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The Commission’s regulatory handbook sets out our regulatory approach to the National Lottery.
Published: 1 February 2024
Last updated: 7 February 2024
This version was printed or saved on: 19 May 2024
Online version: https://www.gamblingcommission.gov.uk/policy/fourth-national-lottery-licence-regulatory-handbook
This document (Regulatory Handbook) sits within our wider Regulatory Model and contains four volumes:
A summary of the content included within each volume of the Regulatory Handbook is available in the background section.
Our intent is that the scope of the Regulatory Handbook may cover matters related to both Section 5 and Section 6 licensing. This allows us to include in the Regulatory Handbook material which is relevant to the operation of the National Lottery, to the promotion of Games generally and/or to the promotion of individual Games or classes of Game.
This document should be read in conjunction with the Fourth Licence and Section 6 Licences. Any capitalised terms not defined in this document are defined in either the Fourth Licence, Section 6 Licences, the Enabling Agreement, the Cooperation Agreement or the Long Form Trust Deed. Any references to specific Licence conditions refer to the Fourth Licence, unless otherwise specified.
We have updated this document based on feedback received from Applicants. The content of the Monitoring Performance Framework (volume two) and Assurance and Regulatory Reporting Requirements (volume three) will depend, to an extent, on the Licensee’s Business Plan. The process for updating the Regulatory Handbook is described in the background section.
This document will evolve in light of experience of the Fourth Licence and depending on Licensee performance (see more detail in the background section). In accordance with Condition 24.9 of the Fourth Licence, we will consult with the Licensee for a period of at least 20 Business Days before making any changes to this Regulatory Handbook.
In the event of any conflict between this Regulatory Handbook and any Licence issued under Section 5 or 6 of the National Lottery etc. Act 1993 (as amended)1 (“the Act”), the Licence will prevail.
1 National Lottery etc. Act 1993 (opens in new tab)
1.1: We (the Gambling Commission) regulate the National Lottery within a legislative framework, including Directions and Regulations made by the Secretary of State for the Department for Digital, Culture Media and Sport (DCMS), and our public law duties. Through our regulation we deliver our statutory objectives.
Our statutory duties as per Section 4 of the Act are to:
1.2: In practice, there are different ways in which we can achieve our statutory duties and deliver Secretary of State Directions and Regulations in the context of the Fourth Licence. Through our Regulatory Handbook, we inform stakeholders of our intended regulatory approach for the Fourth Licence. In exercising our functions with respect to the National Lottery, and in the context of the statutory framework, we are required to comply with the principles of public law (which include requirements as to rationality, fairness and reasonableness).
1.3: The next section provides a background and overview of the different components within our Regulatory Model, including the four volumes within this Regulatory Handbook. It also outlines our approach to any changes to this Regulatory Handbook during the Fourth Licence. The rest of this document is then split by the four separate volumes.
2.1: In this section we provide:
2.2: Our Regulatory Model sits within a legislative framework of the National Lottery Act and Secretary State Directions and Regulations, alongside the Fourth National Lottery Licence and Section 6 Licences and is intended to secure our statutory duties. This document provides supporting guidance to stakeholders, split across four volumes. The four volumes consist of: Volume one – Regulatory Approach, Volume two – Monitoring Performance Framework, Volume three – Assurance and Regulatory Reporting Requirements and Volume four – Enforcement Policy.
2.3: The legislative framework includes the Act, which specifies our statutory duties and provides enforcement powers. This is complemented by Secretary of State Directions and Regulations2.
2.4: Under the Fourth Licence, the Licensee is granted the authority to operate the National Lottery. We grant a single Licence under Section 5 of the Act to authorise the running of the National Lottery (“Fourth Licence” or “Section 5 Licence”) and, separately, Licences under Section 6 of the Act to authorise the promotion of National Lottery Games (“Section 6 Licences”).
2.5: The other elements of the Regulatory Model, as covered in this Handbook, are closely interrelated.
In summary:
Volume one: Regulatory Approach explains, in high level terms, key features of the more outcomes-focused regulatory approach we will adopt for the Fourth Licence. It provides the context for the changes in our approach from the Third Licence and enhances the ability of stakeholders to better understand how our regulatory decisions and assessments will be made in a range of circumstances.
Volume two: Monitoring Performance Framework provides guidance for certain Fourth Licence conditions and Section 6 Licence conditions where we consider such guidance will support the delivery of our statutory duties. Our guidance includes aspects of compliance, alongside further detailed information around the Licensee Exit Plan and potential adjustments under the Incentive Mechanism.
Volume three: Assurance and Regulatory Reporting Requirements provides guidance that we expect the Licensee to demonstrate it has appropriate risk management processes in place to protect the delivery of the outcomes in the Fourth Licence and Section 6 Licences. Our reporting requirements set out where we require timely access to key data needed to regulate the National Lottery effectively. We will use Licensee assurance and reporting information to monitor compliance risk.
Volume four: Enforcement Policy sets out our approach to enforcement and explains how we will use our powers in an appropriate and proportionate manner. It details the enforcement measures available and the factors we are likely to consider when deciding on regulatory action.
2.6: Before the start of the Fourth Licence, we will engage with the Incoming Licensee (as defined in the Enabling Agreement) and update our Regulatory Handbook as necessary, for example where elements of the Regulatory Handbook are dependent on the Licensee’s business plan.
2.7: Going forward, we expect to update our Regulatory Handbook during the Fourth Licence itself, for example to provide further guidance in relation to any emerging or novel issues, in light of experience of the Fourth Licence, or in response to Licensee performance.
2.8: We expect the extent and frequency of any updates to vary by volume. For example, we expect our Regulatory Approach (volume one) and Enforcement Policy (volume four) to provide a largely fixed reference point that endures throughout the Fourth Licence. In contrast we expect to update the Monitoring Performance Framework (volume two) and Assurance and Regulatory Reporting Requirements (volume three) on a more regular basis. We will only make changes where we consider these appropriate and proportionate, given our statutory duties and other obligations.
2.9: If we propose to vary our Regulatory Handbook we will, as set out in Condition 24.9 of the Fourth Licence, consult with the Licensee for a period of at least 20 Business Days before issuing an updated document.
3.1: This volume explains, in high level terms, key features of the outcomes-focused regulatory approach we will adopt for the Fourth Licence. It provides the context for the changes in our approach from the Third Licence and enhances the ability of stakeholders to better understand how our regulatory decisions and assessments will be made in a range of circumstances. We provide an overview of how this volume interacts with the other volumes of this Regulatory Handbook and our wider Regulatory Model as described in the background section of this document.
3.2: This volume further articulates and explains our Regulatory Model. It also provides a reference point – for the Licensee, other stakeholders, and for us – as to how we intend to approach future regulatory issues. Aside from the Regulatory Handbook, we will continue to review and publish any further information and guidance we consider appropriate during the Fourth Licence.
3.3: The rest of volume one is structured as follows:
4.1: In developing our Fourth Licence regulatory approach we reviewed lessons learned from previous National Lottery regulation as well as reviewing guidance from Government on regulatory best practice.
4.2: The Cabinet Office led one of the most comprehensive reviews of regulatory practice since the Hampton Report in 2005. The resulting report in 2017, Regulatory Futures Review (opens in new tab), recommends that regulators adopt an outcomes-focused approach where possible.
In principle, good public policy prefers a focus on outcomes to a focus on outputs, processes or inputs. Outcome-based regulation can be flexible to technological and market changes including reduced barriers to new entrants - important in fast changing industries, where implementation of detailed regulations can have the effect of suppressing innovation. It can also reduce the resources required by the regulator for inspections/investigations which were confirmed by the Review information collection exercise to be the most significant area of current regulator activity.(P.29)
We recommend that regulators should move as far as practicable towards an outcome-based approach, with appropriate safeguards to ensure that new and small firms do not suffer as a result. Regulators should also consider how such a change should affect the nature of their engagement with regulated companies.(P.32)
4.3: The National Audit Office (NAO) also focuses on the importance of having an outcomes-focused approach embedded in UK regulatory best practice3. In 2019, it published a review of regulation across different sectors4 focusing on the impact of an outcomes-focused regulatory approach.
4.4: We also reviewed lessons learned from our Third Licence National Lottery regulation experience and investigations from the NAO and Public Accounts Committee (PAC)5,6. These lessons focused on aligning Licensee profits with Good Causes and highlighted the need to increase Licensee accountability.
4.5: We developed our Fourth Licence approach in the context of our corporate strategy (2018 to 2021)7,. Our aims are to be a risk-based, evidence-led and outcomes-focused regulator.
4.6: To reflect the changing environment in which the Licensee operates, the Fourth Licence takes account of that fact that the Licensee may often procure goods and services through Lottery Subcontracts rather than owning and maintaining Lottery Assets, including Lottery IP, outright. This is reflected, among other things, in our approach to a successful Exit from the Fourth Licence, where we expect that access to many Lottery Assets, including IP, will be transferred through the novation of Lottery Subcontracts rather than through the transfer of Lottery Assets.
4.7: After reviewing all the evidence and potential benefits we therefore developed a more outcomes-focused regulatory approach for the Fourth Licence. We explain and illustrate this further in section 5.
3 Performance measurement by regulators (opens in new tab), NAO 2016.
4 Regulating to protect consumers: Utilities, communications and financial services markets (opens in new tab) (PDF), NAO 2019.
5 Investigation: National Lottery funding for good causes, (opens in new tab) (PDF), NAO 2017.
6 The future of the National Lottery (opens in new tab), PAC 2018.
7 Gambling Commission Strategy 2018 to 2021 (opens in new tab) (PDF), PAC 2018.
5.1: Through our more outcomes-focused approach we will create the freedom for more Licensee flexibility, where appropriate, while improving accountability in terms of delivering positive outcomes more broadly. We recognise the National Lottery operates in a dynamic environment and the ability to innovate on an ongoing basis is likely to be key to it remaining relevant and being able to prosper over time, for the benefit of Good Causes and Participants.
5.2: In line with this, our approach consists of four key elements:
5.3: Across all of these elements, we will act in accordance with our statutory duties and the principles of public law, including with respect to rationality, fairness and reasonableness.
5.4: We expect to have a range of communication channels with the Licensee, including working-level relationships as well as giving the Licensee and us the opportunity to escalate strategic and operational matters at the appropriate level(s) within both organisations and with wider stakeholder groups. This will include scheduled meetings with senior Commission officials to discuss strategic matters, risks, opportunities, performance and sharing and contributing to industry wide best practices and developments.
5.5: We describe each of the four elements further and provide some illustrations of how they have affected, and/or might affect, our regulatory actions.
5.6: Being a more outcomes-focused regulator has implications across our Regulatory Model, including the design of the conditions of the Fourth Licence and Section 6 Licences. It also affects the approach we take to monitoring performance and any associated enforcement in relation to those conditions.
5.7: We have explored and tested the scope for and likely benefits of defining Fourth Licence conditions in ways that are less restrictive in terms of how a desired outcome is achieved. We have adopted this approach in areas where risks of more flexibility can be managed and/or mitigated effectively. This approach has two key benefits:
5.8: This does not mean we favour broader and more flexible requirements in all circumstances. In some areas, given identified risks of harm, we consider more specific controls/requirements are appropriate. For example, we consider it appropriate to have an explicit requirement for the vetting of all senior staff. This is a safeguard that supports the requirement for the Licensee to be fit and proper.
5.9: The Fourth Licence and Section 6 Licences are designed such that the majority of conditions set out an ‘overriding duty’ that the Licensee is required to satisfy. The conditions provide some specific obligations for the Licensee to meet in relation to the overriding duty but are not exhaustive. Per Condition 1.5, and in line with our outcomes-focused approach, compliance with each of the specific requirements may not necessarily be sufficient to meet the outcome set in the overriding duty.
5.10: Our more outcomes-focused approach is also an important statement about our focus and priorities, and about the focus and priorities we expect the Licensee to adopt. This impacts how we expect to monitor Licensee performance, and to assess compliance. Our approach to any given circumstances will be guided, to a significant degree, by the materiality of the associated risks to the achievement of the outcomes set out in the Fourth Licence. Where there is evidence to suggest a higher degree of risk in relation to specific outcomes, plans or periods of time, we will consider whether additional oversight is appropriate to safeguard the delivery of our statutory duties.
5.11: We also recognise that, within an outcomes-focused approach, the Licensee can benefit from further guidance over what we will take into account when assessing compliance with the outcomes-focused conditions of the Fourth Licence. We provide this further guidance within our Monitoring Performance Framework (see volume two). The Monitoring Performance Framework does not provide an exhaustive list of relevant factors and metrics we will consider when assessing compliance, however it does provide a reference point against which we expect to consider the relevance of any other evidence.8
5.12: Our Regulatory Model encourages the Licensee to be focused on delivering the outcomes set out in the Fourth Licence. This involves the Licensee taking ownership of developing and applying policies, processes and procedures to provide effective means of identifying, mitigating and managing the risks associated with the achievement of the outcomes set out in the Fourth Licence, and satisfying itself as to their ongoing effectiveness. We will expect the Licensee to use assurance statements and other measures (further described in volume three) to demonstrate to us whether, and how, it is achieving these outcomes.
5.13: If we identify that outcomes set out in the Fourth Licence have not been achieved, as part of assessing compliance with the Fourth Licence, we will look for evidence of the appropriateness and adequacy of the Licensee’s risk management policies, processes and procedures, and the effectiveness with which it has applied these. Our assessments of compliance may take into account the extent to which the Licensee has acted with due diligence in its identification and management of relevant risks. We provide further details on our approach to investigations in our Enforcement Policy (see volume four).
5.14: A more outcomes-focused approach provides greater scope for the Licensee to explore and pursue different approaches to achieving a given outcome. However, it is critical this greater flexibility sits within an appropriate framework of incentives and accountability. Key to this is aligning the Licensee’s incentives with Good Causes.
5.15: This alignment has been key to our approach to developing the Incentive Mechanism set out in Schedule 5 of the Fourth Licence. The Incentive Mechanism determines how much money generated from sales of National Lottery tickets is paid to Good Causes, with the remainder available to cover the Licensee’s costs and, where applicable, to provide a source of profit. We have sought to ensure the alignment continues to be achieved irrespective of changes that may arise during the Term of the Fourth Licence, including for example in relation to the range and mix of Games provided, and the relative intensity of play.
5.16: In line with our statutory duties, we consider it important that improvements in performance, with respect to Good Causes, are not generated in ways that undermine propriety or the protection of Participant interests. The Licensee must have and apply appropriate and proportionate policies, processes and procedures for identifying, mitigating and managing the risks of harm (in line with the comments above), and must adjust its conduct where appropriate to address and/or guard against this risk.
5.17: An important feature of the Incentive Mechanism is that the allowable costs of operating the National Lottery are shared between the Licensee and Good Causes (through the application of the proportion of Surplus). This provides a framework that supports an appropriate alignment of incentives and is conducive to the provision of Participant protection that is effective, proportionate and cost efficient.
5.18: At the core of our Fourth Licence approach is a focus on the outcomes that the Licensee achieves, rather than how these are achieved. Our Regulatory Model allows the Licensee to pursue innovation opportunities that deliver better outcomes for Good Causes and Participants.
5.19: By providing a greater degree of autonomy and flexibility, we want the Licensee to take ownership of the development and delivery of its plans. While we aim to give flexibility, this is subject to the Licensee being able to demonstrate that it has appropriate policies, processes and procedures for identifying, mitigating and managing relevant risks. Where there is evidence to suggest a material degree of residual risk, we will consider whether additional oversight is appropriate to safeguard the delivery of our statutory duties.
5.20: In line with this, we make use of non-prescriptive and flexible Fourth Licence conditions where possible. The use of these outcomes-focused requirements provides the opportunity for the Licensee to develop approaches to compliance that are appropriate to its business activities and that avoid unnecessary restrictions and/or standardisation. Supporting this, the Fourth Licence includes a requirement that the Licensee must comply with Best Practice9 rather than referring to specified regulatory standards or guidance10.
5.21: An important part of the more flexible approach is the extent to which the Licensee is permitted to make changes to its business activities without seeking our approval.
5.22: The Licensee still needs to obtain our approval before launching and/or promoting new Games or Game changes during the Fourth Licence (that are not covered by its existing Section 6 Licences)11. However, we limit the scope of the approvals process as follows:
As a matter of course, we do not intend to assess in detail the commercial merits or otherwise of proposals, and instead we intend to focus on the extent to which Game change proposals, or proposals for the launch of new Games, may entail risks for Participant protection and propriety, and/or any harm to the National Lottery Brand and reputation.
Subject to receiving appropriate evidence and assurance in relation to the above risks, we intend to provide a streamlined and timely process for the approval of Games or the relevant Game changes, in order to facilitate Licensee innovation for the benefit of Participants and Good Causes.
5.23: Similarly, there are other limited instances specified in the Fourth Licence where the Licensee must obtain our consent or approval before taking certain specified action. In such cases we intend to consent or approve in a timely fashion to avoid restricting Licensee flexibility, subject to receiving any clarifications or assurance that may be necessary in order for us to fulfil our role and duties as a regulator.
5.24: As explained above, the provision of more Licensee autonomy and flexibility over how to run the National Lottery is central to our Regulatory Model. However, our role and duties as a regulator require that, whilst providing more flexibility and autonomy to the Licensee, we continue to ensure the Licensee’s compliance with Fourth Licence obligations, which are aligned to positive outcomes for Participants and Good Causes.
5.25: We assign a greater degree of ownership of, and accountability for, compliance to the Licensee. This goes hand-in-hand with reducing our direct involvement in commercial and operational decisions. Under this approach, the Licensee is less reliant on our approval and instead takes a greater degree of ownership for its decisions, including being able to demonstrate it has followed appropriate processes to consider and mitigate compliance risks. We expect to have an effective regulatory relationship with the Licensee which facilitates this, and which supports the delivery of the obligations under the Fourth Licence.
5.26: In practice, increased Licensee ownership is formalised through requirements to provide us with assurance of compliance with the Fourth Licence, including through an Annual Assurance Statement which has been certified as approved by the Licensee’s board of Directors. Guidance on these requirements is set out in our Assurance and Regulatory Reporting Requirements (see volume three), which also covers the core set of reporting information required.
5.27: As part of assigning ownership of performance and delivery to the Licensee, where appropriate, the Licensee will have the opportunity to determine how best to address any performance issues (identified either by the Licensee or by us), rather than requiring the Licensee to follow a remedial course of action determined by us.
5.28: Nevertheless, our regulatory approach does encompass the use of robust interventions where performance issues are particularly material or persistent. This includes various formal and informal enforcement tools that we may apply in line with our principles of proportionality, consistency, evidence-based decision making, accountability and transparency, as set out in our Enforcement Policy (see volume four).
5.29: Therefore, notwithstanding the greater ownership of performance and delivery by the Licensee, there may be specific instances where our role and duties as a regulator require us to intervene.
8 The Monitoring Performance Framework includes further guidance on our expectations around "do everything it can" obligations in the Fourth Licence and how these differ from the more prescriptive conditions.
9 Condition 4.3 defines Best Practice as the standard to be expected of an experienced and professional person doing a particular thing and seeking to secure the outcomes in Condition 1.2.
10 For example, certain standards relating to technology and security that were specified in the Third Licence have not been referenced in the Fourth Licence.
11 See separate guidance on the Section 6 licensing process for more detail.
6.1 This volume provides guidance for certain Fourth Licence and Section 6 Licence conditions and concepts where we consider such guidance will support the delivery of our statutory duties. Our guidance includes aspects of compliance, alongside further detailed information on areas such as the Licensee Exit Plan and potential adjustments under the Incentive Mechanism. We provide an overview of how this volume interacts with the other volumes of this Regulatory Handbook and our wider Regulatory Model in the background section of this document.
6.2 We include guidance in the form of examples of the types of factors and evidence we may consider relevant when assessing compliance, including in the context of scrutinising specific areas where we have concerns or consider there is a potential compliance risk. The examples we use are illustrative.
6.3 As well as the specific types of factors and evidence discussed in the remainder of this volume, in general we will also take into account the extent to which the Licensee has implemented (or has failed to implement) its Application or any element of that Application12, in assessing whether the Licensee has achieved the outcomes set out in the Fourth Licence. Consistent with our regulatory approach, which aims to provide flexibility to the Licensee, we will take into account that the Licensee’s approach may reasonably change in order to meet the outcomes set out in the Fourth Licence. Therefore, it is possible for deviations from the Application to be aligned with the requirements of the Fourth Licence, for example due to changes in market circumstances since the date of the Application.
6.4 In order to monitor Licensee performance as well as relevant trends and developments, we will have regard to a number of information sources related to different areas of compliance. As a matter of course, and where we are comfortable that the outcomes set out in the Fourth Licence are being achieved, we will not scrutinise in detail all steps taken and due diligence exercised by the Licensee. However, where we have particular concerns or identify potential compliance risk(s), we may scrutinise specific areas of the Licensee’s conduct more closely13.
6.5 Information sources may include:
6.6 The rest of volume two is structured as follows:
6.7 Unless otherwise stated, references to specific Licence conditions refer to the Fourth Licence.
12Save to the extent the same has been varied in accordance with the Enabling Agreement.
13Further details on our approach to investigations are set out in our Enforcement Policy (see volume four).
7.1 This section provides guidance related to general concepts used within the Fourth Licence (also applicable to Section 6 Licences). We include further information about the following concepts:
7.2 The Fourth Licence includes a limited number of absolute obligations, as explained in Condition 1.3. This form of Licence obligation is used specifically in relation to matters that are under the control of the Licensee.
7.3 The Fourth Licence has several other obligations for the Licensee to "do everything it can" to achieve specified outcomes. Condition 1.4 clarifies that such requirements are breached unless the Licensee can satisfy us that it has taken all reasonable steps and exercised all due diligence to achieve the relevant outcome.
7.4 This type of obligation imposes strict liability for achieving an outcome, but allows the Licensee to demonstrate that it has taken all reasonable steps and exercised all due diligence in seeking to do so (a form of “due diligence defence”). Where “do everything it can” requirements are used, the Licensee would be unlikely to be in breach of the relevant Fourth Licence conditions as a result factors beyond its control. Similarly, “all reasonable steps” will not include steps which could only reasonably have been expected to be taken in hindsight, for example because relevant information was not available at an earlier point in time.
7.5 The relevant reasonable steps and due diligence will vary depending on the nature of the specific obligation and on the circumstances at any particular time. In the remainder of this volume, we provide a number of examples of the types of factors and evidence we may consider relevant when assessing compliance with different “do everything it can” obligations.
7.6 We consider that constructing certain conditions in the Fourth Licence as being “do everything it can” obligations rather than absolute obligations has two key benefits:
7.6 Our regulatory approach (see volume one) assigns ownership of, and accountability for compliance to the Licensee, for both absolute obligations and “do everything it can” obligations. This is reflected in requirements for the Licensee to assure itself, and us, of its approach to achieving compliance and mitigating risk (see volume three). However, for the avoidance of doubt, we are ultimately responsible for determining – based on relevant evidence – whether a breach of a Fourth Licence condition has occurred, and for pursuing any enforcement steps in line with our Enforcement Policy (see volume four).
7.7 Matters to be Protected are defined in the Fourth Licence in Condition 10.1. This concept encompasses a number of areas that are important for the long-term health of the National Lottery and for our ability to meet our statutory duties.
7.8 The concept of Matters to be Protected is used throughout the Fourth Licence and Section 6 Licences, including in relation to requirements for the Licensee to do everything it can to protect, or not damage, the Matters to be Protected.
7.9 When considering whether the Licensee has done everything it can to protect, or not damage, the Matters to be Protected, we will have regard to relevant factors depending on the circumstances and their potential implications for specific Matters to be Protected.
7.10 For example, with regard to Participant interests (which are covered by Matters to be Protected under Condition 10.1(a)) we will have regard to relevant outcomes as set out under Condition 8, for which further guidance is available in section 11 of this document. Similarly, with regard to the National Lottery Brand and reputation (which are covered by Matters to be Protected under Conditions 10.1(c) and (d)) we will have regard to relevant outcomes as set out under Condition 13, for which guidance is provided in section 14 of this document.
8.1 This section provides guidance related to the outcomes specified in Fourth Licence Condition 1; these outcomes are also specified within Section 6 Licences in relation to the running of individual Games.
8.2 The guidance in this section focuses on Good Causes Contribution (Condition 1.2(c)). We address the areas of propriety (1.2(a)) and Participants’ interests (1.2(b)) separately, as follows see below:
we set out requirements related to propriety in a number of Fourth Licence conditions, including Conditions 4, 5, 6, 7, 21 and 22. We provide further guidance related to Condition 5 in section 9, and Conditions 6 and 7 in section 10.
we set out requirements related to Participants’ interests in Condition 8. We provide further guidance related to this condition in section 11. Note that various other areas of the Fourth Licence may also contribute to protecting Participant interests, for example Condition 16 regarding protection of Participant funds.
8.3 In considering compliance with Condition 1.2(c), we expect to consider a broad range of evidence, which may include comparison of actual Good Causes Contributions against relevant forecasts or projections – including those submitted by the Licensee in its Application and provided under regulatory reporting requirements (see section 23) as well as any analysis conducted by us or third parties – and, where appropriate, against historical levels of Good Causes Contributions.
8.4 If Good Causes Contributions are materially lower than expected (on the basis of evidence such as that described in the paragraph above), we will seek to understand the underlying reasons for this and the extent to which the Licensee’s own conduct is likely to have adversely affected Good Causes Contributions. We will also consider whether we may have reasonably expected the Licensee to act differently and achieve higher Good Causes Contributions, whilst still meeting its other obligations.
8.5 As stated in Condition 1.2(c), any assessment may consider payments to Good Causes under the Fourth Licence and potential payments under subsequent licences. When assessing whether this outcome has been achieved, we would therefore take into account any evidence regarding the potential impact of Licensee decisions or strategies (for example, with regard to the development of the National Lottery Brand) on Good Causes Contributions in the future, including under subsequent licences.
8.6 We cannot fully define the types of evidence and analysis we expect to consider in assessing compliance with Condition 1.2(c) in advance. For example, it may depend on a range of market developments over the Fourth Licence, including unforeseen aspects of Licensee operations and behaviour. In general terms, we may have regard to evidence related to any aspects of the Licensee’s operation which have affected Good Causes Contributions or may affect future Good Causes Contributions. This may include factors affecting the volume of National Lottery sales (such as the Licensee’s approach to developing and executing its Game portfolio, distribution channels and the National Lottery Brand)
9.1 This section provides guidance on factors and types of evidence we may have regard to in the context of compliance with Condition 5, specifically in relation to the treatment of Designated Lottery Subcontracts under Conditions 5.6 to 5.8.
9.2 Direction 8 of the Secretary of State Directions imposes requirements related to contracts:
8. The Commission shall exercise its functions under section 7 to include in the licence granted under section 5 of the Act or, as appropriate, in licences granted under section 6 of the Act, conditions which have the following effects:a) that the Commission and persons authorised by the Commission will have the powers to inspect all forms of records relevant to Lottery contracts or operations held by–
i. any licensee; or
ii. any contractor of any such licensee who in the opinion of the Commission is a significant contractor.
b) that the Commission has the power to approve any party to a contract with any licensee where in the opinion of the Commission the contract is significant.
9.3 To comply with this Direction, Condition 5 defines the concept of a Designated Lottery Subcontract. This concept allows us to identify a subset of Lottery Subcontracts – either by designating individual Lottery Subcontracts or designating all Lottery Subcontracts within a category that we may specify – whereby the Licensee must provide us with 20 Business Days’ notice before entering into or amending such a Lottery Subcontract. Conditions 5.6 to 5.8 set out the relevant detail.
9.4 Our assessment of which Lottery Subcontracts are Designated Lottery Subcontracts will take into account the Licensee’s Business Plan and operations during the Fourth Licence. In particular, we will assess where Lottery Subcontracts could raise material risks to the operation of the National Lottery and the outcomes set out in Condition 1.2. When undertaking this assessment, and amongst other factors, we may have regard to the scale, nature and complexity of the Lottery Subcontract and whether the Required Standard Terms, as set out in Condition 21, are appropriate given these factors.
9.5 To provide an example, factors which we may consider in determining whether a Lottery Subcontract will be a Designated Lottery Subcontract could include:
whether the Lottery Subcontract may prove difficult to replace, for example in the event of contract failure, and whether this could have a material impact on the operation of the National Lottery, for example where there may be a limited pool of qualified suppliers, such as scratchcard or infrastructure providers
whether the Lottery Subcontract involves the delivery of a Critical Function by a Lottery Subcontractor, for example the 4NL Trust, providers of annuity payments or other potentially life-changing Prizes, or the Independent Verification System; or
whether the Lottery Subcontract may entail a high-profile reputational risk, for example media or advertising contracts.
9.6 We may specify that a Lottery Subcontract is a Designated Lottery Subcontract either before or after that Lottery Subcontract has been entered into. Once the Lottery Subcontract is specified as Designated, any subsequent amendments will be subject to Conditions 5.7 and 5.8 (noting that the requirements related to Contractors set out separately in Condition 21 will, among others, continue to apply).
9.7 Per Condition 5.6(b), we may specify a category of Lottery Subcontracts that will always be specified as Designated Lottery Subcontracts. The Licensee should consider these categories, and the nature of other Designated Lottery Subcontracts, when entering into a new Lottery Subcontract.
10.1 This section provides guidance on factors and types of evidence we may have regard to in the context of compliance with Conditions 6 and 7.
10.2 Specifically, this section covers:
general guidance on demonstrating compliance
examples of the types of evidence that we may consider relevant to Fit Proper Checks of Critical Function Employees, as specified in Condition 7.2; and
context with regard to the circumstances in which we may opt to carry out Fit and Proper Checks on any Lottery Supervisor of any Lottery Beneficiary.
10.3 At a general level, when considering compliance with Condition 7 we may have regard to the Licensee’s organisational approach to ensuring that relevant persons meet the Fit and Proper Requirements, as well as how it evaluates its approach and implementation.
10.4 We may consider if and how the Licensee's approach has developed over time, including in response to:
risks to the outcome set out in the overriding duty of Condition 7
evidence on its effectiveness; and
legal, regulatory or technological developments.
10.5 In any assessment of compliance we will have regard to evidence of best practice on recruitment practices, including from any relevant government departments and agencies, standards bodies (for example the British Standards Institution) and professional bodies associated with human resources (for example the Chartered Institute of Personnel and Development).
10.6 Further considerations in relation to evidence that we may consider relevant to Fit Proper Checks of Critical Function Employees, as specified in Condition 7.2, include how the Licensee has assured itself on that person’s identity, financial background and criminal record.
10.7 In respect of criminal convictions, we note that guidance is available from the UK Disclosure and Barring Service14.
10.8 Condition 6.10 states that the Commission may do Fit and Proper Checks on any Lottery Supervisor of any Lottery Beneficiary whenever it wants. In addition to undertaking checks in relation to changes in circumstances the Commission may also undertake refresh checks at regular or other intervals.
14 Disclosure and Barring Service eligibility guidance
11.1 This section provides guidance on the factors and types of evidence we may have regard to in the context of compliance with Condition 8.
11.2 Whilst Condition 8 concerns the protection of Participant interests in the context of the overall running of the National Lottery, similar obligations and outcomes are set out in Section 6 Licences regarding the protection of Participant interests in the context of the promotion of specific Games. As such, the material in this section also applies to Section 6 Licence obligations where relevant. Section 20 provides some additional guidance in relation to subject matters, images and themes used in the promotion of Games and their potential impact on Participant interests.
11.3 As set out in Condition 8.21, the same standards for protection of Participant interests apply equally to Games licensed under Section 6 of the Act and to any Free Games that may be offered by the Licensee. Therefore, the information in this section also applies to Free Games, where applicable.
11.4 This section covers:
11.5 At a general level, when considering compliance with Condition 8 we may have regard to the Licensee’s organisational approach to protecting Participants’ interests, including through developing a Participant Protection Strategy in accordance with Conditions 8.17 and 8.18, and supporting it with financial contributions (or equivalent measures) towards research, prevention and treatment of gambling-related harms in accordance with Condition 8.19. We will also consider how the Licensee evaluates its approach, and implementation of its Participant Protection Strategy.
11.6 Where the Licensee’s Application included specific proposals in relation to the implementation of its Participant Protection Strategy, we may take account of any failure by the Licensee to implement those proposals in full, in assessing whether the Licensee has fulfilled the requirements of Condition 8.1. At the same time, we recognise that the Licensee’s approach may reasonably change over time in order to meet the outcomes set out in the Fourth Licence.
11.7 Therefore, we may also consider if and how the Licensee's approach has developed over time, including in response to:
11.8 In any assessment of compliance we will have regard to relevant evidence from the research community, and evidence of Best Practice, including from lottery and gambling operators in the UK and internationally, and as highlighted in relevant publications such as our National Strategy to Reduce Gambling Harms.
11.9 For the avoidance of doubt, when considering any evidence related to gambling harm, we will take into consideration the extent to which such harm appears to be linked to the National Lottery as opposed to other products or activities.
11.10 Further considerations in relation to specific elements of Participants’ interests are set out below, including potential factors that we may have regard to in each case.
11.11 In the context of assessing the Licensee’s compliance with Condition 8.3, we may have regard to factors such as the Licensee’s approach in the following areas:
11.12 Examples of relevant evidence on the extent and risks of play by persons under the Legal Age Limit may include, among other things:
11.13 In the context of compliance with Condition 8.4, we may have regard to factors such as the Licensee’s approach in the following areas:
11.14 Examples of relevant evidence on the extent and risks of excessive play could include, among other things:
11.15 We expect to have particular regard to those Games or Game types that we consider are more conducive to excessive play. For example, based on the current Game portfolio, we expect our consideration of risks of excessive play might include a greater emphasis on scratchcards and interactive instant win Games than on Draw-based Games. Similarly, we may have particular regard to any specific socio-demographic groups that, based on relevant evidence, may be more vulnerable or susceptible to excessive play15 .
11.16 We consider that the notion of excessive play may be dependent on individual characteristics; for example, a certain pattern of play may be excessive for one Participant but not for another due, to differences in individual circumstances (for example financial).
11.17 Conditions 8.5 and 8.6 require the Licensee to restrict the ability of Participants to pay for Games through the use of credit cards or other credit facilities. The Licence drafting is intended to capture restrictions to use of credit where it is reasonably within the control of the Licensee. For example, Conditions 8.5 and 8.6:
11.18 We expect the Licensee to consider how it effectively meets this requirement throughout the Fourth Licence Term as payment technology and consumer behaviour evolves. This may be in response to:
11.19 We expect the Licensee to consider how the availability of credit may interact with the protection of Participant interests more broadly. For example, with regard to the training, guidance and evidence mentioned in paragraphs 11.3 and 11.4 above in relation to Retailers, the Licensee may have regard to any steps that Retailers can take in cases where use of a credit card by certain Participants appears to facilitate excessive play.
11.20 In assessing compliance with Condition 8.9 we expect to take into account that Participants may have an interest in accessing various types of information relating to the National Lottery. Examples may include information that allows people to:
11.21 In the context of compliance with Condition 8.9, we may have regard to factors such as the Licensee’s approach in the following areas:
11.22 Examples of relevant evidence on the extent and quality of information provision, as well as any relevant risks, could include:
11.23 The unavailability of information, or provision of inaccurate or incomplete information, may constitute non-compliance with Condition 8.9. When considering any such instances we will consider factors such as the materiality of any adverse impacts on specific Participants, as well as the breadth of impact in terms of the number of individuals affected16.
11.24 At the start of the Fourth Licence, we expect the Licensee to consider how it manages any changes in the way information is provided to Participants, including for Games that have been carried over from the Third Licence. In doing so, we expect the Licensee to consider any risk of harm to Participant interests from such changes and how this may be mitigated, for example in the event that the location of information (or the process for accessing it) is changed.
11.25 In the context of compliance with Conditions 8.10 and 8.11, we may have regard to factors such as the Licensee’s approach in the following areas:
11.26 Examples of relevant evidence on the extent to which complaints can be easily pursued and are quickly and openly resolved may include: - measures aimed at capturing the speed, accuracy and quality of the process: for example, the length of time to reach resolution, and the volume of complaints being escalated to an independent dispute resolution mechanism before resolution
11.27 In the context of compliance with Condition 8.13, we may have regard to factors such as the Licensee’s approach in the following areas:
11.28 Examples of relevant evidence on the speed and accuracy of the payment of Prizes and information about winning tickets, as well as any relevant risks, could include:
11.29 In the context of compliance with Conditions 8.14 to 8.16, we may have regard to factors such as the Licensee’s approach in the following areas:
11.30 Examples of relevant evidence on the extent and quality of the protection (for example, Prize winner anonymity) and support for Prize winners, as well as any relevant risks, could include, among other things, details of any complaints from Participants in relation to the protection and support of Prize winners
15 While we do not seek to provide a prescriptive definition of Participants who may be more vulnerable or susceptible to excessive play, these are likely to include (but are not limited to):
16 For reference, we publish details of Third Licence breaches due to the provision of inaccurate information (such as Prize outcomes) on our website, which provides examples of inaccuracies we have considered severe during the Third Licence Term. For the avoidance of doubt, any issues related to inaccurate information during the Fourth Licence is subject to the Fourth Licence conditions and to our Fourth Licence Regulatory Model.
12.1 This section provides examples of the factors and types of evidence we may have regard to, in relation to compliance with Condition 9. Note that Condition 9 is subject to Condition 8 on Protecting Participants’ Interests, described in section 11 above.
12.2 Whilst Condition 9 concerns ensuring access to the overall National Lottery, similar obligations and outcomes are set out in Section 6 Licences regarding access to specific Games. As such, the material in this section also applies to Section 6 Licence obligations where relevant.
12.3 At a general level, when considering compliance with Condition 9 we may have regard to the Licensee’s organisational approach to managing the network of Sales Outlets, as well as how the approach, and its implementation, is evaluated.
12.4 Where the Licensee’s Application included proposals to launch certain distribution channels during the Term of the Fourth Licence, we may take account of any failure by the Licensee to implement those proposals in full in assessing whether the Licensee has fulfilled the requirements of Condition 9.1. At the same time, we recognise that the Licensee’s approach may reasonably change over time in order to meet the outcomes set out in the Fourth Licence.
12.5 Therefore, we may also consider if and how the Licensee's approach has developed over time, including in response to:
12.6 More specifically, we may have regard to factors such as the Licensee’s approach in the following areas:
12.7 We may have regard to evidence that captures the appeal and reach of the National Lottery (such as consumer survey evidence), as well as any evidence of the impact on National Lottery appeal and reach of any material changes made by the Licensee to the network of Sales Outlets, and any consequent impact on other areas, such as sales volumes and Good Causes Contributions.
12.8 We note that the overriding duty set out in Condition 9.1 refers to entering Games throughout the UK, while Condition 9.4 sets out obligations related to overseas access.
12.9 For the purposes of Condition 9.4 of the Section 5 Licence, a person located outside of the UK will be deemed to have participated in the National Lottery or any Game if:
12.10 We may have regard to the robustness of the Licensee’s approach to achieving the outcome set out in Condition 9.4.
12.11 We may also have regard to the Licensee’s approach to managing and developing Physical Sales Locations, as well as other types of Sales Outlets. The Licensee has flexibility to determine the type and distribution of Physical Sales Locations and Sales Outlets it uses, subject to the Fourth Licence definition of these terms, to its Licence obligations (including Condition 9.2, which sets a specific requirement for availability of tickets at Physical Sales Locations) and to any other applicable restrictions such as those stated in the National Lottery Regulations 1994. We may also have regard to the Retailer Charter, which the Licensee is required to establish and operate under Condition 10.5.
17 In this context, “person” is interpreted as set out in Schedule 2 of the Licence, as including any individual, company, corporation, firm, partnership, joint venture, association, state, state agency, institution or trust (whether or not having a separate legal personality). For example, the person selling the ticket may be the Licensee or a retailer.
13.1 This section provides examples of the factors and types of evidence we may have regard to, in relation to compliance with Condition 11. Note that Condition 11 applies to the portfolio of Games as a whole, but additional requirements related to individual Games will be specified within Section 6 Licences.
13.2 At a general level, when considering compliance with Condition 11 we may have regard to the Licensee’s organisational approach to managing the portfolio of Games, as well as how the Licensee evaluates its approach, and implementation.
13.3 Where the Licensee’s Application included proposals to launch certain Games during the Term of the Fourth Licence, we may take account of any failure by the Licensee to implement those proposals in full in assessing whether the Licensee has fulfilled the requirements of Condition 11.1. At the same time, we recognise that the Licensee’s approach may reasonably change over time in order to meet the outcomes set out in the Fourth Licence.
13.4 Therefore, we may also consider if and how the Licensee's approach has developed over time, including in response to:
13.5 More specifically, we may have regard to factors such as the Licensee’s approach in the following areas:
13.6 We may have regard to evidence that captures the appeal and accessibility of the National Lottery (such as consumer survey evidence), as well as any evidence of the impact on National Lottery appeal and reach of any material changes made by the Licensee to the portfolio of Games, and any consequent impact on other areas, such as sales volumes and Good Causes Contributions.
13.7 In certain circumstances, the outcomes set out in Condition 11.1 and Condition 1.2(c) may be related, for example where low appeal or accessibility of the Games portfolio may have negatively affected Good Causes Contributions, or may negatively affect them in the future. See section 8 for further information.
14.1 This section provides examples of the factors and types of evidence we may have regard to in the context of compliance with Condition 13.
14.2 Whilst Condition 13 concerns the National Lottery Brand and reputation in the context of the Licensee’s overall running of the National Lottery, similar obligations and outcomes are set out in Section 6 Licences regarding the National Lottery Brand and reputation in the context of the promotion of specific Games. As such, the material in this section also applies to Section 6 Licence obligations where relevant. Section 20 provides some additional guidance in relation to subject matters, images and themes used in the promotion of Games and their potential impact on the National Lottery Brand and reputation.
14.3 Specifically, this section covers:
14.4 In considering compliance with this condition, we expect to have regard to specific brand performance measures, as set out below, as well as other relevant factors. Examples of such factors may include:
14.5 We recognise that brand measures may be subject to fluctuations, for example due to the timing of marketing campaigns. Therefore, in monitoring performance we will have regard to performance over longer periods as well as shorter periods. We would typically expect to have regard to the performance of the National Lottery over timeframes of at least six months when considering whether there is an indication of potential non-compliance with the conditions of the Fourth Licence, though we may have regard to shorter timeframes in the event of particularly significant or unusual changes in brand performance.
14.6 We expect to have regard to brand measures calculated at aggregate UK-wide level, as well as measures that capture brand performance across UK regions.
14.7 As part of our approach to monitoring brand health, we expect to consider evidence capturing the extent to which the National Lottery Brand is distinctive, instantly recognisable and associated with core values including:
14.8 In relation to the link between the National Lottery Brand and funding of Good Causes, and consistent with Condition 13.4, we will have regard to the Licensee’s approach to engaging, collaborating and sharing relevant information with key stakeholders such as Distributors and the National Lottery Promotions Unit (NLPU), who can contribute towards maintaining and strengthening this link.
14.9 The above core values inform the measures we will use to monitor the Licensee’s compliance with Condition 13.1 – indicative examples of which are listed in Table 1 on this page. We will finalise this list before the start of the Fourth Licence after considering proposed measures, and any indicative values, included in the Licensee's Brand Management Plan.
14.10 As the use and value of the National Lottery Brand during the Fourth Licence Term will follow, and build upon, the use and value during the Third Licence, we will have regard to the brand health monitoring measures and associated methodology used during the term of the Third Licence, with a view to ensuring a degree of continuity where this is appropriate.
| Indicative brand measures | Indicative description |
|---|---|
| Brand awareness | Percentage of respondents who have heard of the National Lottery |
| Brand loyalty | Net Promoter Score, which measures the loyalty of the Licensee’s relationship with Participants |
| Good Causes | Percentage of respondents who agree the National Lottery supports Good Causes |
| Life changing | Percentage of respondents who agree the National Lottery changes lives |
| National profile | Percentage of respondents who agree the National Lottery has a national profile |
| Safety | Percentage of respondents who agree the National Lottery is a safe place to play |
| Sentiment | Percentage of respondents who feel positive about the National Lottery |
| Trustworthiness | Percentage of respondents who agree the National Lottery is trustworthy |
| Diversity and inclusion | Percentage of respondents who regard the National Lottery as inclusive and engaging with the full range of diverse communities in society |
| Unprompted brand recall | Percentage of respondents who can recall information about the National Lottery without being prompted |
14.11 The Licensee will regularly report brand performance measures, as set out in our Assurance and Regulatory Reporting Requirements (see volume three).
14.12 We expect to review performance targets at the mid-point of the Fourth Licence in 2028. However, we may review and adjust targets at other times, if this is necessary in order to ensure these are aligned with the objective as set out in Condition 13.1.
14.13 We acknowledge brand performance measures are backward-looking. Therefore, we may still request additional information from the Licensee, including towards the end of the Fourth Licence, if we require further confidence it will meet its obligations under Condition 13 and related Condition 1.2(c).
15.1 This section provides guidance related to the provisions and requirements set out in Condition 17, which concerns the Licensee and its operations being Fit for Purpose. Condition 17 specifies some of the ways in which the Licensee must do this, and we address each area of this condition: Licensee Assets and consumables; Technology Operation; and the Independent Verification System (IVS).
15.2 At a general level, when considering compliance with Condition 17 we may have regard to the Licensee’s organisational approach to ensuring that the operation of the National Lottery meets the Fit for Purpose Requirements (including through developing a Technology and Data Architecture Strategy and a security strategy, in accordance with Condition 17.5), as well as how it evaluates its approach and implementation.
15.3 Where the Licensee’s Application included specific proposals in relation to the implementation of its Technology and Data Architecture Strategy and its security strategy, as well as its operating model in general, we may take account of any failure by the Licensee to implement those proposals in full, in assessing whether the Licensee has fulfilled the requirements of Condition 17.1. At the same time, we recognise that the Licensee’s approach may reasonably change over time in order to meet the outcomes set out in the Fourth Licence.
15.4 Therefore, we may also consider if and how the Licensee's approach has developed over time, including in response to:
15.5 In any assessment of compliance, we will have regard to evidence of Best Practice related to technology operations and their security, and on independent verification systems, including from any relevant government departments and agencies, and standards bodies (for example ISO – International Standards Organisation, WLA – World Lottery Association, PCI Security Standards Council).
15.6 As with other areas of Licensee compliance, we will have regard to information received through Licensee assurance and reporting when monitoring and assessing compliance risk. In particular, the performance standards report (see Assurance and Regulatory Reporting requirements, Table 3) is expected to cover a range of operational and technology metrics, including with respect to the Independent Verification System (IVS).
15.7 In relation to compliance with Condition 17.2 (Licensee Assets and consumables), we expect to consider the ongoing condition of Licensee Assets and maintenance arrangements in support of the (good) condition of assets. At all times, we require Licensee Assets to be in good condition, and that suitable and appropriate security and support is maintained in respect of Licensee Assets and Lottery Data.
15.8 Condition 17.2 also requires the Licensee to ensure, where Lottery Assets are consumables, there are sufficient levels of stock to support Fit for Purpose operation. To facilitate continuity, Lottery Assets – other than consumables – are required to have a “minimum life” of 2 years beyond the Term of the Fourth Licence.
15.9 The Technology Operation will be key to a Fit for Purpose operation, and we would expect to consider a broad range of information and evidence related to compliance with Conditions 17.4 to 17.6. For example, in respect of factors listed in 17.4(a), and other provisions in Condition 17, where the Licensee must do everything it can to ensure that the Technology Operation has the necessary capacity, performance, availability, scalability, resilience.
15.10 Our approach to assessing compliance with respect to Condition 17.7, regarding the IVS, will be informed by the Licensee’s approach in its establishment, maintenance and operation of the IVS, but also by the information and deliverables from the IVS. While the precise nature of reports, data and other information required from the IVS will be determined and agreed during Implementation prior to the start of the Fourth Licence (and contained in the performance standards report), we expect the IVS to have the necessary ability to perform end-of-day auto balancing between gaming systems (and the IVS).
16.1 This section provides guidance related to Condition 18, specifically with regard to:
16.2 Note that additional guidance related to Resilience Assurance Statements is provided separately in section 22.
16.3 Significant Business Events are defined in Condition 18.6 and may arise in relation to dividend payment, refinancing or changes to the Technology Operation, among other things. The definition of Significant Business Events, which is subject to a materiality threshold, means that it is unlikely to capture decisions made as part of the ordinary course of business. For example, a decision to approve a dividend payment may not necessarily constitute a Significant Business Event; this would depend on whether it could reasonably be expected to have a material impact on the National Lottery, the Licensee or a Licensee Subsidiary, as per Conditions 18.6(a) and (b).
16.4 Conditions 18.6 to 18.8 enable us to intervene if we conclude that a Significant Business Event will cause material damage to, or risk of material damage to, the operation of the National Lottery in compliance with the Fourth Licence. The requirement for information, provided as part of the Unqualified Resilience Assurance Statement and any additional information we may request, is to enable us to make that assessment.
16.5 The intent is not to prevent the Licensee from undertaking business events as part of the ordinary course of business. In all cases we are required to act reasonably in accordance with our public law duties – this means that we would need to have a good reason to seek further information from the Licensee.
16.6 We have deliberately not set specific thresholds for what may constitute a ‘material impact’ with regard to Condition 18.6. For example, as per Condition 18.6 (b)(i), the level of dividend payment by the Licensee, or any other form of distribution to the Licensee’s shareholders, that could have a ‘material impact’ and thus be classified as a Significant Business Event will vary depending on the overall financial and operational health of the Licensee. In some years, a high percentage dividend pay-out may be appropriate and low risk, whilst in other years it may be higher risk and therefore not appropriate.
16.7 If the Licensee if required to provide the Commission with an Unqualified Resilience Assurance Statement in relation to a Significant Business Event, it is the responsibility of the Licensee to have presented its Board with appropriate evidence to secure sign-off prior to providing to the Commission.
16.8 Figure 2 below illustrates how Conditions 18.6 to 18.8 would be applied under the Fourth National Lottery Licence.
The Significant Business Event process is as follows:
Step 1: Licensee is considering a business event including:
Step 2: Would the proposed event at implementation or within the next two years reasonably be anticipated to have a material impact on:
For the Licensee to consider in conjunction with its ability to provide an Unqualified Resilience Assurance Statement. We will consider in relation to the review of the Unqualified Resilience Assurance Statement and/or any information that we have requested.
If the answer to ‘Step 2’ is ‘No’: It is not a significant Business Event. Licensee can implement the business event.
If the answer to ‘Step 2’ is ‘Yes’: Proceed to ‘Step 3’.
Step 3: Classified as a Significant Business Event and the Licensee must inform us. Upon notification by the Licensee, have we otherwise approved the Significant Business Event without the need for the provisions of an Unqualified Resilience Assurance Statement?
If the answer to ‘Step 3’ is ‘Yes’: Licensee can implement the Significant Business Event.
If the answer to ‘Step 3’ is ‘No’: Proceed to ‘Step 4’.
Step 4: Licensee is required to provide an Unqualified Resilience Assurance Statement to us setting out the impact of the Significant Business Event on the Licensee’s operational and financial resources and its running of the National Lottery. Do we provide a request for further information within 20 Business Days?
If the answer to ‘Step 4’ is ‘No’: Licensee can implement the Significant Business Event.
If the answer to ‘Step 4’ is ‘Yes’: Proceed to ‘Step 5’.
Step 5: We may request further information regarding the Significant Business Event within 20 Business Days of receipt of an Unqualified Resilience Assurance Statement. Following receipt, do we confirm that the Licensee can implement the Significant Business Event?
If the answer to ‘Step 5’ is ‘Yes’: Licensee can implement the Significant Business Event.
If the answer to ‘Step 5’ is ‘No’: Proceed to ‘Step 6’.
Step 6: If we are not satisfied with the Unqualified Resilience Assurance Statement and further information provided by the Licensee, we may not provide confirmation that the Licensee may implement the business event. This action would be aligned to our statutory duties.
16.9 When considering whether to use our powers to vary, add or remove Licence conditions under Section 8 of the Act, our statutory duties and the principles of public law will apply with respect to any decision we make in relation to whether those powers should be used at all, and if so, how they might appropriately be used.
16.10 Without limiting our ability to use those Section 8 powers more generally, we anticipate that it may be appropriate to consider exercising those powers (whether at the request of the Licensee or otherwise) if there is a change in Gambling Law or a Fundamental Geographic Scope Change which in either case results, or is reasonably likely to result, in a Material Impact on Profitability.
16.11 If the Licensee wishes to ask us to consider exercising our powers under Section 8 of the Act in accordance with Condition 18.20 of the Fourth Licence, we will expect the Licensee to provide, within 12 months of the relevant change, evidence which satisfies us that the change has resulted, or is reasonably likely to result, in a Material Impact on Profitability, even if the Licensee does, or has done, everything it can to avoid that outcome.
16.12 If we are considering exercising our powers under Section 8 of the Act because of a change which has resulted, or is reasonably likely to result, in a Material Impact on Profitability, we would expect to do so on the basis of evidence which satisfies us that such Material Impact on Profitability has taken place or will take place.
16.13 As set out in Conditions 2.4 to 2.6, there are certain Licence conditions and definitions that, in accordance with Section 8(3)(b) of the Act, we can only vary with the consent of the Licensee. As per Condition 2.6, this includes Schedule 5 and Appendix 1 to Schedule 5. However, in a limited set of circumstances (a change of Gambling Law or a Fundamental Geographic Scope Change) that result, or may result, in a positive Material Impact on Profitability, we may vary Schedule 5 and Appendix 1 to Schedule 5 without the consent of the Licensee, if so required in connection with Condition 18.20.
16.14 If we vary the Fourth Licence under Section 8 of the Act, including in the circumstances outlined in Condition 2.7, we must do so in accordance with our statutory duties and in line with public law principles.
16.15 The presence of Condition 18.20 does not preclude the Licensee from requesting that we consider exercising our powers under Section 8 of the Act in relation to events that are not captured under ‘a change in Gambling Law or a Fundamental Geographic Scope Change’. We would consider any such requests in accordance with our overall regulatory approach, taking into account our statutory duties and public law (see Section 5).
16.16 Condition 18.3 requires the Licensee to have in place business continuity plans, including strategies, policies, processes and procedures. As part of this we expect the Licensee to have in place plans to respond to a situation where the reserves held in the Trust are insufficient to meet required Prize payments due to residual portfolio volatility.
17.1 This section provides guidance in relation to Condition 27, which includes requirements for the Licensee to prepare and maintain an Exit Plan and enter into an Exit Cooperation Agreement, supporting the overriding duty set out in Conditions 27.1 to 27.5. These aspects are the focus of this section, which provides further guidance on our expectation of the:
17.2 The purpose of the Exit Cooperation Agreement is to ensure the continuity and orderly handover of the National Lottery, including the provision of supplies and services, the operation of any transferring assets, and the orderly management and discharge of obligations and disputes connected with the operation of the National Lottery. It will ensure that the National Lottery can continue with minimum disruption and inconvenience to the public when transitioning from one Licence period to the next and that the Licensee cooperates with us, our representatives, the Next Licensee and any third parties in connection with the transfer of the National Lottery operation.
17.3 As part of the Next Competition, the Exit Cooperation Agreement will be entered into between ourselves, the Licensee and the successful applicant for the Fifth Licence. The Fourth Licence does not specify the form or content of the Exit Cooperation Agreement, but we expect to develop it using the Third to Fourth Licence Cooperation Agreement as a reference point, including any lessons learned from the handover of the National Lottery operation to the Licensee at the start of the Fourth Licence, and where relevant, incorporating the wider obligations and requirements set out in the Fourth Licence.
17.4 We will draft the Exit Cooperation Agreement. Its development will take place before the start of the Next Competition in consultation with the Licensee, with the expectation that the first draft will be shared during the early phase of the Next Competition. The Exit Cooperation Agreement will come into effect from the start of the transition (following the announcement of the award of the Fifth Licence to the successful applicant and prior to the start of the Fifth Licence), and will define each party’s commitment to cooperation and support throughout the transition period, as well as describing the mechanics for cooperation, to ensure a seamless and smooth transfer to the Fifth Licence.
17.5 In line with Condition 27.25 we expect that the arrangements specified in the Exit Cooperation Agreement will include:
-transition management arrangements, including to ensure alignment of the Outgoing Licensee Exit Plan with the Incoming Licensee Transition Plan to ensure the smooth implementation of the elements of those plans requiring cooperation. This alignment will include the governance and reporting arrangements in place to support delivery of the plans and alignment of transition timelines
arrangements for the orderly transfer of selected items to the Next Licensee including any assets, asset inventories, subcontracts, operations, support and services the Next Licensee may require to be transferred. It will also include the arrangements for undertaking an asset survey to determine whether assets have been maintained in accordance with Condition 17 or whether rectification or maintenance is required, and provisions for removing and disposing of any unwanted assets
arrangements to address any Continuing Obligations18 and On-going Disputes. For On-going Disputes this will include ensuring the provision of information, access to personnel, reasonable assistance and the provision of an indemnity (see Condition 27.13) associated with the handling of such disputes
arrangements to ensure the Licensee will, where appropriate, identify, scope and provide support (including documentation, training and knowledge transfer) and services for the transfer of the National Lottery operation to the Next Licensee, having due regard to the successful applicant’s Transition Plan to be implemented by the commencement of the Fifth Licence
financial arrangements between the Licensee and the Next Licensee including financial settlement and reconciliation, the transfer of funds from and to Trusts which exist for the protection of Participant funds, and the apportionment of revenue, costs and liabilities
arrangements relating to the conduct and behaviours expected from all parties during the transition period to ensure an effective transfer is achieved
provisions for issue management, setting out remedies and consequences if there is evidence of frustration, dispute or non-compliance with the Agreement or which materially harms or delays the Next Licensee’s ability to deliver and implement its Transition Plan.
17.6 Condition 27.29 sets out the requirement for the Licensee to maintain an Exit Plan at all times during the Fourth Licence Term, consistent with the delivery of the overriding duty set out in Condition 27.1. The Exit Plan must cover the following Exit scenarios: (1) the expiry of the Fourth Licence; and (2) the revocation of the Fourth Licence.
17.7 Consistent with Condition 27.31, we expect that a Senior Executive or Lottery Supervisor is assigned as an Exit Manager, and has responsibility for maintaining and continuously improving the Exit Plan throughout the Term of the Fourth Licence and for three months after the Expiry Date.
17.8 In accordance with Condition 27.29, in terms of the sequencing of Exit Plan development over the Fourth Licence Term, we expect that:
17.9 In terms of content, we expect the Exit Plan to:
17.10 In terms of the substance of our assessment of the Exit Plan and its compliance with the requirements of Condition 27, we expect that the relevant factors and considerations will include:
18For example, these might include outstanding prize claims or unclaimed prizes.
18.1 This section provides guidance in relation to Condition 28, which requires the Licensee to establish and operate an Outstanding Liability Fund. This is to ensure that there are sufficient funds available to meet any fines and penalties - payable by the Licensee - which fall due after the End Date.
18.2 The condition sets out requirements on the Licensee in respect of the timescales for development, establishment and operation, and the amounts to be paid into the Outstanding Liability Fund. In summary:
18.3 Condition 28.6 specifies the Maximum OLF Amount as £10m, unless adjusted under Condition 28.7 to a greater sum, not exceeding £20m. We will make any decision to adjust in accordance with Condition 28.7 no later than the end of Licence Year 6. Condition 28.8 allows us to further review the amount paid into the Outstanding Liability Fund, to be concluded – and the Licensee notified – no later than the end of Licence Year 9.
18.4 Our approach to compliance with this condition will consider whether the Licensee’s obligations are met in respect of the establishment and operation of an Outstanding Liability Fund.
18.5 In terms of Conditions 28.7 and 28.8 (regarding any increase in the amount to be paid into the Outstanding Liability Fund), our approach will be informed by the Licensee’s conduct and any fines and penalties that have been levied on the Licensee. Where applicable, the fines and penalties may inform our consideration of any increase of the amount to be paid into the Outstanding Liability Fund (and its quantum).
18.6 We will also consider the Licensee’s broader conduct relative to requirements specified in Condition 1, and the nature of any breaches of the Fourth Licence by the Licensee. This will include consideration of the absolute obligations under the Fourth Licence, where the Licensee must do (or refrain from doing) a thing or must ensure an outcome, and other obligations, where the Licensee must do everything it can to ensure a specified outcome is achieved.
19.1 This section provides guidance in relation to Schedule 5 of the Fourth Licence (the Incentive Mechanism), which sets out the calculations that define the payments the Licensee will need to make to Good Causes, via the National Lottery Distribution Fund (NLDF). This is consistent with the related obligation set out in Condition 15.
19.2 The calculation of payments to the NLDF is determined, in part, by revenue and cost figures reported by the Licensee. For certain aspects of the calculations we have a role in making determinations of values that may affect the calculation of payments to Good Causes.
19.3 This section provides further guidance on:
19.4 Schedule 5 of the Fourth Licence includes provision for adjustments to address potential changes in Lottery Duty and/or potential changes in VAT arrangements during the Fourth Licence. The adjustments are intended to ensure appropriate and accurate calculation of the Good Causes Contribution, and to mitigate the impacts on the Licensee from potential changes in Lottery Duty and/or changes in VAT arrangements.
19.5 The effect of any proposed adjustment will be demonstrated by the Licensee having applied the relevant formula and definitions as set out in the Fourth Licence. The Licensee is required, as part of its Estimation Methodology, to include in its estimates the impact of the Payment Adjustment.
19.6 The Reconciliation process, as set out in Schedule 5, Part C, will take into account any Lottery Duty and/or VAT adjustment(s) put forward by the Licensee.
19.7 Note that, as set out in Schedule 1 of the Fourth Licence, Lottery Duty and VAT on ticket sales (if any) are deducted from income in order to calculate Licensee Revenue for the purposes of the Good Causes Contribution calculation. For the avoidance of doubt, Lottery Duty therefore will not be included as part of Licensee Costs in order to avoid double counting.
19.8 Schedule 5, Part C sets out the treatment of Related Party revenue and costs. The broad approach to the treatment of Related Party Arrangements for the purposes of the Fourth Licence is as follows:
19.9 We provide below a high-level indication of some of the factors we anticipate will be relevant in assessing whether Related Party Arrangements provide Good Value for Good Causes, and that the Licensee would be required to provide to us. For example, this may include:
19.10 Where the Licensee intends to support its submissions with information on costs incurred, we also expect to see information on any profit or margin (to the Related Party) in excess of the costs incurred.
19.11 As a default approach, we expect to make an assessment of Related Party Arrangements after the Licensee reports its relevant costs and revenues to us, as per our Assurance and Regulatory Reporting Requirements (see volume three), through the Reconciliation process set out in Schedule 5, Part C of the Fourth Licence.
19.12 Schedule 5, Part C sets out the treatment of Wasteful Costs. It is conceivable that, despite the financial incentives for efficiency in respect of its cost and operations, the Licensee could still incur wasteful expenditure. In this context, there is a residual risk that any Wasteful Costs incurred by the Licensee act to the detriment of Good Causes. We address this risk through the calculations which implement the Incentive Mechanism and determine the Licensee’s liability to Good Causes.
19.13 Table 3 in Appendix 1 to Schedule 5 of the Fourth Licence defines Wasteful Costs and specifies they are Excluded Costs; these are costs excluded from the calculation of the Surplus. As such, these costs are borne by the Licensee and not shared with Good Causes. We provide some high-level guidance on how we expect to approach such a determination below.
19.14 Our default position is that we presume costs incurred by the Licensee, which are not excluded costs, are efficient (and reasonable to share with Good Causes), unless and until we determine they are Wasteful Costs according to the definition given in the Fourth Licence.
19.15 For the avoidance of doubt, Wasteful Costs could include costs incurred in relation to activities carried out by the Licensee directly, as well as amounts paid to Lottery Subcontractors. We note that other requirements in the Fourth Licence should also serve to mitigate the risk of incurring Wasteful Costs, for example Condition 21.4 which requires the Licensee to follow Best Practice in relation to certain aspects of subcontracting.
19.16 In terms of the substance of our assessment of Wasteful Costs, we provide an indication of the approach and factors that we anticipate will be relevant:
19.17 In determining whether Licensee costs are Wasteful Costs, we provide an indication of the approach and factors that we anticipate may be relevant in our assessment:
19.18 The Licence provisions on Promotional Prizes relate to Direction 9(g) of the Directions issued to the Commission by the Secretary of State in accordance with Section 11 of the Act.
19.19 Schedule 5, Part B, section 10 sets out the conditions under which any amount paid by way of Promotional Prizes shall be either an Excluded Cost or an Allowable Promotional Prize Cost. When assessing whether to provide consent to such amounts being treated as Allowable Promotional Prize Costs, the Commission will take account of its statutory duties and public law principles. The assessment will depend on the circumstances of any specific case.
19.20 The Licensee may include in the Funds Protection Policies, with the prior approval of the Commission, a policy for the application of Prize Rounding Amounts from any Game in line with requirements of Condition 16.13.
19.21 Promotional Prizes are defined in Condition 8.23. As per Condition 8.22, the onus is on the Licensee to define the methodology that will identify Promotional Prizes in accordance with this definition. This methodology should be included in Section 6 Licence applications where applicable.
19.22 Condition 8.23 draws a distinction between Promotional Prizes and ‘Prizes available in the ordinary course of operating that Game’. The Commission expects that Prizes are likely to be considered as being available in the ordinary course of operating a Game when such Prizes are awarded routinely and are funded from the prize payout percentage in the game design in accordance with the Section 6 Licence that the Game is promoted under. This might include, for example, Prizes associated with periodically boosted jackpots or must-be-won conditions that are funded from reserves formed of previous proceeds from that Game’s sales. For the avoidance of doubt, it will be for the Licensee to consider whether any of its planned activities constitute a Promotional Prize, and there is no requirement under the Section 5 Licence for the Licensee to offer Promotional Prizes.
20.1 This section provides information and context related to Section 6 Licences, with reference to the Section 6 Licence templates for individual and class Licences, which are to be used during the Fourth Licence Term.
20.2 Note that this section only covers matters related to the Section 6 Licences themselves. Guidance on the Section 6 licensing process is provided in a separate document.
20.3 This section covers:
20.4 Consistent with its approach to the Section 5 Licence, the Commission’s objective in issuing Section 6 Licences is to give effect to its statutory duties in a manner which provides simplicity and transparency and for appropriate innovation. In that context, the Commission’s approach to Section 6 Licences will be outcomes-based and will seek to avoid unnecessary complexity or constraint on the form of Games in the Licensee’s portfolio.
20.5 The Commission therefore has established Section 6 Licence templates which are suitable to be issued for any individual Game or defined class of Games. The two templates follow a common form and structure, with the intention that Conditions 1-16 in the Section 6 Licence templates will apply to all Section 6 Licences issued during the Fourth Licence Term. The conditions set out in the Section 6 Licence templates reflect similar outcomes to those described in the Section 5 Licence. In the context of a Section 6 Licence, those outcomes will apply to the game(s) authorised by, and specified in, the relevant Section 6 Licence.
20.6 The Section 6 Licence templates also provide for schedules which will contain suitable specific details for each Section 6 Licence:
20.7 Each Section 6 Licence issued using these Section 6 Licence templates will reflect the fact that the person holding it also holds the Section 5 Licence (see Condition 3 of the Section 6 Licence templates). Therefore, whilst the Section 6 Licence will include specific provisions which are relevant to the licensing of an individual game or class of games, it will also recognise that, with respect to each specified outcome, that person will only fulfil the requirements of the Section 6 Licence if it also fulfils the relevant requirements of the Section 5 Licence. A failure to fulfil the relevant outcomes with respect to the operation of the National Lottery in accordance with the Section 5 Licence will therefore inherently constitute a failure to achieve those outcomes with respect to each Game which the operator of the National Lottery promotes.
20.8 Section 6 Licences define the concept of Risk of Harm as “at any time, any risk that [a/the] Game or its promotion might damage any Matter to be Protected to the extent that such risks or such damage were not readily apparent from, and clearly demonstrated in, the Application Information (taking account of any risk mitigation actions described in the Application Information)”.
20.9 Condition 9 of each Section 6 Licence will require the Licensee, throughout the term of the Section 6 Licence, to:
20.10 For the avoidance of doubt, to the extent that a risk to the Matters to be Protected identified in the Section 6 application actually materialises and the relevant mitigating actions set out in the application are taken, such risk will not generally result in any enforcement action in relation to Condition 9 of the Section 6 Licence. By contrast, if a risk which is not identified as part of the application process subsequently materialises, it may result in enforcement action (e.g. if this is due to the Licensee failing to comply with Condition 9.1 of the Section 6 Licence).
20.11 Per Condition 9.8 of each Section 6 Licence, the Licensee is required to comply with any Game Specific Requirements which relate to any Risk of Harm.
20.12 As explained in a separate guidance document on the Section 6 licensing process, a Section 6 Licence may impose certain additional requirements specifically with respect to the promotion of the Game(s) to ensure that the operation of the Game(s) does not damage the Matters to be Protected and, more broadly, complies with all relevant requirements under the Section 5 and Section 6 Licences, legislation and Secretary of State Directions. Most conditions in the Section 6 Licences will refer to these Game Specific Requirements, which are to be populated in Schedule 4 of each Section 6 Licence.
20.13 The Commission expects that in most cases, the term of a Section 6 Licence will align to the remaining term of the Section 5 Licence. Save in specified circumstances where a Section 6 Licence may be suspended or terminated early (for example, the Section 6 Licence expires earlier than the End Date of the Section 5 Licence, or the Licensee or the Commission considers that the continued operation of the relevant Game would damage a Matter to be Protected), Section 6 Licences will reflect this expectation.
20.14 A Section 6 Licence for an individual Game authorises the promotion of that Game but does not require that the Game is promoted at all times. However, the Commission does not consider that it would be appropriate for the Licensee to hold “dormant” Section 6 Licences (i.e., Section 6 Licences in respect of which no Game is promoted for an extended period of time). As per Condition 2.9 of the Section 6 Licence template for an individual Licence, a Section 6 Licence will automatically terminate if the Licensee does not promote the Game authorised by the Licensee for a period of 12 consecutive months, unless the Commission notifies the Licensee otherwise. Condition 2.10 applies a similar obligation in the Section 6 template for class licences.
20.15 The obligations on, and rights of, the Commission to revoke a Section 6 Licence are described in Section 10 of the Act. In addition, each Section 6 Licence will include specified circumstances in which promotion of a Game (or class of Games) will be suspended or will cease, being:
20.16 Condition 11.3 of Section 6 Licences requires the Licensee to have regard to any subject matters, images or themes specified in the Regulatory Handbook, which we consider may damage the reputation of the National Lottery and/or the value, integrity and strength of the National Lottery Brand, if such subject matters, images or themes are used as part of the promotion of the Game or in association with the National Lottery Brand.
20.17 In general terms, we expect that subject matters, images and themes will be consistent with the requirement under Condition 9 of Section 6 Licences, which requires the Licensee to do everything it can to ensure that Games do not damage any Matter to be Protected. As part of this, we expect the Licensee to consider whether subject matters, images and themes are consistent with:
20.18 We expect the Licensee to take account of whether subject matter, imagery or themes may reasonably be expected to lead to specific adverse outcomes that would be inconsistent with its obligations, such as:
20.19 We would anticipate that material damage to the Matters to be Protected is likely in relation to any subject matter, imagery or themes that:
20.20 For the avoidance of doubt, the above examples are not intended as an exhaustive or definitive list.
20.21 The suitability of specific subject matter, imagery or themes may change over the Term of the Fourth Licence in line with changes in public opinion, Best Practice or other trends. This is reflected in Condition 10.2 of Section 6 Licences, which reflects our expectation that the Licensee proactively monitors its compliance with Section 6 Licence conditions, as well as any Risk of Harm that may arise, for example where relevant risks associated with subject matter, imagery or themes were not identified in the Licensee’s Section 6 Application Information, or where new risks arise subsequently to the granting of a Section 6 Licence.
21.1 Having regard to Recital (E) of the Enabling Agreement, in undertaking an Extension Review in accordance with Condition 3.8, the Commission will take into account its statutory duties and legal obligations (including in relation to relevant procurement law) and all relevant facts, matters and circumstances, including:
21.2 The Licensee will be given the opportunity to make representations and provide information for the Commission’s consideration as part of the Extension Review.
22.1 During the Fourth Licence, we expect the Licensee to demonstrate that it has appropriate risk management processes in place to protect the delivery of the outcomes in the Fourth Licence. This volume provides guidance on how we expect the Licensee to demonstrate this. Our reporting requirements set out where we require timely access to key data, which we need to effectively regulate the National Lottery. We will use Licensee assurance and reporting information to monitor compliance risk. We provide an overview of how this volume interacts with the other volumes of this Regulatory Handbook and our wider Regulatory Model in section 2 of this document.
22.2 Under the Fourth Licence the Licensee must provide us with information and assurance (Condition 23). Further, there are certain conditions of the Fourth Licence which require specific reporting or assurance to be provided by the Licensee. This volume contains information on the assurance and reporting requirements that the Licensee is subject to, including in relation to:
22.3 These requirements are intended to ensure we have timely access to information that is necessary in order to fulfil our role and duties as a regulator. In addition to these requirements, we retain the right to request additional information not set out in this volume, under Condition 23.12. We will use this right appropriately in a proportionate and risk-based manner, including in response to compliance risks or issues identified in relation to specific outcomes, plans or periods of time.
2.4 We note that toolsets supporting management information and business intelligence have evolved considerably over the last 10 years, through advances in information technology. We expect the Licensee to harness these positive developments and implement a general reporting solution (distinct from their operational systems) where it will place the Lottery Information it is required to provide and keep up to date. This solution is referred to within Condition 23.6 as the Lottery Records Database (LRD).
22.5 The LRD requires the Licensee to collect, store and make accessible records, registers, documentation and information pertaining to the operation of the National Lottery. We expect that all Lottery Information contained within the LRD will be stored in an orderly way, be full, accurate and complete, available to the Gambling Commission (the Commission) at all times and accessible in an electronic format that allows for data interoperability between the parties and meets the shared expectations for the contents, context and meaning of that data.
22.6 We expect that the Licensee will consider and provision for scenarios where additional, more frequent and or a greater granularity of data may be required and/or requested to be presented via the LRD beyond what is set out as part of the regulatory reporting requirements in this volume. Provision of, and access to such data and information may be requested by the Commission to enable it to carry out its regulatory obligations.
22.7 We can access and review information within the LRD, consistent with Condition 23.7, to carry out our regulatory role and duties, considering a range of information formats, including:
22.8 We expect the LRD to reduce the cost involved in providing information to us on an ongoing basis and significantly increase the flexibility offered.
22.9 The rest of volume three is structured as follows:
23.1 Our assurance requirements reflect that we expect the Licensee to take ownership of its decisions, including being able to demonstrate it has followed appropriate processes to consider and mitigate compliance risks. In this section we provide high-level guidance to complement the relevant Fourth Licence conditions that describe assurance requirements, as well as any assurance requirements that may be specified in Section 6 Licences as part of Game Specific Requirements.
23.2 We expect the Licensee to use assurance statements to demonstrate to us it has appropriate processes, systems and governance arrangements in place to mitigate risks of non-compliance. Assurance statements may include evidence from policies and procedures developed by the Licensee to support the delivery of outcomes.
23.3 Where the Gambling Commission requests specific information or assurance from the Licensee, it will act fairly and reasonably (per public law duties), to explain the purpose of its request in the context of its statutory duties and powers, and to determine timeframes for the provision of this information or assurance that are proportionate to the nature of the request, whilst also taking into account any other salient factors depending on the specific circumstances.
23.4 The Licensee must produce an Annual Assurance Statement as set out under Condition 23.17 and 23.18 of the Fourth Licence, and an annual Resilience Assurance Statement as per Condition 18.5, as well as Assurance Statements in other certain circumstances. The Annual Assurance Statement addresses compliance across all areas of the Fourth Licence for the previous Licence Year, whereas the annual Resilience Assurance Statement focuses on ‘forward looking’ compliance over a period of 2 years from the date of the statement, on the financial and operational resilience aspects of the Fourth Licence.
23.5 We expect the Licensee’s approach to be proportionate, including based on the degree of compliance risk identified in different areas of its operations. We expect this to be reflected in the level of detail provided in the Annual Assurance Statement across different areas.
23.6 Following receipt of any Assurance Statements, we will:
23.7 In this section we cover guidance on:
23.8 The requirement for an Annual Assurance Statement is set out in Conditions 23.17 and 23.18. A key feature of the Annual Assurance Statement is confirmation that the Licensee has completed the Compliance and Risk Management Audit, which is set out in Conditions 23.13 to 23.16.
23.9 We expect the Licensee to include a sufficient level of supporting information in the Annual Assurance Statement to demonstrate it has appropriate risk identification, mitigation and management processes in place (and that these processes are appropriately enacted). We will then assess whether the level of assurance information is adequate across different business areas. Within our assessment we will also consider and review Licensee performance standards (see Regulatory Reporting Requirements, Table 3).
23.10 Consistent with the requirements set out in Condition 23.18, we expect the Annual Assurance Statement to demonstrate that the Licensee:
23.11 We may require the Licensee to submit an Ad Hoc Assurance Statement (see Condition 23.19) outside of the Annual Assurance Statement timelines at certain times. For example, Conditions 10.3 and 10.4 identify some specific circumstances concerned with changes to arrangements related to the distribution of National Lottery products in which we require an Ad Hoc Assurance Statement. We may also require an Ad Hoc Assurance Statement in other circumstances, for example following instances of exception reporting by the Licensee which raise specific concerns (see Condition 24.2).
23.12 The contents of an Ad Hoc Assurance Statement may vary depending on the specific circumstances. Indicatively we expect it to cover areas such as the following:
23.13 The Licensee is required to provide, annually, either an Unqualified Resilience Assurance Statement or a Qualified Resilience Assurance Statement, as set out in Condition 18.5.
23.14 Where an annual Unqualified Resilience Assurance Statement is provided, we expect it to demonstrate the Licensee has appropriately identified and managed relevant risks. Among other things, we expect this statement to provide evidence of stress testing, including in relation to business plans and forecasts, and liquidity, equity and profitability. It should also include an assessment of the financial and operational strength of Key Subcontractors and, where relevant, their supply chains.
23.15 Unless otherwise approved by us, we require the Licensee to submit an Unqualified Resilience Assurance Statement before it implements a Significant Business Event, as set out in Condition 18.7.
23.16 Where the Licensee provides an Unqualified Resilience Assurance Statement in relation to a Significant Business Event under Condition 18.7, we expect it to demonstrate that the board of Directors of the Licensee have a reasonable expectation that, after implementing the Significant Business Event, the Licensee will have, or will have available to it, sufficient financial and operational resources to operate the National Lottery in compliance with the Fourth Licence for a period of two years from the date of such statement.
23.17 Consistent with Condition 18.7, we expect the Unqualified Resilience Assurance Statement to cover matters such as:
23.18 Within 20 Business Days of receipt of an Unqualified Resilience Assurance Statement related to a Significant Business Event, we may request for the Licensee to provide us with additional information as necessary to understand how the Licensee is managing risks, including:
23.19 Additional guidance related to Significant Business Events is provided separately in section 16, which includes a process diagram (Figure 2) that illustrates how Conditions 18.6 to 18.8 would be applied under the Fourth Licence.
19 Note the requirements for exception reporting are set out in Condition 24.
24.1 This section sets out a core set of information that we require the Licensee to report to us during the Fourth Licence, consistent with Condition 24.10. The regulatory reporting requirements are designed to complement other elements of our Regulatory Model and embed the assurance requirements outlined in section 22.
24.2 In defining these requirements, we focus on areas where access to regular and timely information is expected to be important in order for us to form an appropriate understanding of the Licensee’s operations. This in turn will facilitate our monitoring and assessment of Licensee compliance with Fourth Licence conditions and support the delivery of our statutory duties.
24.3 Requirements include Regular Reporting – where information is required for example on an annual, quarterly, monthly or weekly basis – as well as ad hoc requirements which may be triggered by defined circumstances, or upon request by us.
24.4 In addition to the regular and ad hoc reporting requirements, there are notification requirements, including in relation to exception reporting (as set out in Condition 24 and Table 9), which requires the Licensee to promptly notify us about breaches and exceptions. Notification requirements are important to ensure that, where appropriate, we are made aware of changes in circumstances in a timely manner.
24.5 Some of the reporting requirements are dependent on the Licensee’s business plan for the Fourth Licence, its financial arrangements and other elements of its operations or structure. In these cases, the reports are only defined at a high level in the current version of this document. More specific definitions of the contents of these reports will be developed at a later stage20 and included in an updated version of this Regulatory Handbook, as outlined in section 2.
24.6 Our requirements are split thematically and flow from various areas of the Fourth Licence as follows:
24.7 In this section we:
24.8 Table 2 provides a snapshot of the reporting requirements, noting the number of items within each reporting area and their frequencies. Further detail is then provided on each of the reporting areas in the remainder of this section.
24.9 Consistent with Condition 24.11, where Regular Reporting is required and the date of submission has not been defined in the Fourth Licence, the reporting dates will be agreed between us and the Licensee, and documented in the Regulatory Handbook.
| Area | Overview | Requirements | Frequency | Location |
|---|---|---|---|---|
| Compliance and good governance | 1 Quarterly report 1 Biannual report 3 Annual reports 13 Ad hoc requirements |
Performance standards report | Quarterly | Table 3 |
| Compliance and good governance | 1 Quarterly report 1 Biannual report 3 Annual reports 13 Ad hoc requirements |
Organisation Chart | Biannual | Table 4 |
| Compliance and good governance | 1 Quarterly report 1 Biannual report 3 Annual reports 13 Ad hoc requirements |
Assurance Statement | Annual | Table 5 |
| Compliance and good governance | 1 Quarterly report 1 Biannual report 3 Annual reports 13 Ad hoc requirements |
Audited accounts and Annual Report | Annual | Table 6 |
| Compliance and good governance | 1 Quarterly report 1 Biannual report 3 Annual reports 13 Ad hoc requirements |
Internal Audit Plan | Annual | Table 7 |
| Compliance and good governance | 1 Quarterly report 1 Biannual report 3 Annual reports 13 Ad hoc requirements |
Ad Hoc Assurance Statement (Section 6 licensing) | Ad Hoc | Table 8 |
| Compliance and good governance | 1 Quarterly report 1 Biannual report 3 Annual reports 13 Ad hoc requirements |
Notification requirements | Ad Hoc | Table 9 |
| Area | Overview | Requirements | Frequency | Location |
|---|---|---|---|---|
| Protecting Participants’ interests | 1 Monthly report 2 Quarterly reports |
Prize payments | Monthly | Table 10 |
| Protecting Participants’ interests | 1 Monthly report 2 Quarterly reports |
Participant behaviour and protection | Quarterly | Table 11 |
| Protecting Participants’ interests | 1 Monthly report 2 Quarterly reports |
Enquiries and complaints | Quarterly | Table 12 |
| Area | Overview | Requirements | Frequency | Location |
|---|---|---|---|---|
| Access and distribution | 1 Monthly report 1 Annual report 2 Ad hoc requirements |
Availability | Monthly | Table 13 |
| Access and distribution | 1 Monthly report 1 Annual report 2 Ad hoc requirements |
Sales Outlets | Annual | Table 14 |
| Access and distribution | 1 Monthly report 1 Annual report 2 Ad hoc requirements |
Ad Hoc Assurance Statement (Distribution) | Ad Hoc | Table 15 |
| Access and distribution | 1 Monthly report 1 Annual report 2 Ad hoc requirements |
Notification requirements | Ad Hoc | Table 16 |
| Area | Overview | Requirements | Frequency | Location |
|---|---|---|---|---|
| Branding and National Lottery IP | 1 Quarterly report 2 Ad hoc requirements |
Brand KPIs | Quarterly | Table 17 |
| Branding and National Lottery IP | 1 Quarterly report 2 Ad hoc requirements |
Notification requirements | Ad Hoc | Table 18 |
| Area | Overview | Requirements | Frequency | Location |
|---|---|---|---|---|
| Good Causes Contribution | 1 Weekly report 2 Monthly reports 1 Quarterly report 1 Biannual report 4 Annual reports |
Sales and Good Causes Contribution | Weekly | Table 19 |
| Good Causes Contribution | 1 Weekly report 2 Monthly reports 1 Quarterly report 1 Biannual report 4 Annual reports |
Other NLDF components | Weekly | Table 20 |
| Good Causes Contribution | 1 Weekly report 2 Monthly reports 1 Quarterly report 1 Biannual report 4 Annual reports |
Revised Estimated Annual Payment and Weekly Payment Schedule | Monthly (at least) | Table 21 |
| Good Causes Contribution | 1 Weekly report 2 Monthly reports 1 Quarterly report 1 Biannual report 4 Annual reports |
Good Causes Contribution Forecasts | Quarterly | Table 22 |
| Good Causes Contribution | 1 Weekly report 2 Monthly reports 1 Quarterly report 1 Biannual report 4 Annual reports |
Cost expenditure | Quarterly | Table 23 |
| Good Causes Contribution | 1 Weekly report 2 Monthly reports 1 Quarterly report 1 Biannual report 4 Annual reports |
Ancillary Activities | Annual | Table 24 |
| Good Causes Contribution | 1 Weekly report 2 Monthly reports 1 Quarterly report 1 Biannual report 4 Annual reports |
Estimated Annual Payment and Weekly Payment Schedule | Annual | Table 25 |
| Good Causes Contribution | 1 Weekly report 2 Monthly reports 1 Quarterly report 1 Biannual report 4 Annual reports |
Reconciliation Certificate | Annual | Table 26 |
| Good Causes Contribution | 1 Weekly report 2 Monthly reports 1 Quarterly report 1 Biannual report 4 Annual reports |
Related Party Arrangements | Annual | Table 27 |
| Area | Overview | Requirements | Frequency | Location |
|---|---|---|---|---|
| Financial and operational resilience | 1 Weekly report 1 Quarterly report 1 Annual report 3 Ad hoc requirements |
Weekly Trust Report | Weekly | Table 28a |
| Financial and operational resilience | 1 Weekly report 1 Quarterly report 1 Annual report 3 Ad hoc requirements |
Monthly Trust and Participant Funds Report | Monthly | Table 28b |
| Financial and operational resilience | 1 Weekly report 1 Quarterly report 1 Annual report 3 Ad hoc requirements |
Monthly Trust Income Report | Monthly | Table 28c |
| Financial and operational resilience | 1 Weekly report 1 Quarterly report 1 Annual report 3 Ad hoc requirements |
Trust Compliance Certificate | Annual (at least) | Table 28d |
| Financial and operational resilience | 1 Weekly report 1 Quarterly report 1 Annual report 3 Ad hoc requirements |
Audit Certificate | Monthly | Table 29 |
| Financial and operational resilience | 1 Weekly report 1 Quarterly report 1 Annual report 3 Ad hoc requirements |
Financial Covenants | Quarterly | Table 30 |
| Financial and operational resilience | 1 Weekly report 1 Quarterly report 1 Annual report 3 Ad hoc requirements |
Resilience Assurance Statement | Annual | Table 31 |
| Financial and operational resilience | 1 Weekly report 1 Quarterly report 1 Annual report 3 Ad hoc requirements |
Ad hoc assurance and reporting in relation to Protecting Participant Funds | Ad hoc | Table 32 |
| Financial and operational resilience | 1 Weekly report 1 Quarterly report 1 Annual report 3 Ad hoc requirements |
Unqualified Resilience Assurance Statement related to Significant Business Events | Ad hoc | Table 33 |
| Financial and operational resilience | 1 Weekly report 1 Quarterly report 1 Annual report 3 Ad hoc requirements |
Notification requirements | Ad hoc | Table 34 |
| Area | Overview | Requirements | Frequency | Location |
|---|---|---|---|---|
| Exit | 1 Annual report | Exit Plan | Annual | Table 35 |
24.10 This reporting area consists of the following:
Report area: Performance standards report
Frequency: Quarterly
Purpose: A set of overarching operational performance metrics will be monitored through this report, which will be complemented by the other reporting requirement on specific areas set out in the rest of this section.
This reflects Condition 24.9, which states that the Regulatory Handbook “may include certain standards or targets for performance which the Commission will consider when monitoring the Licensee’s compliance with this Licence”.
We expect that performance standards should establish a baseline of performance, that can be monitored over time, covering a range of measures that captures process (that is, leading indicators) and outcomes (that is, lagging indicators).
We require the data in this report to be relevant to the Licensee's obligations, and representative of conditions across different operational areas. We expect the data will allow us to sufficiently understand patterns and trends over time. We also expect the report contents are within context of other complementary and supporting information, submitted by the Licensee through other assurance and reporting requirements.
Where separate reports are used to demonstrate specific Licence Condition performance these shall be mapped in the same manner as the performance measures, against each related condition.
We expect that the relevant performance standards may reasonably evolve over the Fourth Licence. For example, the appropriate performance management regime may vary because of changes in circumstances, such as industry or regulatory trends, or new performance criteria might be introduced where we have concerns about the Licensee's risk management for delivering outcomes.
Report area: Organisation Chart
Frequency: Biannual
Purpose: Condition 6.15 sets requirements related to the provision of information regarding Lottery Beneficiaries and Lottery Supervisors, within which the requirement for the Licensee to provide an organisation chart is intended to allow us to maintain clear oversight of the ownership and management of the Licensee.
An Organisation Chart and any supporting information to set out accurately the legal and beneficial ownership, the organisation and management of the Licensee.
Report area: Assurance Statement
Frequency: Annual
Purpose: For the Licensee to provide assurance in relation to compliance with the Fourth Licence, as discussed in section 22.
See section 22 (assurance requirements).
Report area: Audited accounts and Annual Report
Frequency: Annual
Purpose: Annual Reports and financial accounts are a key element of the compliance process. As part of this annual cycle we also expect to be informed of any material irregularities identified by external auditors.
The audited annual accounts and Annual Report issued by the Licensee in compliance with Condition 22.15, as well as any other relevant obligations including under Companies Act 2006 and in conformity with International Financial Reporting Standards.
In order to comply with Best Practice, the Licensee may have regard to relevant guidance about the content of annual reports22.
The Annual Report will be expected to cover a range of financial and non-financial matters, including reporting of Licensee performance in areas such as sustainability, diversity, ethics, values, workforce management, corporate social responsibility and environmental matters. This will also be expected to include details of ESG (Environmental, Social and Governance) criteria applied as part of the treasury policy.
Any report from the external auditors (including such reports as may not be made public), concerning any incidents of fraud, irregularities or failure to adhere to procedures of financial control.
Report area: Internal Audit Plan
Frequency: Annual
Purpose: Conditions 22.8 and 22.9 set requirements related to internal audit. While the emphasis is on the Licensee to determine how best to comply with Condition 22.8, we require visibility over the Licensee’s Internal Audit Plan, as per Condition 22.9, in order to be aware of the proposed scope and focus of activities and, where necessary, verify that this includes any risks or concerns raised by us.
Full details of the proposed scope and timing of internal audit work that is planned for the upcoming year by the relevant committee. The Licensee should also notify us subsequently if there are material changes to these plans during the Licence Year (see Table 9).
Note that generally we do not require the Licensee to provide individual internal audit reports or recommendations. However, we may specifically request these under Condition 23.12, and, in any event, may require notification of internal audit findings, for example significant or material failings, as part of exception reporting (see Table 9 below and Condition 24).
Report area: Ad Hoc Assurance Statement (Section 6 licensing)
Frequency: Ad Hoc
Purpose: Under Section 6 of the Act, we issue Licences to authorise the promotion of different National Lottery Games. As part of Section 6 Licence applications, the Licensee is required to provide a Board Assurance Statement. Guidance on the Section 6 licensing process, including the role of the Board Assurance Statement is provided separately to the Licensee.
Set out separately in guidance to the Licensee regarding the Section 6 licensing process.
Report area: Compliance and good governance notification requirements
Frequency: Ad hoc
Purpose: Below we summarise, for reference, conditions within the Fourth Licence which require the Licensee to provide notifications or specific information to us on an ad hoc basis, in various areas related to compliance and governance. For further information, please refer to the relevant Licence conditions
20 Reporting requirements that are dependent on the Incoming Licensee’s Application – for example, the performance standards report and the Participant behaviour and protection report – will be fully developed and updated in this Regulatory Handbook during Implementation prior to the start of the Fourth Licence.
21 Note that Conditions 4 and 22 are directly related to compliance and good governance respectively, but under this category we also include requirements related to compliance and governance that are linked to other conditions, as set out in the relevant tables below.
22 For example, guidance published by the Institute of Chartered Secretaries and Administrators.
24.11 This reporting area consists of the following:
Report area: Prize payments
Frequency: Monthly
Purpose: Condition 8 of the Fourth Licence covers payment of Prizes, among other Participants’ interests. This report allows us to monitor speed of Prize payments as well as Prize payout percentages (as a proportion of sales), which is an important element of Section 6 Licences.
Total monetary value of Prizes, broken down by Game, and expressed as a percentage of the monetary value of sales; and
Data on speed and source of Prize payment to winners following a valid claim, with breakdowns by Game. This level of granularity is helpful in capturing the interests of all Participants, given that certain Participants will play only some Games (or only one Game) and not others.
Report area: Participant behaviour and protection
Frequency: Quarterly
Purpose: This report complements the Annual Assurance Statement process, as set out in section 22. It ensures we receive more frequent reporting across a core set of indicators related to Participant behaviour and protection, in order to retain visibility over key trends related to Participant interests, and potentially receive early warning of any issues.
The specific content of this report will be agreed with the Licensee, as it is likely to depend on its Participant Protection Strategy and other aspects of operations.
We expect this report to include information related to a number of Participant interests, including those identified in Condition 8, including:
Report area: Enquiries and complaints
Frequency: Quarterly
Purpose: Regular reporting of data related to enquiries and complaints from members of the public is important in terms of assessing compliance with conditions related to Participant information, complaints and redress, under Condition 8. Moreover, this data can be valuable more broadly if the pattern of complaints highlights any potential issues which might be causing harm to Participant interests.
The specific content of this report will be agreed with the Licensee, as it is likely to depend on its operational model and approach to dealing with enquiries and complaints.
The data would be expected to include:
Volume of enquiries and complaints received across various channels of communication and the volume that have been escalated to the independent dispute resolution mechanism;
24.12 This reporting area consists of the following:
Report area: Availability
Frequency: Monthly
Purpose: Availability of systems and terminals necessary to play National Lottery Games is a key issue in relation to both Condition 9 (Ensuring Access to the National Lottery) and Condition 17 (Licensee and its operations to be Fit for Purpose). Frequent reporting will provide us visibility over trends related to these conditions, including any significant issues or outages.
We will agree the specific content of this report with the Licensee, as it is likely to depend on its approach to technology and use of different distribution channels.
Indicatively, we expect relevant content could include the following information, which may be broken down by different time periods or different times of day:
Report area: Sales Outlets
Frequency: Annual
Purpose: The information in this report will allow us to understand the breadth and distribution of the network of Sales Outlets, which is relevant with regard to Condition 9 in terms of appeal and reach.
Report area: Ad Hoc Assurance Statement (Distribution)
Frequency: Ad hoc
Purpose: Ad Hoc Assurance Statements are required under Conditions 10.3 and 10.4 in order to provide us assurance that any risks related to certain changes, including in relation to distribution arrangements, are being adequately addressed.
The contents will depend on the specific context. Section 22 provides some guidance on assurance requirements.
Report area: Ensuring access to the National Lottery notification requirements
Frequency: Ad hoc
Purpose: Below we summarise, for reference, conditions within the Fourth Licence which require the Licensee to provide notifications or specific information to us on an ad hoc basis, in relation to ensuring access to the National Lottery.
For further information, please refer to the relevant Licence conditions.
Condition 9: requirement to explain to us the reason for any instance where it has not been possible for the Licensee to achieve the objective set out in Condition 9.2
24.13 This reporting area consists of the following:
Report area: Brand KPIs
Frequency: Quarterly
Purpose: Condition 13 defines requirements related to the National Lottery Brand. As part of our approach to assessing compliance with this condition, we require reporting of Licensee performance with respect to Brand KPIs. Further details are provided in our Monitoring Performance Framework (see volume two).
The specific content of this report will be agreed with the Licensee, as it is likely to depend on its Brand Management Plan and any metrics identified as part of that.
Our Monitoring Performance Framework sets out indicative brand measures, which may be revised, including in consideration of any measures set out in the Licensee’s Brand Management Plan. For reference, the indicative brand measures cover:
Report area: Branding and National Lottery IP notification requirements
Frequency: Ad hoc
Purpose: Below we summarise, for reference, conditions within the Fourth Licence which require the Licensee to provide notifications or specific information to us on an ad hoc basis, in relation to National Lottery IP.
For further information, please refer to the relevant Licence conditions.
24.14 This reporting area consists of the following:
Report area: Sales and Good Causes Contribution
Frequency: Weekly
Purpose: We will use the information to monitor the amount paid to the NLDF and to monitor the Sales and Good Causes Contribution information for the year to date. It is required on a weekly basis to reflect the weekly payments into the NLDF.
Report area: Other NLDF components
Frequency: Weekly
Purpose: We use this information to monitor the amount paid to NLDF from other components, including Unclaimed Prizes, lost and stolen Scratchcard Lottery tickets, Unused Ticket Entitlements and interest. These drive a smaller element of Good Causes Contribution than Sales and will be required on a monthly, rather than weekly basis.
Report area: Revised Estimated Annual Payment and Weekly Payment Schedule
Frequency: Monthly (at least).
Purpose: For the Licensee to provide an updated Estimated Annual Payment and Weekly Payment Schedule (as reported annually – see Table 25), in accordance with Licence Schedule 5, Part C, 3.5, taking account of the relevant methodologies, the payments made to date and any changes which may have arisen. This report should be provided promptly whenever a review is conducted.
Any revisions to the Estimated Annual Payment. In calculating this, the Licensee will apply the Estimation Methodology as appropriate. The Licensee will provide details of this calculation and of any changes to these amounts as a result.
Any revisions to the Weekly Payment Schedule, taking account both of any change to the Estimated Annual Payment and of any change to the anticipated profile of the Scheduled Weekly Payments. In calculating this, the Licensee will apply the Scheduling Methodology as appropriate. The Licensee will provide details of this calculation and of any changes to these amounts as a result.
Report area: Good Causes Contribution Forecasts
Frequency: Quarterly
Purpose: This information will inform long-term expected Good Cause Contributions, and provide DCMS, National Lottery Distributors and the NLPU with forecasts for contributions to Good Causes.
Good Causes Contribution forecasts, showing the forecast value of the Good Causes Contribution on a monthly basis, across a rolling five-year period (or during the last five years of the Fourth Licence, up to the end of the Fourth Licence). We expect that forecasts would be reported in a way that accounts appropriately for uncertainty; this will involve specifying plausible high and low forecast scenarios alongside the most likely central scenario.
Key underlying data, including sales forecasts split by Game and Game type (that is, forecast for each Draw-based Game and for scratchcards, interactive instant win Games, and any other Game types).
Historical variances between previous forecasts and observed Good Cause Contributions.
Commentary to explain the Good Cause Contribution forecasts, including a comparison to the previous quarter’s forecast and commentary on any changes.
A copy of the latest Forecasting Methodology Assurance Report.
Report area: Cost expenditure
Frequency: Quarterly
Purpose: We require a breakdown of operating and other costs across functional business areas, and cost allocations against the different National Lottery types of Game, business activity and/or function25.
Breakdowns of any cost areas not mentioned are available if further detail is required in a particular area.
Report area: Ancillary Activities
Frequency: Annual
Purpose: We will use this information to verify that only approved Ancillary Activities have been undertaken and the correct payments have been made to the NLDF in respect of them. These activities are expected to be a small part of NLDF income, so the information is only required on an annual basis.
Report area: Estimated Annual Payment and Weekly Payment Schedule
Frequency: Annual
Purpose: For the Licensee to provide an estimate of the annual payment for the forthcoming year in accordance with Licence Schedule 5, Part C, 1.1 - 1.3, as well as the expected Weekly Payment Schedule in accordance with Licence Schedule 5, Part C, 2.1 - 2.3.
Calculation of Estimated Annual Payment, including a breakdown of revenue and costs, Surplus, and Good Causes Contribution. In calculating this, the Licensee will apply the Estimation Methodology as appropriate. The Licensee will provide details of this calculation to us.
Calculation of the Scheduled Weekly Payments, including the element pertaining to the Fixed Contribution as well as the Scheduled Variable Weekly Payments. In calculating this, the Licensee will apply the Scheduling Methodology as appropriate. The Licensee will provide details of this calculation to us.
Report area: Reconciliation Certificate
Frequency: Annual
Purpose: We will receive a draft Reconciliation Certificate (and any subsequent amendments required to finalise this) as set out in Schedule 5, Part C, section 5.
The Reconciliation Certificate is required annually after the end of the Licence Year. It identifies any Annual Underpayment or Annual Overpayment (plus interest adjustment) relative to the Actual Annual Amount. For information purposes we will receive an unaudited summary of the total Good Causes payments for that Licence Year alongside the Reconciliation Certificate
As set out in the Licence, this submission includes:
As part of this, we would expect any instances where the values reported for the purposes of the Actual Annual Amount calculation and those set out in the accounts differ to be highlighted, explained and justified.
The submission will also include an unaudited summary of total Good Causes payments for that Licence Year, to include; the aggregate of all the Scheduled Weekly payments (split Scheduled Variable Weekly Payment and Fixed Contribution) and an analysis of Additional Weekly Good Causes Payment.
Report area: Related Party Arrangements
Frequency: Annual
Purpose: We will use this information to monitor and verify that transactions with Related Parties are undertaken and operated in accordance with the relevant Licence obligations. This information will be required annually so as to be consistent with annual submissions on cost expenditure and any related assurance reporting.
24.15 This reporting area consists of the following:
Report area: Weekly Trust Report
Frequency: Weekly (on second Business Day after the end of each Weekly Reporting Period)
Purpose: The Weekly Trust Report will provide assurance that the Licensee is meeting its commitments under Condition 16 and the Trust Documents.
Required under Appendix 3 paragraph 2 of the Security Trust Deed. Expected contents as specified under Appendix 3 paragraph 1(b):
Report area: Monthly Trust and Participant Funds Report
Frequency: Monthly (On or before 15th Business Day of each month)
Purpose: The Monthly Trust and Participants Report will provide assurance that the Licensee is meeting its commitments under Condition 16 and the Trust Documents.
Required under Appendix 3 paragraph 2(i) and as specified under Appendix 3 paragraph 1(c) (iv) of the Security Trust Deed.
Oversight of the TPRA reserves, including TPRA 1, including planned usage and forecast balances.
Report area: Monthly Trust Income Report
Frequency: Monthly (On or before 15th Business Day of each month)
Purpose: The Monthly Trust Income Report will provide assurance that the Licensee is meeting its commitments under Condition 16 and the Trust Documents.
Required under Appendix 3 paragraph 2(ii) and as specified under Appendix 3 paragraph 1(c) (iii) of the Security Trust Deed.
Report area: Trust Compliance Certificate
Frequency: Annual (No later than 10 Business days after end of each Licence Year) or within 28 days of any request by the Trustee
Purpose: The Trust Compliance Report will provide assurance that the Licensee is meeting its commitments under Condition 16 and the Trust Documents.
Required under Appendix 3 paragraph 2(iv) of the Long Form Trust Deed. Expected Contents specified under Schedule 3 paragraph 2.
Report area: Monthly Audit Certificate
Frequency: Monthly (within 10 Business days from the end of the month to which the certificate relates)
Purpose: The Monthly Audit Certificate will provide assurance of the accuracy of payments of Lottery Monies.
Required under Clause 16.3 of the Security Trust Deed. A monthly certificate from the Auditor which contains the following confirmations, as detailed in Clause 16.2 of the Security Trust Deed:
Report area: Financial Covenants
Frequency: Quarterly
Purpose: For the Licensee to provide periodic information related to financial covenants entered into by the Licensee, which will be captured in Schedule 6 of the Fourth Licence.
Dependent on specific financial covenants entered into by the Licensee
Report area: Resilience Assurance Statement
Frequency: Annual
Purpose: For the Licensee to provide assurance in relation to its financial and operational resources, as discussed within section 22.
See section 22 (assurance requirements).
Report area: Ad hoc assurance and reporting in relation to Protecting Participant Funds
Frequency: Ad hoc
Purpose: Ad Hoc Assurance Statements or reports may be required from the Licensee in order for us to ensure that the outcomes in Condition 16 are being met.
As set out within Condition 16, depending on specific circumstances the Licensee may be required to provide:
Report area: Unqualified Resilience Assurance Statement related to Significant Business Events
Frequency: Ad hoc
Purpose: We require an Unqualified Resilience Assurance Statement before any Significant Business Event, as discussed in section 22.
See section 22 (assurance requirements).
Report area: Financial and operational resilience notification requirements
Frequency: Ad hoc
Purpose: Below we summarise, for reference, conditions within the Fourth Licence which require the Licensee to provide notifications or specific information to us on an ad hoc basis, in relation to ensuring access to the National Lottery.
For further information, please refer to the relevant Licence conditions.
24.16 This reporting area consists of the following:
24.17 Further reporting requirements related to Exit may be developed during the course of the Fourth Licence, as necessary. This is expected to include reporting related to the Outstanding Liability Fund and Good Causes Underpayment Arrangements.
Report area: Exit Plan
Frequency: Annual
Purpose: The Licensee is required to prepare, maintain, and provide an Exit Plan to us for review and approval, and which meets its obligations under Condition 27.
Guidance on the expected contents, over and above the requirements of Condition 27, is included in the Monitoring Performance Framework (see section 17). In summary, contents include:
23 As noted in paragraph 22.10, exception reporting might then lead to further steps, such as a requirement for the Licensee to provide an Ad Hoc Assurance Statement in relation to specific risks (see Condition 23.19).
24 The meaning of “available” in this context will be defined in consultation with the Licensee (for example, in the case of any Retailers having limited opening hours, the definition may specify a minimum amount of time for which Game purchases must be possible in order for the Games to be considered available for the purpose of this report).
25 To provide further detail to Applicants we have issued in the Virtual Data Room the following report “Draft Cost Reporting Guidelines for The Fourth National Lottery Licence – An Initial View”. This report, produced by NERA, provides further detail about the potential cost categories, cost allocation principles and the potential format of a reporting template. We will develop and finalise Fourth Licence cost reporting requirements through engagement with the Incoming Licensee.
26 Although included in the Cost expenditure report, note that technically Lottery Duty and any VAT on ticket sales (if any) are deducted from income in order to calculate Licensee Revenue – that is, Lottery Duty and any VAT on ticket sales (if any) are not treated as a Licensee Cost under the Incentive Mechanism.
25.1 This volume sets out our approach to enforcement and explains how we will use our powers in an appropriate and proportionate manner. It details the enforcement measures available and the factors we are likely to consider when deciding on regulatory action. It also sets out some of the steps we may take ahead of initiating a formal investigation which will determine whether we need to apply enforcement action. We provide an overview of how this volume interacts with the other volumes of this Regulatory Handbook and our wider Regulatory Model in section 2 of this document.
25.2 This Enforcement Policy is not a guide to the law, nor to Section 5 or 6 Licence conditions. Generally, we will apply enforcement actions consistently with this volume. However, in the event of any departures from this, we will explain our reasons for doing so.
25.3 To avoid duplication and inconsistencies and ensure we take the most appropriate action, we will, as necessary, work with other regulators and law enforcement agencies to ensure we coordinate our respective powers.
25.4 The rest of volume four is structured as follows:
26.1 The general principles we apply in our enforcement decisions are shown below and flow from our Public Law Duties. These are consistent with our more outcomes-focused regulatory approach, wider gambling regulation, and regulatory best practice. Our general principles and enforcement policy apply to the Fourth Licence granted under Section 5 of the Act, and to licences issued to promote lotteries under Section 6 of the Act.
These principles are as follows:
We only intervene where necessary with targeted enforcement actions appropriate to secure our statutory objectives are met. Our approach is targeted and focused on the most important operational issues, factors and risks.
We will treat similar cases in a similar way unless we have a good reason not to. However, where there are repeated failures by the Licensee, we reserve our right to escalate enforcement action.
We will seek and make use of the best available evidence when making enforcement decisions. We will adopt a risk-based and proportionate approach to evidence gathering such that we may adopt more streamlined approaches to evidence gathering where more straightforward matters are assessed.
We will explain to our key stakeholders how we make our enforcement decisions and the actions we take. Our key stakeholders include the Licensee, Participants, potential Participants (the general public), Retailers, Distributors, the NLPU, DCMS, Parliament, consumer groups and any other interested parties.
We will be clear and open about our enforcement decisions. This will help to ensure our stakeholders understand our regulatory concerns and how we seek to address these with our regulatory and enforcement actions.
We will comply with our obligations under the Human Rights Act 1998 as a public authority.
27.1 When we become aware of a compliance risk or suspected Section 5 or 6 Licence breach, we first expect to escalate our monitoring activities in the relevant area. Depending on the evidence from our increased monitoring activity we will then consider further options for informal action, although in some circumstances - for example, because of the seriousness or repeated occurrence of a compliance risk – we may consider it appropriate to proceed immediately to opening a formal investigation.
27.2 Where we initiate informal action, we would still expect to open a formal investigation if the informal action proves insufficient to address the compliance risk sufficiently. We will seek to identify the circumstances around the potential compliance risk(s) to determine how best to respond. We will draw on the most appropriate intervention(s) available (the specific interventions we apply are therefore not pre-determined). This is consistent with wider regulatory best practice.
27.3 We may become aware of a compliance risk or suspected Licence breach from different sources of information, for example:
27.4 Examples of informal action that may form part of our escalation process ahead of opening a formal investigation are as follows:
27.5 If our informal actions are not sufficiently effective, and/or we have sufficient concerns regarding the matter under consideration, we expect to then proceed to formal enforcement activity by opening an investigation.
27.6. In Figure 3 we show an overview of our risk-based escalation approach, which illustrates the stepped approach to enforcement that we would often expect to consider appropriate. As is noted above, however, under certain circumstances – for example, because of the seriousness and/or urgency of the relevant compliance risks - we may consider it appropriate to move directly to opening a formal investigation.
Step 1: Dialogue with Licensee for clarification
Step 2: Increased reporting / assurance requirements (more in depth/increased frequency)
Note - We expect to engage with the Licensee and tighten assurance and reporting requirements in the relevant area of compliance risk.
Step 3: Informal undertaking, Business Area Review or Advice to Conduct
Note - We may seek to exert influence on the Licensee ahead of taking formal action.
Step 4: Potential formal action includes: Formal Investigation; Direct internal audit; Financial Distress Remediation Plan; Independent Performance Review; Amend / new Licence conditions; Legal injunctions; Financial penalties.
28.1 If a decision is made to commence a formal investigation, we will issue a ‘notice of investigation’ in writing to the Licensee and begin an investigation. Our approach to an investigation includes three stages.27
28.2 The rest of this section is split into separate sub-sections, one for each stage of our investigation process:
28.3 During the first stage of our investigation, we may hold an initial meeting with the Licensee to clarify and narrow the issues and to establish any further information we will require during our investigation.
28.4 In addition to requesting specified information, we may also wish to interview persons who we consider can supply relevant information in connection with the investigation. These interviews may be recorded and if this is the case, we will inform the Licensee in advance. We reserve the right to use the contents of the interview as evidence. Our requirements for the Licensee to provide timely evidence and representations are captured in Condition 24 in the Fourth Licence.
28.5 We will only request documents or records from the Licensee or third party which we believe are necessary. The Licensee is obliged to provide the requested information to allow us to carry out our role and duties and exercise our powers under the Act. We have powers to request personal information from the Licensee or third party and this is within the bounds of data protection regulation.
28.6 After gathering and reviewing the evidence we will consider the circumstances of the case and consider the purpose of any sanction in line with our sanction principles.
28.7 We will consider all the circumstances of the case in determining what regulatory action (if any) we should take including, but not limited to, the extent to which our statutory duties have been compromised or placed at risk.
28.8 The following paragraphs provide an example of factors we will consider when reviewing the circumstances of the case.
The extent to which the statutory objectives under Section 4 of the Act have been compromised or placed at risk.
The extent to which the National Lottery reputation is affected or potentially affected.
The duration of the circumstances giving rise to the investigation and whether these continued after the Licensee became aware of the matter.
The effectiveness and timeliness of any corrective action taken by the Licensee.
The speed with which the Licensee brings the issue to our attention.
Any compensatory measures taken or proposed to reduce the loss in sums paid to Good Causes.
The extent to which any Participants involved are disadvantaged, misled, and/or treated unfairly.
The Licensee’s pro-active role in making Participants aware of their complaints procedure and that participants may refer issues to us if they remain dissatisfied.
The restorative measures taken or proposed for Participants who have been disadvantaged.
Extent to which proceeds to Good Causes are impacted upon
Any compensatory measures taken or proposed to reduce the loss in sums paid to Good Causes.
The Licensee’s financial gain or the potential for financial gain from non-compliance with Section 5 or 6 Licence conditions.
The adequacy of steps taken to prevent recurrence.
Whether the matters would have been apparent to a diligent Licensee.
Whether the matters were the result or reckless or negligent actions.
Whether the matters were the result of deliberate actions.
The extent of historically similar matters or root cause problems.
The Licensee’s effectiveness in managing Licensee staff, contractors and retailers.
The actions taken by the Licensee in bringing the case to our attention and its degree of cooperation with us.
The extent to which the Licensee attempted to conceal matters from us.
The prior involvement of senior management or lack of action on the part of senior management.
The impact on any sanction or other action on the commercial viability of the Licensee.
28.9 Having considered the circumstances of the case, we will consider the purpose of any sanction, applying the following principles28.
We aim to change non-compliant behaviour. To ensure the Licensee changes behaviour and moves back to compliance.
We aim to eliminate any Licensee financial gain or benefit from noncompliance. In doing so, we will ensure any benefit to the Licensee or loss to Good Causes following on from any Section 5 or 6 Licence breaches, financial or otherwise, can be recouped, removing any incentive towards non-compliance.
We aim to be responsive and consider what is appropriate for the Licensee and the regulatory issue. We will use discretion in imposing sanctions and consider the reason for compliance failure. Our aim is always to bring the Licensee back to compliance and therefore a flexible approach is necessary in order to uphold a credible enforcement and sanctioning regime.
We aim to be proportionate to the breach and harm caused. We will assess the individual circumstances of each case, considering the nature and duration of the non-compliance and the consequences including the extent of harm caused or the risk of harm posed.
We aim to restore the harm caused by regulatory non-compliance where appropriate. In addition to ensuring the Licensee takes responsibility for its actions, we will consider Licensee arrangements for compensating disadvantaged Participants and to restoring any detriment to Good Causes Contribution.
We aim to deter future non-compliance. We consider it important the Licensee expects us to investigate risk of non-compliance with and, if appropriate, be subject to enforcement action in accordance with this policy.
28.10 After considering the specific circumstances of the case, and taking into account Licensee speed of disclosure of all relevant facts and appropriate admissions, we will consider the appropriate regulatory action, including any sanctions.
28.11 The appropriate action will be considered within the framework of our general enforcement principles. We will decide between the following options:
28.12 Further information on specific regulatory actions we may take is provided separately in section 29.
28.13 The steps will enable us to reach a view of the facts of the case and the appropriate action for us to take. This will be reflected in preliminary findings of the investigation; the next section sets out the process for arriving at a final decision.
27 Though these stages would apply to any investigation, the nature of each specific investigation may vary, in line with our general enforcement principles (for example, proportionality) and depending on the specific circumstances of each case. In circumstances where the relevant evidence is easily obtainable and unambiguous (for example, in the case of a very clear and isolated error), it is likely that an investigation can be conducted and concluded in a more timely fashion than in other cases.
28 Our principles are adapted from the Macrony report “Regulatory Justice: making sanctions effective”. Cabinet Office (2006). Note: In order to reflect our unique regulatory position in relation to our National Lottery duties (we regulate one business operation and have a specific duty to maximise the Good Causes Contribution), we adapted the wording of some so we can apply these appropriately.
29.1 In this section we set out the process to our final decision, including:
29.2 Once we have completed our formal investigation, we will compile our preliminary findings and include these in a letter to the Licensee. The letter and any accompanying documents will contain information about the following:
29.3 The Licensee can then make a written representation30 in response to our preliminary findings. We will normally request representation within 21 days; however, we may impose a shorter period in cases requiring further urgency.
29.4 We will consider the Licensee’s representation before deciding whether the Licensee has acted in breach of a Licence condition, or otherwise not acted in accordance with our statutory duties, and our associated regulatory action.
29.5. The investigation will be led by an appropriate internal governance group who will recommend a final decision. We will make our decision in accordance with our Corporate Governance Framework31. We set out our functions and delegated authority of the National Lottery Committee and employees under the Act (see appendix four of our Corporate Governance Framework).
29.6 The Licensee has the statutory right to appeal against certain sanctions, as detailed in the Act. The right of appeal against a financial penalty or revocation of a licence is to the High Court (or Court of Session in Scottish cases). In relation to a court injunction/interdict or court order made by the High Court (or the Court of Session in Scottish cases) then the right of appeal is to the Court of Appeal.
29.7 There are no other statutory routes of appeal to bodies outside of the Commission for any other decision 32.
29 If there is any dispute of fact, we will apply the civil standard of proof when making findings of fact.
30 If we intend to impose a financial penalty the Licensee can request an oral hearing for representation.
31 Corporate Governance Framework.
32 All our decisions are susceptible to judicial review in the Courts on the usual bases.
30.1 In this section we summarise the possible outcomes of any formal investigation, based on the principles and processes set out in the previous sections.
30.2 We may decide to take no formal enforcement action. This may involve no further action, or we may instead apply informal procedures (see section 26).
30.3 If we decide to apply formal enforcement action, we have a range of statutory and non-statutory regulatory options we can impose. We include a summary of each of these, and the order we expect to consider them.
30.4 The first action we will consider is whether to issue a notification of Licence breach. If there is a Section 5 or 6 Licence breach this allows us to formally record it without necessarily taking any further action. This outcome may be appropriate where:
30.5 If we consider it appropriate, we will then decide whether to issue other formal enforcement action(s), see examples from the following list 33:
30.6 We will also consider a financial penalty (see Section 10A of the Act) or revoke a Licence (the Act allows us to revoke a Section 5 or 6 Licence if any of the grounds for revocation apply34, including a breach of condition in that Licence). We would only apply this in the most extreme of scenarios and once we had exhausted all other potential interventions. As explained further below, the Act requires us to revoke a Section 5 or Section 6 Licence if we are no longer satisfied that the licensee is a fit and proper person. Therefore, in these circumstances, revocation is the only sanction available to us.
30.7 We next provide more information about each of these.
30.8 Undertakings are a set of actions the Licensee commits to implement. These include an explanation of the events which gave rise to the undertaking, the actions to be taken and the timeline for achieving these. We may also consider an undertaking alongside other sanctions. Although the intention is for an undertaking to be proposed by the Licensee there is no reason to preclude us from taking the initiative.
30.9 We may consider an undertaking to be appropriate where either:
30.10 We will only accept an offer for undertaking where we consider it an appropriate enforcement response, and if implemented will achieve an effective outcome. Previous agreement is not a basis for our future acceptance of an undertaking. The success or otherwise of earlier agreements will be a key factor in determining suitability.
30.11 We cannot require the Licensee to enter into an undertaking and there is no requirement for us to accept any offer made. Any failure by the Licensee to implement an undertaking, where there is continued or recurring breach of a Section 5 or 6 Licence condition, will inform our decision whether to impose a financial penalty in respect of that breach.
30.12 We will consider directing the Licensee’s internal audit function (see Condition 22.8 of the Fourth Licence) to review and formally report to us on particular risks or concerns we may have, with a view to getting the Licensee, if required, to strengthen its governance, risk management and controls.
30.13 In the event of the Licensee entering financial distress, evidenced through the occurrence of a Financial Distress Event, we may require the Licensee to prepare, submit to us for review and approval, and implement a Financial Distress Remediation Plan (see Conditions 18.11 to 18.15 of the Fourth Licence) with the objective of returning the Licensee to operational and financial stability and protecting the National Lottery asset.
30.14 The Financial Distress Remediation Plan must set out the steps the Licensee will take to remedy any associated Financial Distress Events, and we may require the Licensee to:
30.15 In the occurrence of a Financial Distress Event for the Licensee, we may consider activating lock up restrictions (see Condition 18.16 of the Fourth Licence), which requires the Licensee to:
30.16 We will review the Licensee progress in addressing the relevant Financial Distress Event through its Financial Distress Remediation Plan and inform the Licensee in writing when the lock up restrictions cease to apply.
30.17 We may consider a requirement for an Independent Performance Review (see Condition 25 of the Fourth Licence) is appropriate in any of the following circumstances:
30.18 If we require an Independent Performance Review, we expect to be involved in determining the associated terms and conditions of the review. The Licensee must not appoint an independent third party without our prior written agreement. The Licensee will have an opportunity to engage and help address any performance issues identified by the review. Any and all costs in connection with the operation of an Independent Performance Review will be at the Licensee’s own cost (it is an excluded cost for the purpose of the Incentive Mechanism set out in Schedule 5 of the Fourth Licence).
30.19 As per Section 8 of the Act, we have the ability to impose new or amended Section 5 or 6 Licence conditions to address a risk to our statutory duties. We may vary, add, or omit any condition 35 without the Licensee’s consent, if the Licensee has been given a reasonable opportunity of making representation. Any amendment we make under Section 8 of the Act would need to be undertaken in accordance with our statutory duties and public law principles. The updated Licence then continues with the additional or amended conditions.
30.20 Conditions 2.4 to 2.6 of the Fourth Licence set out the conditions in the Licence that, per Section 8(3)(b) of the Act, we can only vary with the consent of the Licensee.
30.21 We seek to ensure Participants are not seriously disadvantaged or affected by any new or amended Licence conditions, either directly or indirectly, and that the conditions will protect Participants and the general public during the period they are in force. If we apply this action, we shall serve a notice on the Licensee to inform them about the Licence variation and state the variation shall take effect at the end of such period as may be specified in the notice 36.
30.22 We may consider the imposition of new or amended Licence condition(s) to be appropriate in either of the following circumstances:
30.23 We may consider a court injunction or interdict or court order to be appropriate where we seek to compel the Licensee to do or refrain from specific acts. If the Licensee fails to comply with an injunction, they can face criminal or civil penalties. We do not envisage we will use this sanction frequently in the context of enforcement around the National Lottery.
30.24 Under Section 9 of the Act the court may grant an injunction restraining the contravention (or, in Scotland, an interdict prohibiting the contravention) or make an order requiring the Licensee (and any other person who appears to the court to have been party to the contravention) to take such steps as the court may direct to remedy it where the court is satisfied:
30.25 After considering the above sanctions, we may impose a financial penalty if we are satisfied the Licensee has contravened a Section 5 or 6 Licence condition. Our aim of a financial penalty is twofold; to deter persons from contravening conditions in Licences under Section 5 or 6 of the Act, and to eliminate any financial gain/benefit from non-compliance with Licence conditions. Figure 4 shows the high-level process for imposing a financial penalty. We then explain more detail in the following paragraphs.
Step 1: For us to impose a financial penalty the Licensee must have breached a Section 5 or 6 Licence condition. We consider non-statutory sanctions before imposing a financial penalty.
Step 2: We consider the follow elements before deciding to impose a financial penalty:
Step 3: We serve a notice to the Licensee (See section 10A of the Act which details the processes involved for an outcome following Licensee written and oral representation). This notice includes information about the Licence breach, the amount of financial penalty and our reasons for imposing a penalty.
Step 4: Licensee pays the penalty within 21 days, unless the Licensee responds with either of the following actions:
the Licensee makes a written representation
or requests an oral hearing
Step 5: Licensee has a statutory right to legally appeal our decision
30.26 We may consider a financial penalty appropriate in the following circumstances where one of our statutory objectives is jeopardised, along with one or more Licensing requirement and one or more of the following factors are present:
30.27 We are required by law to act in accordance with Sections 10A and 10B of the Act and the Department for Culture, Media and Sport (DCMS) Director General’s publication statement ‘Financial penalties: principles and procedures’ within the Secretary of State Directions. There are a number of procedural steps we must take before we can impose a financial penalty, as shown in Figure 4, including the service of a notice 37 on the Licensee setting out the details of the breach and giving the Licensee the opportunity to make written representations or to notify us of their intention to make oral representations.
30.28 In certain cases where we are considering a financial penalty, or a payment in lieu of financial penalty, and we receive timely disclosure and admissions by the Licensee, we may seek to give a discount to the penal aspect of a financial penalty.
30.29 Licence revocation (see Section 10 of the Act) is the most serious sanction and we will only consider this in the most extreme of scenarios and once all other potential interventions are exhausted.
30.30 We must revoke a Licence:
30.31 We may revoke a Licence granted under Section 5 or 6 if it appears to us that any of the discretionary grounds for revocation set out in Part I of Schedule 3 of the Act applies38 or the Licensee consents.
30.32 Licence revocation is subject to the process set out in Part II of Schedule 3 of the Act, except where the Licensee consents or has failed to pay the annual fee in accordance with Section 7A of the Act.
33 Note the actions are not ranked in order of seriousness, nor do we need to address each one when reaching our decision.
34 See Section 10 and Schedule 3 of the Act. In addition to setting out discretionary grounds for licence revocation, Section 10 of the Act also highlights non-discretionary circumstances where we must revoke a licence.
35 There are two exceptions where we cannot vary existing conditions in the Licence, and these are set out at Section 8(3) of the Act. These are (a) where the variation would result in a condition requiring the Licensee to transfer any property or rights, or (b) in the case of a Licence granted under Section 5 of the Act, in relation to a condition that the Licence provides may only be varied with the consent of the Licensee.
36 Under Section 8(5) of the Act the period specified in the notice shall be a period of at least 21 days beginning with the date of the notice.
37 Sections 10A(3) and (4) set out what we are required to include in the notice.
38 Part I of Schedule 3 of the Act states the following are discretionary grounds for revocation:
“1. A Condition in the licence has been contravened.
(2) A petition for an administration order to be made in respect of the licensee or for the winding up of the licensee has been presented to the court.
(3) A resolution for the voluntary winding up of the licensee has been passed.
(4) A receiver or manager of the whole or any part of the licensee’s property has been appointed.
(5) An administration application has been made or a notice of intention to appoint an administrator or a notice of an appointment of an administrator under paragraph 14 or 22 of Schedule B1 to the Insolvency Act 1986 (c. 45) has been filed.
(a) the licensee is not providing or proposing to provide facilities that are necessary or desirable for running the National Lottery
(b) any person who is managing the business or any part of the business of running the National Lottery under the licence is not a fit and proper person to do so
(c) any person for whose benefit that business is carried on is not a fit and proper person to benefit from it.
31.1 In this section we set out our approach to regulatory settlements.
31.2 Regulatory settlements are proposed by the Licensee and can allow us to avoid a protracted investigation or conclude an investigation in a timely manner. We will only consider a settlement when it meets an appropriate regulatory outcome. We will set timetables for settlement discussions, and it is likely we will revert to formal regulatory action if these are not adhered to.
31.3
We may consider a regulatory settlement appropriate where the Licensee is:
32.1 Openness and transparency are central to our work. Publication of our enforcement work plays an important role in improving compliance and in increasing confidence in us as a regulator. In this section we set out our approach:
32.2 Generally, we will only publicly announce an investigation in exceptional circumstances. This is to protect the integrity of investigations and protect the Licensee from being unfairly associated with unsubstantiated allegations. Exceptional circumstances may involve where matters under investigation have become the subject of public concern, speculation or rumour. We will only make an announcement if we consider it is desirable to:
32.3 We will consider any potential prejudice caused to the Licensee who is, or likely to be, subject to investigation, and weigh this against the benefits of making an announcement.
32.4 We will not generally publish details of any preliminary findings during our investigations. In many cases, restrictions on the disclosure of information obtained in the course of exercising our role and duties is likely to prevent publication. These restrictions may include disclosing someone's confidential or legally privileged information or prejudicing other investigations or legal proceedings.
32.5 In exceptional circumstances, and where we are not prevented from doing so, we may publish details of an ongoing investigation. Circumstances in which we may do so include those where our investigation concern is made public, by ourselves or otherwise, and we subsequently conclude our concerns are unwarranted. In this example the Licensee may wish us to clarify the matter.
32.6 After we make our final decision, we will ordinarily publish our decision within 14 days (even if our decision is subject to appeal). Unless we have reason not to, we will also publish decisions resulting in regulatory settlement, and details of any undertaking. Consistent with our wider fairness and transparency obligations, we would expect to engage with the Licensee prior to publication.
32.7 Upon request we will review any compliance or enforcement-related notices that are published on our website. We will determine whether continued publication is appropriate, or whether such notices should be removed or amended.
32.8 In completing our review, we will consider relevant factors, in particular:
33.1 The original purpose of the Enabling Agreement (EA) was to govern the implementation by the Incoming Licensee of its Application. The Fourth National Lottery Licence (the “Licence”) would only be granted if and when the Incoming Licensee had complied with its obligations of the EA and fully implemented its Application (“Fully Implemented Commencement” or “FIC”).
33.2 The Licence will now be granted before FIC has been achieved. The EA continues until FIC is achieved (and for a period thereafter), If the Licence is granted as currently expected on the Start Date (1 February 2024), the EA will now continue for a period following award of the Licence whilst implementation continues.
33.3 This means that the EA will continue to be in force alongside the Licence. The Licence, at condition 26.4, will require Allwyn to comply with the provisions of the EA. During this period acts or omissions of Allwyn which constitute a breach of the EA will also constitute a breach of that requirement in the Licence.
33.4 This section of the Enforcement Policy relates to acts or omissions which constitute a breach of the EA and the Licence (“Relevant Breach”) in the context that:
33.5 If the Commission becomes aware of a fact or circumstance which might give rise to or constitute a Relevant Breach, it will discuss the matter with Allwyn at the Incoming Transition Governance Board (ITGB) which will continue to operate throughout the period leading up to FIC.
33.6 ITGB will be used primarily to discuss strategic issues but will also provide an opportunity for the Commission to raise concerns and seek appropriate resolution. However, ITGB will not be a forum for enforcement decisions or legal resolution; discussion at ITGB will be without prejudice to the Commission’s formal decision making and enforcement functions.
33.7 A Relevant Breach may be taken into account when determining whether Allwyn achieves FIC and when considering whether to grant a Licence extension.
33.8 If the Commission considers there has been a Relevant Breach, it will consider the range of rights and powers available to it with respect to that breach under the EA, the Licence and the National Lottery Act 1993 and determine the most appropriate course of action on the basis of its statutory duties and taking account of the Commission’s Enforcement Policy as well as all relevant factors including (but not limited to):
33.9 When considering whether a financial penalty should be pursued under the Enabling Agreement or the Licence, consideration will be taken by the Commission of any remedy already applied in respect of the same facts and/or circumstances.
33.10 A record will be kept of any Relevant Breach. This will include if, when and how it was resolved, including any enforcement action taken. The Commission will also consider publication of the decision in line with the Enforcement Policy.