Good morning and welcome to the Committee. We will now hear oral evidence from the Remote Gambling Association, the Gibraltar Betting and Gaming Association and the Sports Rights Owners Coalition. Before calling the first Member to ask a question, I remind all Members that questions should be limited to matters within the scope of the Bill, and that we must stick to the timings in the programme motion that the Committee has just agreed. I will have to interrupt mid-sentence if a session is continuing at its scheduled finish time. Members should declare any interest before the start of each panel to which that interest is relevant. May I ask the first witnesses to introduce themselves?
Clive Hawkswood: I will begin. I do not think that we are necessarily in favour of a light touch; we are talking about an appropriate level of regulation. That is what we aim for in every jurisdiction. We believe that, on the face of it, the Gambling Commission has a proportionate level of regulation at the moment. There are some outstanding issues, but we hope that they will be resolved before the new licences are issued.
Peter Howitt: For ourselves, if you look at the wider market in financial services, the idea of light-touch regulation per se needs careful thought. The important thing, as Clive says, is effective regulation and licensing models that ensure that people within the regulated sector are not disadvantaged by people who do not play the regulated game.
Nic Coward: I would say that it was true of any regulated sector that there need to be clear regulations in place so that the sector and stakeholders with an interest in the sector understand what they are; that they are monitored; that there is an effective compliance regime; and that there are real enforcement provisions behind it.
Clive Hawkswood: I think the Government’s position at the moment is that they will begin with an advertising ban, and they seem to believe that that will succeed in itself. We would be very doubtful about that. The other obvious alternatives that other countries have looked at are ISP blocking and financial transaction blocking. We have to say that our experience in lots of other jurisdictions is that they are not wildly successful. The key seems to be, in every one of those jurisdictions, not so much whether offshore or non-licensed operators can access the market but whether there is demand for their services. We think the key to successful blocking is providing a regime and a service to customers where they will not feel the need to go outside the licensed market for those services.
Peter Howitt: We have seen member states in Europe try different measures, including payment blocking and ISP blocking. We have seen America use an approach involving payments. The evidence is incontrovertible that none of those measures, in themselves or in combination, achieve the effect of keeping local consumers away from unregulated operators. Like Clive, our experience is that the best thing to ensure that people stay within a regulated environment is to make that environment commercially attractive and sensible. That way we can achieve the aim of protecting consumers without making supplies by unlicensed operators so attractive that consumers find it easy and are willing to go elsewhere.
Nic Coward: Focusing on the interests of the members of SROC and therefore on sports, we answer your question in the affirmative: yes, those measures should be in place. If my colleagues here are correct inasmuch as they do not work, then perhaps something bigger, bolder and better could be put in place, if that is the case. Obviously time will tell. For our part, these are very important integrity measures and they are at the heart of our concerns. We therefore want there to be an effective enforcement regime so that the regulated community—the operators—know that there are serious issues that must be dealt with, and that if they are not dealt with, there will be consequences.
May I ask witnesses to speak up? I am afraid that the acoustics are not great at this end of the room, so I would appreciate it if you could speak up a little.
4 Clive Efford:
Could you also say something about the use of technology? Presumably there are algorithms designed to identify irregular or suspicious activity or people who might be presenting gambling problems. Could you tell us about the application of that sort of technology, whether it works and whether you think there is enough content on that area in the Bill?
Clive Hawkswood: As you know, there is nothing on the face of the Bill, but we know that that is something the Gambling Commission is looking at. We tend to refer to it as analytics. We actually had our AGM yesterday and had a speaker on that very subject. I do not think the science is there in the way that some people would hope it was, but a comment made to me yesterday was that in three to five years we will take it for granted that companies are offering these analytic services and protections in the same way that they currently offer, say, self-exclusion. I think its day will come—we are probably not quite there yet, but the science will catch up.
Peter Howitt: A lot of operators currently do use these measures. Another thing worth bearing in mind is that with under-age gambling, for example, speaking for operators in Gibraltar where we are obliged to try to prevent under-age gambling, other things must be considered in order to make that easier, including access to due diligence technologies that banks and financial services companies have access to. That is one of the issues that we will be pointing out to the European Commission with respect to the fourth money laundering directive. If you are going to oblige people to take certain measures—and you should—you should also try to enable them to use technologies to better achieve those measures.
Nic Coward: For sports, as you know, licence condition 15.1 applying to all operators within this market is why we generally support the Bill and the measures it contains. In order to ensure that licence condition 15.1 operates as effectively as we all hope it will, there needs to be a proper capturing of information and a flow of information through to the regulators, and ultimately to the sports on which the bets are being placed and about which concerns are being raised. Our view is that yes, absolutely, there should be the maximum amount of information and analysis, and not just the ability but the obligation to pass on that information, wherever you are operating—be it Gibraltar or elsewhere—to the regulator and onward to the sport.
5 Clive Efford:
Another general question to you all: do you feel that there is currently a sense of urgency, or that enough emphasis is placed on a requirement to develop these types of technologies to identify problem gambling? Or is pressure required from the regulators to see that technology developed?
Clive Hawkswood: I think lots of companies are looking at lots of service providers in this area. If regulators want to get involved, clearly we do not want to start paying for a service that the regulator thinks is inadequate. Projects are being trialled in other countries—for example, Ontario has just launched a similar analytics system—and we certainly look at those. I do not think there is any harm in the regulator pushing the industry.
6 Clive Efford:
In your sector, Mr Howitt, there are requirements in licensing conditions relating to this area. Do you think there is enough in the Bill to require the industry to develop that sort of technology to protect people who may have a problem with gambling?
Peter Howitt: It is not clear, from my review of the Bill, that that is its purpose, but Gibraltar operators are required to take measures to prevent under-age gambling and problem gambling. More can be done to ensure that gambling operators can access databases, for example, that other financial services companies can access and more can be done by regulators. If you have effective regulation where the regulator understands the operators it is regulating and has regular contact with them, I think it is much easier to ensure that they take practical steps to meet whatever conditions are applied to them, whether they are based in Gibraltar or the UK.
7 Clive Efford:
I shall ask a couple more questions and then I will come back later so that other Committee members may have a chance. Will you comment on spread betting being covered by the Financial Conduct Authority rather than the Gambling Commission? That is a form of online gambling, but it has no requirement to comply with licence condition 15. Do you see that as an anomaly for enforcement?
Nic Coward: Absolutely; I agree with Clive. I, in one of my former roles at the British Horseracing Authority, wrote to Justine Greening in March 2011 to raise that very issue. We think it is a serious anomaly. As has been said, we do not think that the regulator’s identity matters, but there must be the same obligation and effect as is imposed by licence condition 15.1 on whatever form of operator. That should include a spread betting operator. We think that is a serious flaw in the current system.
Nic Coward: We think there is a way in which the FCA—it will give evidence to you later—through its existing overall powers, could create an equivalent regulatory regime. Then we would rely on the Gambling Commission and the FCA to sort matters out between them to ensure that that was the case. We do not think, therefore, that there needs to be a substantial change; it is just for the FCA to take this on and then work with the sports to protect the integrity of sport, in the same way as the Gambling Commission and the regulatory regime under the Gambling Act applies.
9 Clive Efford:
I have several further questions, but I want to give other Committee members an opportunity, so I will ask just one more question, which is for you, Mr Hawkswood, on self-service betting terminals in betting shops. I do not know whether you are aware of those, but they provide betting on horse racing among other forms as an alternative to paying over the counter, which would appear to be a form of online gambling. What is your association’s view on those?
Clive Hawkswood: I would not know that figure off the top of my head. Some of them, such as William Hill, have betting shops and they would be one of the four biggest operators in the UK online gabling market. Paddy Power would be similar. The others would be a bit further down the list, so I do not have a figure for how much that equates to.
Clive Hawkswood: As you will know from our repeated sessions and briefing, it was the tax. It was the ability to compete internationally, which is exactly why all those companies were eventually compelled to move offshore. Not all of them did so willingly, but commercial forces left them with no choice.
Clive Hawkswood: If it was solely on the licensing issue, there would be no problem at all. They all had licences already, which I think is possibly what is behind your question. It is the ability to compete. We do not want a rerun of what happened five, six or seven years ago when companies were licensed here but felt that they could not compete anymore. This time around, with this change in law, they will not have the option to go offshore. Our members will not go offshore and still keep trying to access the UK market, but others will. That is the concern.
Clive Hawkswood: I am not necessarily suggesting that it should. We would be perfectly happy for the land-based market to have its tax lowered. We are saying that our real competition is not land-based; it will be the offshore. Although 10% is still a lot higher than companies are currently paying, that is a level that we think most companies could absorb.
Clive Hawkswood: Yes. We have talked about enforcement mechanisms. Although we have expressed our doubts, collectively the more of them you have, the more effect they are going to have. In addition, as Peter and I have both said, if you can keep offering customers the value and choice they currently expect, they will not feel the need to look elsewhere.
28 Mr Gerry Sutcliffe (Bradford South):
May I make a declaration of interest? I am a trustee of the Responsible Gambling Trust, and I think the origins of the Bill were well thought out at the time. [Hon. Members: “Hear, hear.”] Thank you. Mr Hawkswood, you said that you thought the principal motivation for this was around tax income as opposed to consumer protection. Why do you think that?
Clive Hawkswood: Because we do not believe that the Bill will enhance consumer protection, and we do not believe that there is any objective evidence to identify that. We refer back again to statements made to the Select Committee by the permanent secretary at the Department for Culture, Media and Sport, and to comments made by current and former Ministers. This is very much a pre-emptive measure in case something goes wrong.
Nic Coward: There is a balance. As you say, it has taken four years to get this far on this one issue, and it has taken considerably longer—indeed, we are perhaps still nowhere—to rectify other issues that remain from the Gambling Act and market moves, which you know very well. Our intent in supporting this is absolutely to support the Government and the initiatives to sort out these issues. There are ongoing issues, and horse racing in particular has experienced them, which is why I take issue with some of Clive’s previous points. The impact has been felt. Yes, the market has shifted, but I think the fact that operators could move offshore to avoid various issues—one of them being tax, one of them being levy, in the case of horse racing, and one of them being condition 15.1 in the conditions licence—was the very reason. That is what we need to address.
I also think we should address the issue that you highlighted when you were the Minister, when you started what I seem to recall was called a soft consultation on the whole issue of sport’s relationship with betting, and put in place law in the UK to oblige an operator wanting to offer a bet on a sport to enter into a contract with that sport. We, the coalition, absolutely believe that to be right here in the UK—the most liberalised market in the world—across Europe and across the world.
31 Mr Sutcliffe:
I think that that is an important point, and on the back of the Parry report on betting integrity, I know that things developed from that. What concerns me is the wide range of bets available. In football, for instance, you can bet on the number of corners in a game, and on a whole variety of things. That is why I think some sort of sports right is important.
Nic Coward: The law, in many ways, used to operate in that way. There was the longstanding copyright that sports enjoyed in the UK. There was a 1950s judgment in the Littlewoods case, as you will recall. We have always maintained that an unintended consequence of the implementation into UK copyright law of the 1996 European Union database directive has led to many of the issues we face. Had that position been maintained throughout the various market changes that have occurred in the past decade, we think sport and betting would have been operating under a regime where there had to be a contractual relationship. Under that relationship, one of the issues that would have been dealt with is: what kind of bets do sport and betting agree between themselves should be offered on its product—its sport? We thought that was right then, and we think it would be right now.
Peter Howitt: It seems to us that the evidence that has been presented for moving to this new regulatory regime is not evidence of people moving to Gibraltar, which is not a white list territory, or other territories in order to benefit from lighter regulation. I do not think there has been any suggestion of that. It is difficult to hear that suggestion, which has been implicit in some of the comments I have heard on condition 15.
In our view, the current system works well to meet the stated objectives of the 2005 Act, which are narrow. It works very badly for some of the wider objectives, and we have some sympathy for the UK on that. Those objectives are to do with the ability of the UK operator to benefit from reciprocity in Europe and from some of the economic and fiscal matters. As far as we see it, you could better achieve the stated objectives of the current proposals—we take both the economic and fiscal to be relevant, because, as Clive said, it is about the combined effect of the licensing and taxation measures—with the current system than with the proposed regime. That is our major concern.
Briefly, we think that there are three types of activity that might be an unintended consequence for Parliament and the UK authorities. The regulatory regime does not have a precedent in terms of how it is intended to operate and how the UK will effectively exercise regulatory control over its licence holders, who may be based anywhere in the world. As you may know, in financial services there is a good regime that works well in an area of sensitive economic activity that is often cross-border. That is the passporting regime, and I believe that the FCA will be here later today. The regime requires and relies on the fact that you have to have some nexus with the person you license and regulate—not just license—to be able to interrogate them. I do not mean that in a harsh way, but in the sense of being able to understand exactly what you are controlling and supervising. We think that the proposals you have put forward are a very poor way of achieving the objectives.
There are three main things that we expect to happen. The first is an increase in unlicensed and unregulated supplies to UK consumers, which cannot be the objective of the Bill. The combined effect of increased and, to some extent, duplicative licensing costs for people who are already very well regulated, as well as taxation, however that is introduced, mean that you are going to make it very attractive for UK consumers to go elsewhere, particularly if the costs are too high on both sides. As we have said, you can try to introduce as many enforcement measures as you wish, but if America could not do that when it was trying to restrict online gambling, it is difficult to see why the UK believes it will have a better result.
The second thing that we think the proposal will lead to is licensed but poorly regulated operators, because you are not going to be relying on a “home state, host state” approach, which works very well in financial services and is largely how it works at the moment. You are then putting a lot of emphasis on the UK Gambling Commission and its ability to exercise control in foreign territories, where there is no legal basis for it to do so. We do not understand why you would move to that model when a brief analysis of other forms of economic activity, such as financial services, shows that it would be a terrible way to regulate. It is entirely unprecedented for a major country to seek to regulate people who can be anywhere in the world, with no ability to deal with those people, to manage them and know them.
In Gibraltar, the operators are known to the regulator and there are face-to-face meetings. I, as part of the association, see the regulator every week about lots of different issues and we deal with them face to face. We have seen with financial services in the UK that that is a very good model. It is a model that people have drifted away from, but we need to come back to it. There needs to be a realistic, face-to-face approach to regulation. This proposal is a form of remote regulation that will make it very difficult for the UK Gambling Commission to do its job.
The third thing, which has not been touched on by anyone—I am sorry to speak for so long—is that there could be an unusual unintended consequence. There may be operators around the world who have few transactions in the UK who will be required to get a UK licence on slender premises. The definition of whether you will need a UK licence under this Bill will mean that nearly anyone who provides gambling services could justifiably say, “I need a UK licence, because it may be available to UK consumers and I can’t properly block them.” Those people will now have what you might call a flag of convenience—they will have a kitemark that they can show to the world, which says, “I am regulated by the UK.” Consumers in other territories are entitled not to be regulatory experts and would expect that that meant something. If I was in another country—not the UK—and I saw that the UK had given its imprimatur to this operator, I would expect some form of interrogation and supervision, but this Bill in fact means that there will be no supervision of the operators. They will be required to say that they are licensed and to seek the licence, but they may not be using it for that purpose and they may in fact be selling their licensed status to the unwary, non-UK consumers.
We have to move on, so very briefly, Mr Efford.
33 Clive Efford:
On enforcement, Jenny Williams of the Gambling Commission, when she gave evidence to the Select Committee, pointed out the discrepancy between the number of suspicious activities reported by all the operators licensed by the commission and of those licensed overseas—in fact, since 2007 only 10 reported from 80% of the market. She said that it was improbable that there were so few incidents. If those licensing regimes are working so well, why are there so few reports of suspicious activities from four fifths of the market?
Peter Howitt: I think the Gibraltar regulator is probably the best person to respond. To deal with the point about the best way to achieve the objectives, you can of course impose requirements on foreign and UK-based operators who are licensed—including on a passporting basis—to notify as you wish. This is not an area subject to European law as yet—under the fourth directive, it will change—but you would not need to impose this regime in order to require licensed operators in Gibraltar, which are passporting into the UK, to notify to Gibraltar and to the UK however you saw fit. It is not a reason to implement a regime of this radical nature, which has these risks—in our view—of unintended consequences.
34 Paul Farrelly (Newcastle-under-Lyme):
Time is short, but I have a few questions, so if the answers could be brief, I will be grateful.
Mr Howitt, are you as an association or, to the best of your knowledge, are any of your members planning a legal challenge to the Bill?
Peter Howitt: The grounds are that it is a disproportionate response to the stated objectives. It would require additional licensing and regulatory cost to people where there is no evidence. The large part of the UK market is currently served by Gibraltar. There is no evidence that that is required.
36 Paul Farrelly:
Mr Hawkswood, what level of taxation, which is very important to us, on a gross profits basis do you think would encourage any of your members who are currently based in Gibraltar physically to relocate back here?
Clive Hawkswood: The physical relocation is not linked to the tax. The whole point is that—this is a basic assumption—the companies are not being asked to return to the UK. Individually, they may review their business models, but I do not think that there is any requirement for them to do that in the tax—
40 Paul Farrelly:
May I ask you one more question? If bet365 and its sports, gaming and gambling activities are based here and very profitable, why cannot your other members be profitable as well at 15% tax?
41 Paul Farrelly:
Finally, Mr Hawkswood, the Gambling Commission is currently consulting, and responses have to be in by 4 December. What is your view on what you might call the Full Tilt consultation—on the separation of moneys and disclosure? Also, do you have any particular issues with the Gambling Commission’s consultation on licence changes?
Clive Hawkswood: First, there is one consultation on the protection of player funds, which is a huge issue for the industry. We are in discussion with the Gambling Commission about what the appropriate levels might be. We are currently suggesting that their base-level protection is not quite high enough, but, again, there are lots of different ways to skin that cat, and I am sure we will come to something that works well.
In terms of the wider consultation on the licence conditions and codes of practice, two or three issues remain outstanding—
Clive Hawkswood: One is that the Bill refers to the physical location of players. What we are saying to the Gambling Commission is, what is a reasonable way of ascertaining that? We do not want to be caught out if someone changes planes at Heathrow one day and places a bet while they are there. I am sure, again, a reasonable approach will come to a reasonable solution. That is probably the key outstanding issue at the moment.
Clive Hawkswood: Our position is that, for UK consumers, there is a great deal of consistency already, because they are regulated, effectively, by only four regulators, one of them being the Gambling Commission. Two of them are on the white list, and the Government have already said they are comparable to the UK. If Gib needed to be on the white list, we have no doubt it would be on there as well.
Peter Howitt: We do not disagree with the stated aims of the Bill to protect UK consumers. Our concern is that you will, in fact, damage UK consumer interests and the reputation of the UK as a regulator with this Bill, which is not necessary to achieve the wider policy and political objectives that the UK wishes to achieve.
Nic Coward: Our answer is yes, we very much support the Bill. We consider that it could go further in a number of areas. I think Mr Howitt answered Mr Efford’s earlier question. At the moment, there is a failing—this is what Jenny Williams alludes to, although I am not implying it but expressly stating it—because there is no nexus between an operator and the sports on which they operate if that operator is based in Gibraltar. That is something that sports across Europe wish to see addressed across the whole European Union and the whole world. There has to be a nexus, to take Mr Howitt’s word, between the sport and the operator offering a bet, and unless and until that happens, any legislator anywhere is failing sport.
This will have to be the last question, as we finish at 10.15 am.
Clive Hawkswood: It is clearly a factor, and I guess that has become obvious from what we have been saying. If you look at the commercial model, the differential tax burdens across jurisdictions are hugely important. That is why not just our industry but industries generally are very selective about where they base themselves.
45 Clive Efford:
Could you comment on pre-watershed advertising relating to sporting events? Sports themselves are concerned about the image it is presenting of their sports and the way coverage is saturated with these advertisements. Do you have any comments on that?
I am afraid that brings us to the end of the time allotted for the Committee to ask questions of this panel. I thank you on behalf of the Committee.