Traditionally, B2C operators have borne the brunt of compliance pressures, given their direct contact with consumers. Many territories didn’t even regulate gaming suppliers, other than imposing technical standards and certifications, considering it adequate to place ultimate responsibility on B2C operators for their supply chain.
However, over the last five years, there has been a significant rise in B2B licensing obligations; markets such as Denmark, Sweden, Greece, the UAE and various states in North America have started requiring B2B suppliers to be licensed directly, and Finland and Ireland are set to do the same. At the same time, regulators are increasingly shifting from a licensing-focused approach to active enforcement, particularly targeting black-market disruption.
At the core of this shift lies an increasing pressure on regulators to take action against the black market. When unlicensed operators are based offshore, it is difficult for regulators like the Gambling Commission (GC) to take any meaningful enforcement action; website blocking, supressing search results and working with payment providers can only go so far.
As a result, regulatory focus has shifted to alternative means of disruption. This has led regulators to leverage the power they have over licensed B2B suppliers, recognising the role B2B companies can play in how gambling content does, or does not, reach a market.
Regulators recognise that suppliers have (or could or should have) technical controls, contractual tools and monitoring capabilities to restrict whether and where their games and other products appear. These controls include geo-blocking, aggregated distribution oversight and robust contractual clauses to terminate or suspend operators that breach regulatory conditions.
When combined with direct licensing, regulators can create regulatory leverage to require B2B operators to police increasingly complex supply chains. With this, we have recently seen high-profile enforcement action from regulators in the UK and Sweden.
What are the regulatory expectations?
What are the specific obligations of B2B suppliers? While these obligations vary by jurisdiction, the UK framework lacks clarity on this point. B2B companies are required to comply with the Licence Conditions and Codes of Practice (LCCP), just like B2C operators, but the LCCP contains no specific provisions addressing supply to unlicensed operators. As a result, the GC in particular is seeking to achieve the same result by looking to AML-related obligations and reviewing operators’ general ‘suitability’ to hold a licence.
Ultimately, the GC expects gaming suppliers to know and to be able to control where their content ends up, and to take action where necessary. This is likely to involve robust due diligence and AML checks on partners (both direct and indirect, via aggregators and resellers), employing technical tools to ensure visibility of geographical access to games and services, active monitoring and robust (and robustly enforced) contractual protections.
Similar requirements exist in other territories, such as Sweden, where the regulator expects operators not only to geo-block Sweden when supplying to non-Swedish licensed operators, but also to take proactive steps to ensure they are not supplying any operator that targets Swedish consumers without proper licensing.
What next?
Based on the experience of the B2C sector over the past five to 10 years, we expect the recent high-profile enforcement activity in the B2B sector to intensify and spread across the industry in the coming years. The GC will consider that the B2B sector is now on notice and should take proactive steps to ensure compliance.
To do that, operators should assess the status of their current compliance framework against new regulatory expectations, including by reviewing key contracts and terms with B2C partners, aggregators and resellers and assessing and testing AML controls, policies and procedures.
The regulatory shift towards B2B enforcement may also create additional compliance considerations for B2C operators. The GC has recently indicated that B2C operators should be more selective when choosing which B2B suppliers to work with.
Effectively, B2C operators are being told they cannot necessarily rely solely on the fact that the GC has granted a B2B supplier a licence that remains in good standing as sufficient comfort to conduct business with that supplier.
This represents a challenging regulatory stance that may prove difficult for the GC to defend or enforce, but should be taken into account when B2C operators are reviewing their supplier onboarding and due diligence policies and procedures.
Elizabeth Dunn is a partner in Bird & Bird’s commercial team and focuses on regulatory and commercial matters in the gambling industry.
She works closely with colleagues across Bird & Bird’s international offices to provide practical and commercial advice for clients in the industry, from major listed and unlisted B2B and B2C operators to new market entrants.
The post Bird & Bird: Enforcement action against the B2B sector set to intensify first appeared on EGR Intel.
Gambling regulators around the world, including Britain’s Gambling Commission, have increasingly focused their attention on regulated B2B suppliers over the past year. But is this a trend that’s here to stay, and what impact might it have on the industry?
The post Bird & Bird: Enforcement action against the B2B sector set to intensify first appeared on EGR Intel.