Placing data and insights at the heart of the Commission’s regulatory approach
Posted 20 October 2022 by Communications
Simo Dragicevic, member of the Gambling Commission's Digital Advisory Panel (DAP), reflects on the challenges and opportunities for increased use of data to develop better gambling regulation.
Marcus Boyle, the Commission's Chair, in The Times recently outlined his vision for developing the Commission's approach to regulating gambling. The vision is bold and points the way to a future regulatory framework that puts data at the heart of Commission's approach to regulation and consumer protection. Nobody can argue with this approach – every organisation, regardless of whether it is a commercial entity or not, rightly wants to become more data-driven.
I recently joined the Commission's Digital Advisory Panel, having spent the past decade working in the gambling industry and academia with a primary focus of using industry data and technology to understand harms and to protect consumers. In this blog, I’ll explore some of the opportunities for consumer protection with the Chair's vision as well as challenges to implementing it effectively. I hope this highlights potential options which can be explored in more detail as the Commission’s approach evolves and consideration is given to the need to invest in a data-driven approach. Prior to working in the gambling industry, I spent over a decade working in financial services in risk, compliance and finance. I draw upon those experiences too, particularly in risk management, to outline opportunities for building the Commission’s regulation of gambling operators.
A fast-changing industry
A key driver for focusing on data is for the Commission to have better insights on the effectiveness of the requirements it places on operators. The need for data to assess and inform policy recommendations is fundamentally important. All stakeholders recognize the need for better evaluation of policy changes. Large-scale research programmes using industry data to assess player behaviours, whilst arguably thorough, have typically taken too long to deliver results, often several years after the launch of the initiative. This time lag has implications, for example it limits the regulator's ability to use the research to make policy in light of changes in the wider industry and economy, impacting its ability to achieve its objectives.
Higher quantity and quality of research
In the hierarchy of evidence, whilst peer-reviewed research should arguably remain the gold standard when determining policy, more frequent, deeper and repeatable analytical insights can add tremendous value and help inform where the wider independent studies should focus their attention on. The future could well see a more dynamic and open use of industry data, with the regulator expanding its own insights to complement peer-reviewed research. In parallel, the Commission could offer access to anonymised and less sensitive data to a wider range of researchers as well as commissioning more in-depth studies using the most sensitive data in those areas of most interest.
Such an approach could also see policy changes that, whilst made in good faith using the best available evidence, being modified based on more regular and deeper insights and reviews, making them more effective. This could have the added benefits of not only helping to reduce harm but also reducing red-tape and any unnecessary requirements. In Scotland for example, there is a sunset clause on the alcohol minimum pricing policy (opens in new tab). Whilst I do not advocate replicating this exact approach for the gambling industry, the very idea of review periods for policy changes would allow any ineffective or disproportionate requirements to be removed or adapted, and arguably incentivise both more regular and higher quality research and evidence from a more diverse range of stakeholders than is currently available today.
Proactive data-driven regulation - A case study in financial services
Access to regular industry data will enable the regulator to undertake more targeted assessments and interventions. Proactive data-driven regulatory review has proven to be effective in the UK financial services industry where the regulator, the Prudential Regulatory Authority (PRA), was able to scrutinise the capital regulatory returns of Metro Bank. The PRA subsequently found that Metro Bank was inaccurately calculating its capital requirements (PDF) (opens in new tab) in respect of certain commercial lending activity. Because the banks all report risk data quarterly using a standard framework, the PRA is able to proactively compare the risk profiles of similar banks and probe and ask questions where anomalies are found.
In the case of the gambling industry, the Commission in future could compare the risk profiles of operators to see whether player behaviours and risk profiles differ. For example, if an operator that is predominantly offering casino products has a lower reported risk profile compared to an operator that is predominantly offering bingo products, the Commission can probe what is driving the lower risk profile in arguably more risky products for example, is the lower risk profile due to superior player safety and compliance processes or are there gaps in the operator’s governance and control systems and processes?
Increasing complexity requires increased disclosure
Marcus Boyle also outlined a best practice study into the use of algorithms, highlighting the need for openness and cooperation in an area which has in the past been too competitive and secretive. Whilst this is a good start, the general consensus is that all industries (not just gambling) will be required to disclose more around the data, processes and effectiveness of algorithms used in sensitive business and government applications. For example, gambling industry harm reduction algorithms could be classified as those performing ‘safety’ functions in the draft EU law on building trustworthy artificial intelligence (AI) (opens in new tab), which would warrant greater transparency and scrutiny. Whilst it is unclear whether this approach will be adopted in the UK, it indicates the direction of travel governments are taking with regards to AI safety.
Again, if we compare the regulatory reporting requirements in financial services, banks are required to annually disclose information relating to their risks, capital adequacy, and policies for managing risk under the Basel risk framework.
This means that along with the regular data submissions there are also additional submissions around the risk processes and frameworks for each bank. A similar approach to the gambling industry could offer greater regulatory scrutiny, and as a result, more incremental improvements over the coming years in how the industry manages and reduces risk. For example, disclosure of how player risk models are developed, what proxies for harms are used, results of back-testing, methodologies utilised, and risk exposures for different product verticals and player categories, would offer not only much greater depth of understanding for the GC but also build greater transparency and trust.
Evolution over revolution
With such bold visions come risks too. This is a transformational change that will require assessment and change of the Commission’s governance, business and technology architectures. Whilst there is a need to start small to learn, improve and demonstrate value early on, there is also the need to provide the time and space to evolve and develop the culture and capabilities required to collect and use data more effectively. Attracting the types of multidisciplinary skills required to build effective data-driven organizations is arguably the hardest challenge. The best data-driven organisations in the world recognize this and provide the requisite funding, time and space for organisations to develop these capabilities, often over much longer time horizons than with traditional projects.
The gambling industry will be anticipating changes to the regulatory process and is well placed to support regulators in their ambitions to use data to better protect consumers. Similar approaches to data submissions have been in place in regulated markets across Europe and South America for several years, however the effectiveness of those approaches remains unclear. And whilst some stakeholders have raised concerns about collaborating with industry on regulatory initiatives, it’s very hard in the digital age to regulate effectively without this cooperation, especially given the complexities of collecting and utilising industry data effectively. Those progressive operators that place consumer protection at the centre of their operations will see this as an opportunity to help build a better approach to its regulations and a more sustainable industry in the long-term.
About the Digital Advisory Panel
The DAP was established to advise the Commission on ways to manage new risks that may come from online gambling platforms. The panel’s expertise helps us to adapt to the ways the profile of the sector is changing and help us make sure our consumer protections are fully effective as the market evolves.
They are one of three advisory groups who support the Commission in its work to make gambling fairer, safer and crime free.