Should affiliates be licensed in the UK

20th August 2015 by

While affiliates do not currently require licensing by the Gambling Commission, some of their activities can easily cross the line, making demonstrable self-regulation by the industry all the more important, as David Schollenberger of Healys LLP explains.

Marketing affiliates provide invaluable services to online gaming and betting companies in supplying marketing services and directing customers to operator websites. They do not typically hold customer funds, nor do they operate and provide games of chance and betting services to customers directly. Rather they advertise operators’ services, acting as a liaison between customers and operators and driving traffic to operator’s gambling services business. As such, their activities are similar in some ways to the services junket operators provide to land-based casinos. Junket operators now require licensing in many gaming jurisdictions and are unfortunately tainted with a history of association with organised crime.

Currently, affiliates do not require a licence from the UK Gambling Commission to provide marketing services for operators.

Certain activities may however cause affiliates to cross the line and require licensing. This article will explore where the line may be crossed and how to avoid it. It will also consider if there is currently the need for UK licensing to be required of all affiliates due to the threat of criminal activity and the influential position held by affiliates in relation to operators and consumers. It will conclude with suggestions of measures that can be taken by operators to mitigate these risks.

Regulated gambling under the Gambling Act 2005 (“Act”)

Section 4 of the Act defines “remote gambling” as gambling in which persons participate by use of “remote communication.” “Remote communication” is defined to include the internet. Section 5 of the Act defines a person as providing “facilities for gambling” if he:

  • invites others to gamble in accordance with arrangements made by him;
  • provides, operates or administers arrangements for gambling by others or;
  • participates in the operator or administration for gambling by others.

A person commits a criminal offence under Section 33 of the Act if he provides facilities for gambling unless that person holds a Gambling Commission operating licence authorising the activity.

Betting intermediaries

Section 13 of the Act defines “betting intermediary” as a person who provides a service designed to facilitate the making or acceptances of bets between others. The Gambling Commission Guidance Note, Betting: Advice for remote, non-remote and betting intermediaries, October 2013, (updated October, 2014) states that: “A betting intermediary is a person who provides a service to enable others to make or accept bets. Such a person does not himself partake in the bet. The definition includes betting exchanges.”

 

The Commission further advises that if the operator is not a party to the bet but is providing a service to allow two other parties to make and accept a bet, then the operator is a betting intermediary and the appropriate licence is a betting intermediary operating licence.

The Guidance Note explains that the Commission has adopted a common sense approach to the question of what constitutes “facilitating” the making or accepting of bets between others. For example, the Commission does not consider that merely placing advertisements as to where to place bets or providing tips in a newspaper is sufficient to fall within the definition.

In contrast, the offer of tipster services, whereby the tipster places bets on behalf of third parties in return for payment or commission would, in the Commission’s view, fall within the definition in section 13 of the Act.

Betting intermediaries require an operating licence in the UK. There is a separate class of operating licence for betting intermediaries and the licence to operate as a bookmaker is separate and not included in that class of operating licence.

Application to current affiliate business model

An affiliate that merely provides marketing services only to operators is currently not considered as providing “facilities for gambling” by the Gambling Commission and is not required to hold a betting intermediary licence. However, if the connection with the operator is more than acting as a marketing agent, for example if the affiliate takes customer money, registers players or provides an execution platform to place bets on the operator site, it is likely that the Gambling Commission would view this as providing “facilities for gambling” and require an intermediary betting licence. This is because it provides, operates and administers arrangement for gambling by others.

Further the software that would be used as an execution platform to connect with operators would likely be viewed as “gambling software.” The Gambling Commission Guidance Note, “What is Gambling Software?”, June 2014, notes that the Commission considers any software which is designed for use in connection with remote gambling, that is intended to be used or is used by a gambling operator in the provision of facilities for gambling, to be gambling software. This includes software used by betting intermediaries. Since March of 2015, a gambling software operating licence is now required where a person manufactures, supplies or adapts gambling software.

Affiliates need to be careful about the extent of functionality on their websites, and if they do not wish to be licensed, avoid crossing the line to be considered as providing facilities for gambling and triggering the need to obtain betting intermediary licences and gambling software licences.

Global arguments in favour of licensing Affiliates

 There has been a long documented history worldwide of organised crime’s involvement in junkets, particularly in the US and Asia. Organised crime has been found to have ownership interests in, providing debt financing to or otherwise exercising control or holding financial interests in junket operators. Junkets are now required to be licensed in many gaming jurisdictions, including New Jersey, Singapore and Macau. Obtaining a licence requires extensive vetting of the junket ownership and financing, as well as ongoing disclosure of its junket customers and compliance programmes.

Nevada was the first US jurisdiction to require licensing of affiliates. In New Jersey, affiliates for online operators must be licensed with the Division of Gaming Enforcement. A simple vendor license is required for a flat rate business model and a more onerous Ancillary Casino Services Industry Enterprise license is required for a revenue sharing model.

The argument for regulation is due to affiliates’ importance to operator success or failure, their ability to potentially damage the industry’s integrity and reputation in the eyes of the consumer, and the potential for infiltration by criminal elements, since they are not vetted by a regulator. There is particularly sensitivity with respect to revenue sharing, where in an extreme example, an unlicensed affiliate owned by organised crime could virtually control a licensed operator through an affiliate contract providing a majority revenue split in favour of the affiliate. These are some of the reasons for the licensing and regulatory approach taken by Nevada and New Jersey.

UK regulation

The UK to date does not require junkets or affiliates to be licensed and the Gambling Commission at this stage does not support any initiative to do so. The online gaming industry in the UK to date has not yet had significant problems with abuses by affiliates with respect to operators or consumers. Nor has the UK experienced the same infiltration of organised crime, as has been the case with the land-based casino industry in larger land based gaming jurisdictions, which likely has led to more stringent regulation of affiliates in those jurisdictions.

Avoiding future regulation

UK remote operators already have a duty to KYC all their customers, including those provided through affiliates. Affiliates are subject to the current UK legal restrictions in gambling advertising and operators are required to ensure affiliates are contractually compelled to comply with LCCP requirements, including those pertaining to social responsibility and AML. The UK Gambling Commission has not indicated any need or intention at this stage to license affiliates only engaged in advertising and marketing activities. Operators should support this position by aggressively taking the lead in undertaking their own enhanced due diligence of affiliates before entering agreements with them, requiring affiliates to enact and adhere to robust compliance programmes, and by the operator diligently policing affiliate activities in an ongoing manner.

This is the best approach to demonstrate the industry can self regulate and avoid calls for further regulation and licensing of marketing affiliates in the UK.