UK LEGAL COMMENT


Northridge Law’s Melanie Ellis explores another thorny subject affecting the UK market


Is UK gambling regulation killing innovation?


T EKH-Pictures/Adobe Stock


he UK’s Gambling Act 2005 set out to create a relatively permissive regime, with the regulator legally obliged to aim to permit gambling, to the extent that it is reasonably consistent with three “licensing objectives” (keeping crime out of gambling, being fair and open with customers and protecting the young and vulnerable). The basic principle that gambling should be permitted in Great Britain has been helpful to start-up operators and developers of new products, as they should not be denied the right to begin providing services provided they can demonstrate the ability to comply with the licensing objectives. It has also helped that licensing fees are scaled according to the business’s revenue, with costs for the lowest categories of gambling yield significantly lower than in many other jurisdictions. However, in recent years the Gambling Commission’s


approach has made it increasingly difficult for new operators to enter and remain in the market. Fee increases which took effect in October 2021 raised the cost of making an application by 60% and the GC will now reject any application deemed “incomplete” with no refund of the fees paid. Any mistakes in completing the application can therefore lead to application fees being paid multiple times. This imposes a high cost on new entrants to the market,


particularly as the guidance given within the application form fails to provide sufficient clarity on what is necessary for an application to be “complete”. Meeting high compliance standards can also be difficult, with expectations for detailed affordability assessments and constant monitoring of customer deposits. But perhaps more problematic for many start-up businesses is the GC’s recently updated stance on the issues of source of funding evidence, the use of cryptocurrency and new product types. These are issues which can be particularly relevant to operators of new and innovative gambling products.


Source of funds


In its recent consultation on changes to its Licensing, Compliance and Enforcement Policy, the GC proposed that it “will not grant an operating licence until it is fully satisfied that the operation will not be financed by the proceeds of crime”. In reality, this policy is already being following by the GC in determining applications. Nobody would disagree that gambling should not be financed by crime, but the requirement to “fully satisfy” the GC of this does create a challenge for licence applicants, as the GC has not set out what this means in practice. Full satisfaction is a high barrier, creating a burden on the applicant to prove that the funds are not tainted by criminal activity at any point in their history, as compared to the usual approach to anti-money laundering which involves taking action where there is knowledge or suspicion that funds have a criminal origin. The GC’s approach has a particularly detrimental impact on


start-up businesses, who often receive funding from a range of individuals and investment funds, who will have varying views on what confidential documents they are prepared to share with a gambling regulator. Start-ups often need to be creative with their fundraising and are unlikely to be aware prior to accepting investment what will later be needed to demonstrate the origin of the money received. Having accepted investment early on, a business will be in a difficult position if their investor then proves unwilling to share the required evidence with the GC. The effect of the GC’s new approach is to create a significant barrier to entry for new gambling businesses. Those with innovative (rather than existing and proven) products are more likely to have a need to seek investment from a range of sources, exacerbating the barrier to bringing new products to market.


30 MARCH 2022


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