Changes to the licence conditions and codes of practice on High Value Customers
4 - Know your customer - assessing and mitigating risk
Licensees need to ensure that their interaction with high value customers is based on robust ‘know your customer’ and due diligence checks. Our casework has shown that this has often not been the case, with common themes including:
- Failure to undertake appropriate checks on HVCs and whether they can afford their gambling spend, initially and ongoing.
- Accepting limited or questionable source of funds evidence in a tick-box fashion.
- On numerous occasions the above has resulted in a customer deemed to be wealthy, and incentivised as such, found to be funding their gambling from problem debt and/or the proceeds of crime.
The draft guidance proposes a number of enhanced checks we would expect a licensee to undertake before offering any customer access to an HVC scheme and details the action that should be taken in the event that a prospective or existing HVC fails such checks.
Do you agree with the proposed guidance on what know your customer checks should be undertaken on HVCs?
Do you agree that where a customer has previously been part of a multi-operator self-exclusion scheme (e.g. Gamstop or SENSE), they should be prohibited from HVC schemes?
Are there additional safeguards or good practice which should be included in the guidance relating to customer checks and the assessment and mitigation of risk?
Know your customer checks
Respondents generally agreed with the principle that HVCs posed a higher risk due to their levels of engagement by frequency and/or spend and should therefore undergo more enhanced checks. A number of respondents confirmed that they actively assess the financial background of those consumers deemed to be of higher risk, with follow-up action designed to reduce the likelihood that such consumers are exposed to harm.
Respondents noted that the draft guidance went further than the industry’s voluntary code and responses were generally split as to the appropriateness and effectiveness of source of funds checks for all HVC consumers. There was concern that the requirement would place a disproportionate burden on consumers who would be reluctant to supply information that is typically handled by banks and other financial institutions.
It was suggested that relying on source of fund checks for admittance to HVC schemes risked alienating customers whose spending fell significantly below the AML threshold and would not ordinarily have prompted AML concerns.
There was concern that this added layer of friction in the customer-licensee relationship will mean that customers become less exposed to the same degree of ongoing monitoring, risk assessment and close management than an HVC necessarily would. Some highlighted the risk of consumers migrating to the unregulated market and/or opening multiple accounts to circumvent source of funds checks.
It was suggested that source of funds checks placed an overreliance on open source information, in determining an individual’s affordability at the expense of other considerations such as player behaviour and markers of harm.
One respondent commented on the difficulty in identifying personal vulnerabilities and suggested that the guidance be redrafted to require that the safer gambling assessment take account of those vulnerabilities that licensees become aware of.
Other respondents commented that introducing a mandatory requirement for licensees to request source of funds documentation from consumers was incongruent with a risk-based approach and potentially in breach of data protection principles. Clarification was sought on the extent to which licensees should seek to verify potentially sensitive information, such as employment history.
One respondent queried whether such checks could be imposed on regular staking bettors, which may reduce player incentives and have a negative impact on customer experience. Another commented that the requirement for licensees to apply player protection controls, affordability checks, and due diligence to all customers implied that all gambling by all customers requires an affordability check.
The question was posed as to whether such drafting unlawfully pre-determined the outcome of the forthcoming consultation on customer interaction guidance and pre-empted the outputs of ongoing industry trials to define parameters around affordability more clearly. It was further proposed that the term affordability be replaced with sustainability (as referenced in the industry’s voluntary code) until such a time as the industry’s trials into affordability have been properly evaluated.
There were a number of comments concerning the proposal to suspend a player’s HVC status in the event that an HVC fails the necessary checks. Some respondents suggested that HVC status should be retained to ensure [customers] continue to be subject to enhanced monitoring and relationship management. It was proposed that HVC status only be suspended once it is confirmed that the risk to consumers cannot be appropriately addressed via other mechanisms.
Some queried the need for an appropriate separation between those with responsibility for customer checks and those managing the day-to-day relationships and incentivisation of HVCs. Concern was expressed on the basis that customers are more likely to cooperate with the customer checks process if they know the person requesting the information; which in most cases will be the person managing the day-to-day relationship of the HVC.
Nevertheless, it was agreed that there should be a separation between those responsible for deciding a customer’s eligibility and those relationship managers tasked with conducting the checks.
Some respondents queried the implication of the proposal that licensees consider the regulatory risk posed by continuing the customer relationship in the event that a customer is unable or unwilling to supply the information required.
It was considered disproportionate to exclude such customers from regular play or non-HVC offers. Another respondent queried the need to refer to elements of the customer interaction guidance in section 2.10 of the HVC guidance, on the basis that the guidance applies to all consumers not just HVCs.
Prohibiting prospective HVCs that have previously registered with a multi-operator self exclusion scheme
The majority of respondents supported the proposal to exclude customers that had previously been part of a multi-operator self-exclusion scheme from HVC membership. Some respondents preferred existing practices in which, for example, former Gamstop registrants must have their entry into an HVC scheme signed-off by a holder of a Personal Management Licence together with written explanation as to how including this customer in this group helps to mitigate a business or customer risk.
An example was given whereby a high net-worth individual would continue to receive enhanced account management but would not be offered individualised bonus offers.
One respondent observed that individuals self-exclude for multiple reasons and it would be disproportionate to apply a lifetime ban, particularly if enhanced checks provide the necessary assurances.
It was noted that ordinary code provisions 3.5.2 and 3.5.4 require licensees to make available sufficient information about what the consequence of self-exclusion are and that the prospect of a lifetime ban from HVC schemes could deter consumers from joining a multi-operator self-exclusion scheme (or use other gambling management tools).
A suspension from HVC status for a period of around 2 years was considered more proportionate (subject to an individual’s adherence to self-exclusion scheme and necessary background checks).
Data protection and the requirement to only share data when there is a lawful purpose of doing so was cited as a potential barrier, for example, where consumers choose to exclude from specific licensees (or ‘verticals’) but not others. For example, online licensees might not have access to whether a customer has self-excluded via SENSE as data protection prevents such information being shared outside the land-based casino sector.
Others cited GambleAware research, which found that the majority of self-excluded respondents did not identify as a problem gambler and queried the extent to which self-exclusion could be considered a reliable proxy for harm.
It was noted that some consumers choose to self-exclude in order to avoid specific verticals or gambling products and greater flexibility was needed, for example, giving PML holders discretion to sign-off entry into a vertical from which a prospective HVC had previously self-excluded.
A number of licensees expressed a preference for the industry’s voluntary code in which registration of previously self-excluded players into an HVC scheme would entail PML sign-off and the imposition of mandatory deposit/spend limits.
Additional safeguards and good practice
Respondents commented on the means through which affordability checks could be combined with other technologies, protections or guidance to enhance player safety.
There was a suggestion for checks to be conducted using open banking or Single Sign On (SSO) technology to determine an individual’s income and gambling transactions.
There were calls for the development of an affordability checklist (to include verification of income via payslips, HMRC tax returns etc) and a monthly limit on net deposits (for example, on all online casino products), above which additional limits could be set at a percentage of a player monthly provable income. Some commented that affordability checks would be well served by a single customer view or an industry wide ‘risk register’ to provide licensees with a holistic view of players spending behaviour.
Other suggestions related to additional safeguards and good practice included:
- Greater restrictions to customers aged under 25. Respondents referred to the industry voluntary code, which identified the under 25 demographics as being at elevated risk to gambling related harm. Concern was expressed that broadening the at-risk demographic to under 35s was disproportionate and likely to undermine the efforts to protect younger consumers.
- The introduction of specific time limits on how soon newly registered customers can be offered HVC membership to allow sufficient time to monitor gambling behaviour, sustainability and undertake necessary checks.
- The inclusion of bank or credit card gambling blocks within the criteria of factors that would prevent membership to an HVC scheme register.
The proposed guidance seeks to address the regulatory challenge posed by the disproportionate financial value of HVCs, which has evidently led to a conflict between regulatory compliance and short-term commercial objectives. Failure to ensure a clear separation of responsibilities between HVC schemes and responsible gambling functions has fostered environments in which commercial considerations take precedence over regulatory risk.
We disagree strongly with the proposition that at-risk consumers should be offered HVC membership in order that they receive closer monitoring and interaction with staff.
This consultation was driven, in part, by concerns that licensees placed HVCs outside standard processes for interaction, based either on commercial imperatives or a false notion that wealthy customers (or assumed wealthy customers) are insulated from gambling-related harm.
We are concerned by the implication that enhanced levels of support are contingent on access to programmes that have been designed to incentivise player spending. We understand the view that, in some cases, customers will respond more positively to requests for information undertaken by the account manager, but do not consider the proposed guidance prevents a situation in which the customer is referred to another team having received assurances from their account manager as to the purpose of these checks. We are therefore not persuaded that the checks themselves have to be directly undertaken by the account manager.
We note the concern that source of funds, ordinarily prompted by AML concerns, may currently be conducted at a higher threshold than is typically required to qualify for HVC incentives. However, we consider these checks justifiable given the unique arrangements made to incentivise HVCs to spend at significantly higher levels than the wider customer base.
HVCs present a heightened risk due to their high levels of engagement by frequency, spend, or both. Undertaking source of funds checks on this group is therefore consistent with a risk-based approach. Source of funds checks should provide clarification over the actual source of the funds used to gamble rather than an open source assessment of potential income/wealth.
Consumers that are unwilling or unable to provide the necessary information should not be considered eligible for HVC incentives. Licensees are expected to exercise their judgement as to whether to continue their relationship with such customers.
We agree that a customer’s eligibility to an HVC scheme should not be solely determined by successful completion of a source of funds check. This decision is likely to be informed by a range of factors but ultimately consideration for tailored or personalised incentives is contingent on a customer’s ability to supply up-to-date evidence relating to identity, occupation and source of funds all of which should be considered in conjunction with the licensee’s own risk assessment, as detailed in our customer interaction guidance.
We agree that player protections, affordability checks, and due diligence applied to all customers could be refined to recognise that these controls will be applied in specific circumstances. We therefore propose to amend this section to require that such actions are deployed consistently To all customers at the appropriate stage of the customer relationship or in response to specific concerns. It’s important to note that the consultation concerns eligibility for HVC incentives and does not amend any existing requirements, including those related to non-HVCs.
We intend to retain the term affordability check, which applies to the principle that licensees obtain sufficient assurance that a consumer’s income, outgoings and circumstances are consistent with their level of spend. We expect the effectiveness and robustness of these checks to evolve in response to ongoing industry trials and any outputs from the forthcoming consultation on our customer interaction guidance.
We expect licensees to be proactively monitoring all account activity for markers of harm and changes in patterns of play. However, given the high levels of spend and frequency associated with HVCs we consider it important to set a minimum amount of time for licensees to undertake a review of a customer’s account. We consider such reviews should be carried out on at least a quarterly basis, with the overriding principle that the frequency of such checks be determined by the assessment of risk from ongoing monitoring of the customer’s activity, behaviour and circumstances.
We have considered the risk that a lifetime ban from HVC incentives could potentially dissuade consumers from registering with multi-operator self-exclusion schemes. Evidence to support this assertion is limited but we are aware that some consumers have reported excluding for reasons unrelated to gambling harm, such as a desire not to be inconvenienced by marketing material.
Such examples should not override the serious red flag a previous self-exclusion should represent in a licensee’s assessment of risk. We would expect a licensee to take note of any customer returning to gambling following a period of self-exclusion whether they were a HVC or not.
In this context, we are not just talking about whether to allow a customer to gamble again, but the appropriateness or otherwise of actively incentivising that highly engaged customer’s gambling following a period of self-exclusion. The circumstances in which we think that would be appropriate are limited.
Where consumers have been identified as having previously self-excluded, we will expect the accountable PML holder or equivalent to review the associated risk and sign-off on any decision to provide future access to HVC schemes or incentives. A clear audit trail should include the steps taken by the licensee to mitigate the risk of harm which as a minimum should include the imposition of mandatory deposit/spend limits.
We note existing limitations whereby licensees would be unable to check whether an individual has previously self-excluded from a scheme operated in another sector. We expect licensees to act upon information reasonably available to them.
We welcome the proposals for additional safeguards and good practice. Some of the examples highlighted, such as the single customer view, are subject to ongoing exploratory work between ourselves and industry. We do not consider it appropriate to mandate a specific timeframe after which new customers can be offered HVC incentives on the basis that some licensees have the means to determine player behaviour and affordability over a shorter period than others.
The guidance references 18-34-year olds as an example of the demographic group that over-index for at risk or problem gambling rates. This observation should not deter licensees from tailoring restrictions to a subset of individuals within this age band (for example, stricter controls on under 25s) where concerns arise. We continue to monitor other sectors (for example, banking) for innovations that could support the delivery of the licensing objectives.
We note the request for an affordability checklist and monthly spend limits. Further details of our evolving approach to the issue of affordability will be provided in the forthcoming customer interaction consultation.Previous section
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Last updated: 29 September 2020
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