Ask the expert Q&A: What are regulatory settlements?

By Gambling Insider

In early May, the Gambling Commission opened up this year’s application process for regulatory settlement funding, with stage one applications due by 1 July.

Regulatory settlement funds are payments made voluntarily by operators in lieu of a financial penalty that could be applied for a breach of a licence condition(s). The regulator must approve all such settlement payments.

Instead of being paid into the Consolidated Fund (as financial penalties are), where a regulatory settlement includes a payment in lieu of a financial penalty, settlement monies must be used for socially responsible purposes.

Past recipients of such funding have included GambleAware, GamCare, YGAM and Gordon Moody. Universities, independent research bodies and local authorities have also been approved for funding to help research and tackle gambling-related harm.

Richard Bradley, Partner at Poppleston Allen, as well as a gambling industry and regulatory expert, explains the purpose of such settlements and gives some insight into when these might be appropriate.

What is a regulatory settlement and when might one be used?

Where it deems necessary, the Gambling Commission can commence an investigation into a licensee’s operation where it identifies concerns, suspects a potential breach of a licence condition or where it believes that an operator is no longer suitable to hold a licence. The Commission may ultimately seek to formally investigate by way of an operating licence review under Section 116 of the Gambling Act 2005.

Depending on the nature of the identified failings, which are of course specific to the particular circumstances, the Gambling Commission may take the view that the licensing objectives can be upheld without proceeding to a formal licence review. In such circumstances, the Commission may be open to a regulatory settlement in agreement with the licensee. Settlements can also be achieved where the formal review process has already commenced if the licensee meets certain requirements.

There can and have been significant sums paid by licensees, and they must be willing to accept any failings or shortcomings in a timely manner and seek to implement a robust and effective action plan to remedy any issues

It is important to note that the Gambling Commission does not usually initiate the regulatory settlement process, but it may and does remind licensees that this option is available to them.

In what circumstances would the Gambling Commission be most likely to consider a regulatory settlement?

The Gambling Commission will look at the how the licensee is engaging with the Commission and their actions taken, including whether the licensee:

  • Is “open and transparent in its dealings with the Commission.”
  • Has been “able to make timely disclosure of material facts to the Commission.”
  • Is able to “demonstrate that they have insight into the apparent failings.”
  • Is able to “suggest actions that would prevent the need for formal action by the Commission.”
  • Is “prepared, where appropriate, to agree to the publication of a public statement by the Commission setting out the failings in order to deter future non-compliance by others and/or share learning that may be beneficial to the wider industry or other stakeholders including the public.”
  • Is “prepared to divest itself of any gross gambling yield or costs savings which accrued as a result of the failings.”
  • Is “prepared to follow advice and implement procedures to ensure there is no repetition.”
  • Is “prepared to contribute to the direct costs to the Commission of investigating the matter in respect of which the regulatory settlement is sought.”
  • Is “prepared to volunteer a payment in lieu of the financial penalty the Commission might otherwise impose for breach of a licence condition in accordance with the Statement of Principles for Determining Financial Penalties.”

The Commission will consider the magnitude of the suspected breach of condition(s), its impact on customers and it will assess whether a regulatory settlement is proportionate.

This is not to say that a regulatory settlement is an easy option for operators, as there can and have been significant sums paid by licensees, and they must be willing to accept any failings or shortcomings in a timely manner and seek to implement a robust and effective action plan to remedy any issues. Timelines are likely to be strict and demanding and, if targets are not met, the Commission could still initiate or recommence the formal review process.

The Commission will expect a level of publicity, whereby failings are openly shared. The financial implications of a settlement may also be significant as it may include a level of redress for customers that may have been disadvantaged, a punitive aspect relevant to the level of the operational failings and a divestment of any profits realised. There are numerous examples of regulatory settlements involving millions of pounds.     

And when might the regulator not be willing to agree to a regulatory settlement?

If the breach or misconduct was sufficiently serious, including the risk of harm to customer, or if an operator was not deemed to have engaged in the process in a timely manner, then the Commission might not accept that a regulatory settlement is an appropriate response. In such circumstances, the Commission may determine that further regulatory sanction is needed in order to uphold the licensing objectives.

As a legal expert, would you recommend regulatory settlements as a better option for an operator than a fine and if so, why?

An operator might want to opt for a regulatory settlement if they are willing to hold their hands up over any failings and commit to working with the Commission to rectify the situation. It may offer better flexibility as to the outcome, provided that the licensee is willing to work proactively with the Commission and accept not only the financial costs but also the negative publicity.

A difficult aspect to the process is that operators will want to complete their own internal investigation as to the validity of any alleged failings and may seek to dispute aspects of any criticisms raised.  

Is a regulatory settlement a way of keeping any wrongdoing quiet, as is the case in some other areas of law?

No. Even if you opt for a regulatory settlement, the Gambling Commission will likely publish the outcome of any investigation, so the fact a specific operator has been investigated and found to be in breach of the Act, many details will be made public, whether or not it is subject to a financial penalty or has agreed a regulatory settlement. That said, some operators may consider that it looks better from a PR perspective and have agreed a settlement and are proactively making changes.

It is worth noting that media outlets have incorrectly reported that operators have been fined as opposed to agreeing a regulatory settlement

This may be a preferred option to undergoing the full licence review process and being subject to a financial penalty and/or additional sanctions such as further licence conditions or licence suspension. It is worth noting that media outlets have incorrectly reported that operators have been fined as opposed to agreeing a regulatory settlement.

Is there anything operators can do about this?

Not really. While there are legal avenues that can be pursued against news organisations that get the facts wrong, the reality is that most operators on the receiving end of enforcement action are keen to avoid any further publicity.

Are there rules operators themselves need to follow in terms of publicity when they’ve entered a settlement?

Yes. While operators will usually pay regulatory settlement funds directly to an organisation approved for funding, they cannot publicise which organisation they have provided funding to as they are not allowed to generate any positive publicity from the settlement.


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