the affiliate, but agreements of this sort do not focus exclusively on compliance so would be useless in creating a compliance-led affiliate culture.

In the wider gambling industry, compliance begins with one thing: regulation.

Affiliates are somewhat unique in the gambling industry as they are the only entities which play an active part in the operator relationship and aren’t directly regulated. No licensing or standards body currently exists to govern the actions of affiliates, despite repeated attempts by the industry to clean up its act.

The only overarching regulations that affiliates may be subject to are those pertaining to the usage of their advertising online and, in most cases, the advertising regulator has punished the operator rather than the affiliate. Indeed, several larger affiliate operators have pushed for a regulatory body in the past with little success, but now the industry is taking compliance and indeed responsible gambling seriously is it time to resurrect such proposals?

Gillespie believes it is, because an affiliate trade body is essential “to advocate on behalf of the affiliates and ensure that there is a common, unified voice to defend our interests in what is an increasingly hostile online gaming marketplace, particularly in the UK.” Expanding on what this might do for the industry, he says an affiliate trade body will help operators and affiliates “draw a clearer line in the sand between the good guys and the bad guys”.

A crucial part of maintaining regulatory compliance, particularly in the UK, is the licensing codes of practice, a set of standards which unequivocally state that if you break certain rules, you can be fined or even lose your licence as a final sanction. Despite its issues, the LCCP and the associated licensing process give the gambling industry structure, providing redress between operator, consumer and the authorities.

Ultimately the path to a regulated affiliate industry starts with the process for licensing, as this provides for the assessment of affiliates against standardised measures in areas like compliance, financial security and technology. Despite these obvious benefits, Sims sounds a note of caution, saying that this must be handled by the “correct” authority and done in a “sensible” way.

Focusing on where this might find traction, Sims adds: “If it comes from the UKGC/ICO then I think it has mileage – both operators and affiliates would benefit from affiliates having accountability, especially in the new age of ‘influencers’. If you look at the US method of vendor licences which are cheap and relatively easy but ensure an affiliate is identifiable then I think it would be widely accepted by affiliates who are prepared to work ethically. Less so by those that aren’t, obviously!”

However, Robins believes licensing is not a ‘quick fix’ solution for the industry as it would “take time to curtail non-compliance and would need buy-in from the affiliate industry”, something which affiliates may not be ready to give.

Taking it seriously

Licensing of affiliates would provide the affiliate sector with two things: it takes the industry out of the shadows by making everything public and it would provide the impetus for a greater drive towards regulatory knowledge among affiliates. An unintended but potentially beneficial byproduct of this process would be the weeding out of those affiliates who were not serious about compliance. In addition to this, it would as Robins asserts “provide operators with a significant level of comfort in terms of an affiliate’s overall compliance”.

Following the extensive housecleaning that the industry has gone through over the intervening period companies such as Rightlander have sprung to the forefront of the industry. Allowing affiliates and operators to identify potentially non-compliant content on affiliate sites in regulated jurisdictions, Rightlander scans all affiliate content looking for operator/regulator defined conditions, providing alerts to operators where conditions are met.

Some affiliates would view this as enforcement software for the affiliate industry, a notion which Sims dismisses, saying that it negates the need for enforcement. “What many affiliates also don’t realise is that some services, such as Rightlander, offer the data collected to the affiliates themselves so they can be pro-active in removing expired bonuses and other potentially non-compliant content before it becomes an issue,” Sims explains.

One method of increasing affiliate compliance not promulgated by the industry but directly affecting its interaction with both consumer and operator is the recent GDPR harmonisation which occurred across the EU. Many in the affiliate sector believed at the time, that it would give the right nudge towards greater compliance among affiliates, an assertion that Gillespie backs, adding that it has “tightened things up substantially and limited the number of activities and even channels that were previously viable”.

While sophisticated affiliate marketing services and EU wide initiatives might point the way to greater compliance in the affiliate industry, not every affiliate operator will have the funds available to engage the services of firms like Rightlander. What can these operators do to ensure that they remain compliant?

For Gillespie, maintaining a common-sense approach goes a long way when affiliate operators deal with their affiliate partners. “If you are working with the big guys then you pretty much have nothing to worry about. If you are working with an SMS affiliate who walks around trade shows with a t-shirt that says “F*** GDPR” then perhaps you should re-consider your partners,” he adds.

From a business perspective, maintaining a watch on the compliance of thousands of affiliate partners will be unworkable for most affiliate operators, which lack both the financial resources to administer this process and the personnel to manage it. The current method of keeping a watch on affiliates via the use of an affiliate manager would also prove unsustainable due to the volumes of affiliates falling under each manager’s purview.

In an environment such as the affiliate sector where regulation, licensing and advances in compliance-led software all have limited traction, a more suitable solution in the long term might be a more collaborative effort between both operators and affiliates to pool knowledge concerning compliance.

This level of understanding between the two would provide necessary benefits to consumers and help to satisfy the regulators that the industry is committed to the compliance-led culture that will ultimately prove sustainable in the future.