Gambling Commission penalises FSB for regulatory failings and warns operators over white label practices

Remote gambling operator FSB Technology (UK) Ltd is set to pay £600,000 to the Gambling Commission, after the regulator discovered failings in its oversight of its white label partners and its anti-money laundering and social responsibility processes. The Commission used the announcement as an opportunity to warn the industry of the potential pitfalls of operating a white label business model, and the need to ensure proper governance of partners.

The White Label Model

In the online gambling space, a white label business model typically works such that a licensed gambling operator partners with a third party brand owner, who licenses its brand to the operator for use on its gambling websites. The licensed operator undertakes the bulk of operations for such sites, but in some cases certain functions (such as marketing and customer management) are undertaken by the partner. Whilst Gambling Commission licensees are permitted to contract out functions in this manner, social responsibility code provision 1.1.2 of the Commission’s Licence Conditions and Codes of Practice (LCCP) makes it clear that ultimate responsibility still sits with the licensed operator. If, therefore, the white label partner acts in breach of the regulations, the licensee will be held accountable by the Gambling Commission.

Back in August of last year, it was announced that the Commission had commenced a review of FSB’s licence amid concerns regarding the operation of its white label business, with FSB voluntarily suspending its BlackBet white label at the time as a result. The Commission has now published the findings of its investigation and found various breaches of FSB’s regulatory obligations, in particular regarding anti-money laundering and social responsibility, as well as a general lack of oversight of its white label partners.

Anti-Money Laundering Failings

Licence conditions 12.1.1(2) and (3) of the LCCP require all licensees to implement and continuously review appropriate policies, procedures and controls to prevent money laundering and terrorist financing. As a casino provider, FSB is subject to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which superseded the Money Laundering Regulations 2007. Pursuant to ordinary code provision 2.1.1 of the LCCP, FSB is also required to act in accordance with the Commission’s guidance on anti-money laundering - The Prevention of Money Laundering and Combating the Financing of Terrorism - Guidance for remote and non-remote casinos - which includes requirements in relation to such regulations.

The Gambling Commission discovered that, between January 2017 and August 2019, FSB breached its obligations in respect of the above, including by failing to establish and maintain appropriate risk-sensitive policies, procedures and controls relating to the management of its third-party partners. In one case, FSB had allowed a customer to gamble and lose circa £282,000 without providing adequate evidence of source of funds, and – in respect of one of its white label websites – its outsourced VIP function was found to be operating without sufficient oversight or training by FSB.

Social Responsibility Failings

Social responsibility code provision 3.4.1 of the LCCP requires licensees to interact with customers in a way which minimises the risk of customers experiencing gambling-related harm (including identifying and interacting with customers who may be at risk of such harm).

The Commission found that, in certain cases, FSB’s interactions were being carried out by staff employed by third-party partners but without sufficient oversight and training by FSB. In one case, a customer who had lost £282,000 over an 18 month period had received interactions that were restricted to enquiring whether she was merely “comfortable with her level of spend”, without exploring her circumstances any further.

Other Regulatory Failings

The Commission’s review also revealed failings in respect of licence condition 16.1.1, which requires licensees to take steps to ensure third parties with whom they contract do not place adverts on websites providing unauthorised access to copyrighted content, and social responsibility code provision 3.5.3, which obliges licensees to take steps to remove self-excluded players from their marketing databases.

In respect of the former, the Commission discovered a banner advert containing cartoon nudity was displayed on a website which seemingly provided unauthorised access to copyrighted content, and linked through to one of FSB’s white label sites. Whilst the partner had acted contrary to the terms of its agreement with FSB, the Commission’s view was that if FSB had taken reasonable due diligence, it would have flagged concerns of a risk that the third party could place such advertisements due to “its clear association to an unlicensed website with a questionable repute”.

In respect of social responsibility code provision 3.5.3 meanwhile, one of FSB’s third party partners inadvertently sent marketing emails to 2,324 customers who had previously self-excluded. FSB had notified the Commission of this previously, and sent an email of apology to these customers – interestingly for any operators in a similar predicament in the future, the Commission notes in its announcement that “whilst we acknowledge FSB’s motivation in sending the apology to the self-excluded customers, we would not have expected this further contact email to have been sent to self-excluded customers”.

Oversight of White Label Partners

Whilst FSB had contractual arrangements in place requiring its white label partners to comply with the applicable regulations, the Commission found that these did not provide sufficient oversight to ensure the regulations would be complied with, nor that the licensing objectives under the Gambling Act 2005 would be upheld. The Commission states in its announcement that, in addition to sufficient contractual arrangements, it expects licensees to obtain assurances that third party partners are competent and reliable by conducting adequate due diligence. The Commission found failings by FSB in this regard, with one example showing FSB failed to assess the risk in respect of its partner’s links to an individual regarded as a politically exposed person.

Lessons to be Learned

The regulatory settlement reached with FSB included a £600,000 payment in lieu of a financial penalty, which will be used by the Commission in delivering the National Strategy to Reduce Gambling Harms. FSB has also had additional licence conditions attached to its licence, requiring it to conduct risk-based due diligence prior to entering into a relationship with any third party partner and on an annual basis thereafter, and to manage and evaluate its partnerships on an ongoing basis. FSB is also to pay £34,300 towards the Commission’s costs of investigating the case. The Commission is still reviewing the actions of personal management licence holders, so yet more enforcement action could follow in this area.

In respect of the findings, Richard Watson, Commission Executive Director, commented that “all operators should pay close attention to this case as it shows that we hold all licensees fully responsible for third party relationships - and we will act against any of our licensees that do not manage third parties appropriately.”

The Commission’s position is clear – if licensees contract out any of their functions, they must be held accountable when things go wrong. Whilst contractual protections can be sought in this regard, they will not be sufficient alone and operators should ensure that they gain comfort prior to entering into such an arrangement that the partner is sufficiently competent, and that they also re-evaluate this position on a regular basis.