UK: Enhanced Financial Risk Assessments - A Commentary on the Upcoming Changes

In our previous article, "Financial Risk Checks: New Updates from the Gambling Commission," we detailed the latest developments on the financial risk assessments proposed in the White Paper and the Commission’s Summer 2023 Consultation. With the Gambling Commission's full response now published, in this article we will delve deeper into the Commission’s proposals for enhanced financial risk assessments and what they might mean for the industry.

Understanding Enhanced Financial Risk Assessments

As we outlined in this article shortly after the Commission published its response to the Sumer 2023 Consultation, the Commission has now confirmed that financial risk assessments will be tested via a pilot scheme involving the largest operators initially (although smaller operators are invited to volunteer to take part), which will allow those operators and credit reference agencies to test how they would share data as it relates to identifying gambling harm. The pilot of the frictionless financial risk assessments is expected to run from 30 August 2024 to 31 March 2025, although it may be extended to 30 April 2025 if required. Even if the pilot scheme is successful, it will presumably be some time before conducting financial risk assessments is actually made a requirement for all operators.

The Industry’s Reaction: A Balancing Act

The introduction of enhanced financial risk assessments has been met with a mix of anticipation and apprehension within the industry. On the one hand, clearly there is a general recognition of the benefits of consistency and an even playing field for all operators when it comes to affordability checks, rather than the Commission’s previous approach of introducing affordability checks ‘via the back door’, effectively imposing checks during licence reviews with operators at thresholds at which there was no regulatory obligation to carry out such checks.

On the other hand, concerns about the operational and financial burden of implementing these checks rightly remain, as well as the impact on customer behaviour. Perhaps most notably, it remains to be seen whether truly ‘frictionless’ financial risk assessments are even possible with currently available technology.

So, whilst operators await the outcome of the financial risk assessment pilot scheme, what can, and should, they be doing when it comes to assessing affordability and financial risk?

The BGC’s ‘Voluntary Code on Customer Checks and Documentation Requests Based on Spend’

To coincide with the Commission’s Summer 2023 Consultation response, the Betting and Gaming Council (“BGC”) published its ‘Voluntary Code on Customer Checks and Documentation Requests Based on Spend’ (the “BGC Code”), which it states has been developed jointly with the Commission and is backed by the government. Operators may choose to adopt the BGC Code until the Commission’s pilot scheme has finished and any new regulatory obligations have been imposed.

At first glance, the BGC Code looks to be good news for operators. Beyond the ‘light touch’ checks that are being introduced in August when a customer has a net deposit of £500 in a 30 day period (reducing to £150 from February 2025), it is only at £5,000 net deposits in a rolling 30-day period (or £2,500 for 18-24 year olds) that customers should undergo a financial risk assessment, using one or more of the methods listed in the BGC Code (such as a live chat interaction where the customer self-declares their income, and/or an open-source background check on that customer). If the financial risk assessment can’t be undertaken, the customer can continue to hit that £5,000 threshold for three months in a row before their play should be restricted until a risk assessment has been carried out. In fact, there is no obligation on operators under the BGC Code to carry out ‘enhanced consideration’ (what many operators might recognise as EDD) and obtain source of funds documentation until a customer reaches £25,000 net deposits in a rolling 12-month period – far higher thresholds than those envisaged by most in the industry at the time of the White Paper, and, we expect, almost certainly higher than those currently set out in most operators’ safer gambling policies.

From a commercial perspective then, operators may be tempted to adopt the BGC Code until such time as the Commission’s new requirements in respect of these checks are introduced. However, our advice to those operators is clear: think carefully about if and how you do so. If adopting the BGC Code means departing from established policies and procedures, you must ensure that you do not fall foul of your regulatory obligations under the Commission’s remote customer interaction guidance (our emphasis added):

“Licensees should aim to identify those experiencing or at risk of harm and intervene to reduce harm at the earliest opportunity. Reliance on deposit or loss thresholds that are set too high will result in failing to detect some customers who may be experiencing significant harms associated with their gambling. It is therefore imperative that threshold levels are set appropriately.”

Operators therefore must ensure that adopting the BGC Code does not mean that they overlook customers at lower deposit levels who may be displaying indicators of gambling harm. Even if the BGC Code thresholds are adopted, it is vital that operators continue to monitor their customers for the indicators set out in SRCP 3.4.3, and that they take appropriate action in relation to those customers, irrespective of whether the thresholds set out in the BGC Code have not yet been met.

An operator’s thresholds must be appropriate for its customer base, and it should be prepared to justify the thresholds it has set and the actions taken in relation to individual customers. Should the Commission come knocking, it will not be a defence for an operator to suggest that its thresholds were appropriate simply because it adopted those set out in the BGC Code.

Conclusion

The BGC Code is undoubtedly a positive indicator that affordability thresholds, if and when they are eventually introduced, may not be at the draconian levels initially feared by the industry. However, where operators have already evaluated and set their own thresholds, and those are tailored to their customer base, careful consideration will need to be given to whether any departure from those thresholds to the BGC Code can be justified, despite the potential commercial benefits of doing so.

Finally, operators will also need to consider how the BGC Code thresholds interact with the CDD and EDD thresholds set out in the operator’s AML policies. The BGC is expected to publish its voluntary code on AML in due course, at which point we will provide our thoughts and a further update from an AML perspective.