Professor Dr Julia Hörnle – Written evidence (GAM0034)

How harmful is gambling, and what can be done?

Executive Summary

The evidence indicates that the Gambling Act 2005 is out-of-date and should be revised in line with recent technological developments. The Gambling Commission must be given the relevant know-how and resources to effectively regulated online gambling. The regulatory strategy is linked to the Online Harms White Paper. Gambling advertising and e-sports, mobile and in-game betting have provided new challenges.

The regulation of advertising needs to be overhauled. The current co-regulatory system based on Codes of Practice does not work well for advertising of online gambling. Targeted gambling advertising based on an online profile risks to be unethical and user-generated content contains undisclosed advertising. It should be considered whether online advertising of gambling should be prohibited and social media companies should monitor their platforms for undisclosed, user-generated advertising.

One of the key measures of responsible gambling would be for operators to identify gamblers who are developing problem gambling issues and to advise them, or at some stage, bar them from further playing. In practice of course high-spending customers frequently receive VIP treatment and interaction encouraging them to play further (free games/bets or credit). This practice has to stop, especially online, because of the greater immersion, accessibility and isolation of players online. The Gambling Act should be revised to impose red flag requirements, and taking action, including barring customers, and make them mandatory. Clearer and mandatory requirements would give legal certainty to operators and how they should balance monitoring obligations with data protection. It would prevent operators who implement ethical practices from being at a competitive disadvantage. Finally it would prevent operators from profiting financially from abusing vulnerable customers.

This is an area where technology can support effective regulatory intervention. Different types of artificial intelligence can be used to spot a customer developing problem gambling and which could be used to provide the requisite red flags. My recommendation is that the Gambling Act 2005 should be revised to include mandatory provisions in the LCCP on identifying problem gamblers and specifying the action to be taken.

In respect of unlicensed offshore operators, website and app blocking (removal from app stores) should be considered as a regulatory tool in Great Britain during a revision of the Gambling Act, as it would send a clear signal.

Background

1. This is an individual response by Prof Dr Julia Hörnle, Centre for Commercial Law Studies, Queen Mary University of London. My professional background is that I teach and research matters relating to the regulation of the internet. Accordingly, my expertise mainly relates to online gambling, social media and internet advertising of gambling.

2. I would like to thank the Lord Chairman for inviting me to present the evidence based on the results of our online gambling research conducted here at QMUL.

3. Our most recent research is an EU-Commission funded Study[1]. This Study examined regulatory tools for the enforcement of gambling regulation online and the effectiveness of such enforcement across the EU and EEA States.

4. In Great Britain, the Gambling Act 2005 introduced a detailed framework for regulation, but it liberalised the sector, and recognized gambling as a legitimate form of business and entertainment, and in my view, this conflicts with effective risk management, especially the third licensing objective in Article 1 (c) of the Act, the protection of children and the vulnerable. The balance is tilted too far towards the business interests of the industry and does not sufficiently protect children, does not sufficiently limit risky behaviours, and does not prevent harm to health.[2]

5. The Gambling Act 2005 is 14 years old and many technology developments did not exist when its passage was debated (iPhone (2007), Youtube (2005), Facebook (2004)). It is simply not up-to-date with modern technology. While technology increases the need for regulation and enforcement, it may also be effectively deployed for regulation (see paragraphs 18-24 below). The Gambling Commission must be given the relevant know-how and resources to effectively regulated online gambling. The regulatory strategy is linked to the Online Harms White Paper.[3]

Gambling Advertising

6. Online advertising is fundamentally different from traditional advertising in print media, offline media sites (such as billboards) and broadcasting. The overall trend in advertising is a move away from advertising on traditional mass media like TV and radio, to interactive online advertising and even more recently, to social media advertising by influencers. The growth of social media usage has created an opportunity for online advertising to exploit ways of advertising, which are only beginning to be understood fully and receive regulatory attention. They exploit current regulatory loopholes. We have identified two fundamental issues in respect of online advertising. [4]

7. The first issue is the potential for unethical gambling advertising inadvertently targeted at vulnerable users. The fundamental difference to offline advertising is the dynamic and automatic nature of the placement of online advertising through real-time bidding on ad-exchanges. Interactive internet advertising such as banner advertising, advertising on social media posts, or search engine results are based on tracking users browsing patterns and online profiling through data brokers. This has created a complex and somewhat opaque advertising eco-system which is largely automatic, based on algorithms and machine learning with the goal that advertising is targeted in such a way that users click on the link.

8. This placement is purely about likelihood and does not contain ethical considerations. Thus, the question must be asked: is it more likely that someone who has visited information in relation to indebtedness and unemployment, clicks on an ad for an online casino? Surely the answer is yes. This may mean that they are a target for gambling advertising. It is important to prevent the exploitation of the vulnerable and the undermining of social responsibility requirements by the economic models for targeted advertising for gambling on the internet. Therefore social responsibility requirements must be incorporated into the algorithms themselves as a regulatory requirement.

9. The second issue is influencer and affiliate marketing.[5] Users use their network of connections to place advertising in the shape of user-generated content. Social media websites provide ample opportunities for peer-to-peer marketing between users, thus blurring the lines between advertising and user-generated content. How can gambling advertising be restricted if it is not distinguishable as such? The Committee of Advertising Practices has recognized this problem and issued relevant guidance for users to mark posts as “ads”.[6] However, arguably that form of regulation is too weak, as most users will overlook the word “ad”. The law should state that influencer advertising should be clearly separated from user-generated content. Furthermore, the posting should clearly reveal who the advertiser is. An obligation should be imposed on the social media provider to police their platforms in respect of undisclosed gambling advertising and such monitoring could be automated.

10. The co-regulatory system of advertising through the Codes of Advertising Practices for broadcast and non-broadcast media is based on engagement between industry and other stakeholders and has generally achieved a balanced and well-respected system of regulation. However it does not work very well in respect of gambling advertising. While the scope of the measures is extensive in terms of gambling advertising, there are concerns about the clarity and complexity of multi-layers of regulation and overlap between different regulators. [7]  At the moment, responsibilities are divided between CAP/ASA, Ofcom, CMA, Information Commissioner’s Office and the Gambling Commission. The Gambling Commission should be solely responsible for gambling advertising and enforce the law in this area. Detailed regulations on advertising standards are envisaged under the reserve power in s.328 with the objective of protecting vulnerable persons from being harmed or exploited, but no such Regulations currently exist. Such regulations should be introduced to restrict advertising and reduce exposure.

11. Gambling as an activity by its inherent nature appeals to irrational risk-taking and appeals to consumer who are not risk-averse. Therefore regulating the gambling advertising message to prevent irresponsible behaviour is bound to have no (or at best minimal) effect. As far as measures to regulate the content of the advertising message are concerned, they have limited effectiveness since the assessment of what constitutes a breach is highly subjective (e.g. what appeals to children) and there is a fine dividing line between what constitutes a breach (e.g. risky behaviours/irrational beliefs) and what constitutes creative and attractive advertising for example showing the desirable attributes of gambling, such as excitement and glamour.[8] The complexity of the rules regulating the gambling advertising message[9] gives the illusion that gambling advertising is “safe” and highly regulated, when this is not the case.

12. Furthermore, much advertising regulation is based on “zoning”, keeping some gambling advertising away from children’s eyes and ears, such as the watershed for TV or the rules on content appealing to children. This is unrealistic more than ever now, where children are more tech-savvy than their parents, where children are as enthusiastic about sports and share sports betting with parents, in the age of e-sports online and have their own devices in the bedroom.[10] Therefore advertising regulation is complex and not effective.

13. More protection should be given, not just to young persons and children, but more generally to (adult) problem gamblers and those at risk of problem gambling. For example there should be a prohibition to advertise to anyone who has self-excluded at any point in time (even if the self-exclusion was ten years ago).

14. Therefore advertising should be more restricted than it is now. Given the concerns raised by research, a political call should be made to completely prohibit online advertising of gambling, including sign-up offers such as free bets.

Onshore and Offshore Online Gambling

15. It is important to make a distinction between harms stemming from illegal, unlicensed online gambling offered by foreign operators and harms stemming from Great Britain licensed online gambling. A foreign gambling operator providing gambling facilities to punters in Great Britain though remote communication on the internet commits a criminal offence.[11] As far as I am aware however, no prosecutions have been brought against foreign remote operators and in practice it may well be impossible to enforce this criminal offence extra-territorially. The extent of foreign unlicensed gambling by punters in Great Britain is unknown and therefore its impact (in terms of harmful effects) is unknown.

Licensed Onshore Gambling, Harm Prevention and Affordability

16. The main mechanism for regulation are the License Conditions and Code of Practice (LCCP).[12] Given that the Act’s purpose was to liberalise gambling and was based on co-regulation, the implementation of social responsibility requirements was largely left to industry. This philosophy behind the Act continues to be present in the LCCP, even though in recent years the social responsibility requirements have been beefed up, for example through a national multi-operator self-exclusion scheme and the age-verification requirements (operators now have to age-verify before deposits in a gambling account, before offering free play or free bets[13]).

17. However one of the key measures of responsible gambling would be for operators to identify gamblers who are developing problem gambling issues and to advise them, or at some stage, bar them from further playing. In practice of course high-spending customers frequently receive VIP treatment and interaction encouraging them to play further (free games/bets or credit). This practice has to stop, especially online, because of the greater immersion, accessibility and isolation of players online.

18. The LCCP contain a requirement to interact with high spending customers or those showing risk behaviours, and assess them.[14] However, there are no clear red flags imposed on operators, nor what the consequences are (just speaking to the gambler; or suspending them, for how long?). In practice it seems that the Gambling Commission does not wish to step on operators’ toes to better control and restrict their high spending VIP customers. But this trend has been turning: very high fines in the last two years may indicate that the current Gambling Commission mandates operators to be more proactive in this area.[15]

19. This is insufficient. The Gambling Commission imposes fines once an operator has experienced customers who have spent large sums or even committed criminal offences such as fraud, but had inadequate social interaction. But much more could be done and should be done at an earlier stage before customers are allowed to ruin themselves.

20. The Gambling Commission should produce clear and detailed rules as part of the LCCP which stipulate the indicators and factors showing that a customer is developing risky behaviours (red flags) and stipulate what operators need to do at which stage, including suspending customers and/or permanently barring them. Since the gambling industry is likely to oppose such requirements, which might hit their bottom line, co-regulation is somewhat ineffective here. Therefore the Gambling Act should be revised to impose such red flag requirements, including barring customers, and make them mandatory. Clearer and mandatory requirements would give legal certainty to operators and how they should balance monitoring obligations with data protection. It would prevent operators who implement ethical practices from being at a competitive disadvantage. Finally it would prevent operators from profiting financially from abusing vulnerable customers.

21. This is an area where technology can support effective regulatory intervention. Different types of artificial intelligence can be used to spot a customer developing problem gambling and which could be used to provide the requisite red flags. Regulators should play a role, together with industry in developing such monitoring technology (including funding, research and implementation).

22. Protecting gamblers through interaction, advice, suspension and barring cannot solely be based on how much they spent in a given timeframe and/or how long they play. Therefore affordability criteria need to be developed, matching spending with disposable income. However, affordability cannot be the only factor or indicator. More important is understanding the nature of problem gambling and assessing risky behaviours (such as chasing losses or obsessive, uninterrupted play) which manifest in online data trails (through data mining) in addition to affordability. A sophisticated model needs to be developed. This is difficult and controversial, but necessary.

23. While gambling operators should have such monitoring obligations, the question arises whether banks, credit issuers and payment providers should have a role to play here. Clearly banks know about customers’ spending and income and could also spot gambling problems. I am aware that several banks are considering monitoring their customer’s gambling spent and taking action.

24. The use of such technologies have, of course, an impact on gamblers’ privacy and autonomy. They have to be built in a data protection compliant way. Ethical issues may arise and information security will be important to protect highly sensitive confidential information. But these are not insurmountable challenges, albeit that they need to be addressed.

25. One of the key questions for understanding social responsibility, is the question of which percentage of gamblers falls under the category of problem gambler or at risk gambler, especially as far as high spending gamblers are concerned. This is data which the gambling operators have, but the Gambling Commission does not have access to. The Gambling Commission should have access to this type of (anonymized) data.

Duty of Care

26. In Calvert v William Hill[16] the Court addressed the question whether a bookmaker was liable in Negligence (tort liability) towards a gambler after the latter had requested to be excluded from gambling, but the bookmaker omitted to implement the self-exclusion, contrary to its stated policy. Calvert had several telephone betting accounts, including with William Hill and he became a compulsive gambler, which led to his financial ruin. He had repeatedly requested self-exclusion and was told that he would be excluded for six months, but subsequently continued to gamble.  The Court held that the bookmaker owes no general duty of care to identify and prevent problem gambling.  However it owed a limited duty of care where it had promised the gambler to include him on the self-exclusion scheme and thereby assumed voluntary responsibility.  However, the claim failed on causation. The Court held that the claimant, as a compulsive gambler, would have sustained substantial losses even if the self-exclusion had been correctly implemented, as he had several remote telephone accounts with other bookmakers or could have engaged in internet betting.  Even if the claim had not failed on causation the claimant’s damages would have been reduced because of contributory Negligence, since he could have made a further request for self-exclusion and taken other steps to deal with his addiction.

27. The law has changed since and as discussed the LCCP now contain a general obligation on gambling operators to interact with customers and a national multi-operator self-exclusion scheme. Thus arguably a case like Calvert would not now[17] fail on causation (although this depends on the facts). It should be noted that the provisions of the LCCP may be taken into account in civil proceedings.[18]

28. However currently the extent of operators’ obligations in spotting problem gambling and taking action are not clearly defined. As discussed the LCCP are vague in this respect. Recent cases on gamblers claiming damages for loss based on duty of care argument have failed.[19]

29. My recommendation is that the Gambling Act 2005 should be revised to include mandatory provisions in the LCCP on identifying problem gamblers and the action to be taken. If the Gambling Act is changed to contain such statutory obligations, it is likely that civil liability would follow in cases where these obligations have been breached (and causation can be shown).

Unlicensed, Illegal Gambling Offered by Offshore Operators Remotely

30. Our EU Study examined regulatory tools such as website blocking, blocking of payment by payment intermediaries (such as banks, credit card companies and digital wallets), sanctions and advertising restrictions.[20]

31. Given that website blocking can be easily circumvented, it could be thought that this is an ineffective regulatory tool against offshore unlicensed online gambling. However the great majority of regulators in the EU/EEA use website blocking (60%) and our interviews with regulators across the EU/EEA indicated that they consider it an effective tool. Many gamblers are not aware that their gambling is illegal in their home country and if their access is blocked the information on the landing page (appearing in response to the block) may steer them away from the illegal offer. Furthermore the use of a landing page allowed the regulator to assess the internet traffic (where did the punter come from, where did they go next). Blocking is not effective in respect of gambling apps- they need to be blocked from the relevant app store.

32. Website and app blocking should be considered as a regulatory tool in Great Britain during a revision of the Gambling Act, as it would send a clear signal to illegal, unlicensed operators.

5 September 2019