The licence conditions and codes of practice relating to ELMs
All ELMs licensed by the Commission to run lotteries on behalf of societies and local authorities are required to comply with specific conditions and codes of practice relevant to them. The specific licence conditions are set out at the time a licence is issued and are printed on the licence.
Some of the licence conditions and codes of practice applicable to ELMs are referred in the following paragraphs. Specific details are contained in the Licence conditions and codes of practice.
Protection of customer funds and lottery proceeds
There are a number of requirements on ELMs in relation to protecting customer funds as well as the proceeds of lotteries by putting ‘ring-fencing’ in place. In relation to customer funds the LCCP requires that:
- ‘Licensees who hold customer funds must ensure that these are held in a separate client bank account or accounts’ Condition 4.1.1 of the Licence Conditions and Codes of Practice
- ‘Licensees who hold customer funds must set out clearly in the terms and conditions under which they provide facilities for gambling information about whether customer funds are protected in the event of insolvency, the level of such protection and the by which this is achieved.
Such information must be according to such rating system and in such form the Commission may from time to time specify. It must be provided in writing to each customer, in a manner which requires the customer to acknowledge receipt of the information and does not permit the customer to utilise the funds for gambling until they have done so, both on the first occasion on which the customer deposits funds and on the occasion of any subsequent deposit which is the first since a change in the licensee’s terms in relation to protection of such funds. Condition 4.2.1 of the Licence Conditions and Codes of Practice.
The LCCP also sets out a definition of customer funds.
For lottery proceeds, the following applies: ‘Licensees must have arrangements in place to ensure separation between lottery proceeds they hold on behalf of non-commercial societies or local authorities and their own trading income and that such lottery proceeds are legally protected by means of separate bank accounts having trustee status or equivalent legal protection for each society or local authority in the event of the licensee’s insolvency, in which event the proceeds will be paid to the society or local authority.’ Condition 11.2.1 of the Licence Conditions and Codes of Practice.
The second part of the previous paragraph is specific to ELMs who hold the proceeds of a lottery on behalf of a society or local authority prior to or following a lottery draw. It is vital for an ELM to understand that the proceeds of any lottery are proceeds belonging to the society or local authority and that they are holding those funds in trust on behalf of those entities. The Commission places particular importance on the ELM having sufficient arrangements in place to protect those funds (the proceeds) for the society or local authority to ensure that they are not used for any purpose other than that which the Act permits and that they are protected in the event of the ELM’s insolvency or any claim on the ELM’s financial reserves.
Section 254 of the Act (opens in new tab) defines ‘proceeds’ as ‘the aggregate of amounts paid in respect of the purchase of lottery tickets’. The Commission’s view is that if monies are committed/appropriated to the purchase of a ticket in a specific lottery draw, then the monies are likely to be ‘proceeds’. If monies are held in an account before being ‘allocated to a gamble’ (a lottery) then the monies are likely to be customer funds. For example, monies paid in advance by those wishing to partake in lotteries are customer funds until they are committed/appropriated to the purchase of a lottery ticket in a particular draw and thereafter lottery proceeds within the definition in section 254(1). Lottery proceeds also have the potential to revert to being customer funds in the event the draw does not take place, or in the event the subscription is cancelled and where the stake is refunded to the participant.
Social responsibility
Lotteries are a form of gambling and as such ELMs are required to ensure that children and other vulnerable people are not harmed or exploited by the lotteries they manage. Societies and local authorities have the same requirements placed on them.
The minimum age for participation in a society or local authority lottery is 16 years. A person commits an offence if they invite or allow a child (someone under the age of 16) to enter such a lottery. ELMs, licensed societies and local authorities must have written policies and procedures in place to help prevent and deal with cases of under-age play. They must be able to evidence how these procedures and policies are applied to mitigate any risk to the licensing objectives3.
Licence holders must take all reasonable steps to ensure that information about how to gamble responsibly and how to access information and help in respect of problem gambling is readily available, and all marketing material for the lottery must display the begambleaware logo (including a link to the begambleaware website in the case of electronic material).
All licence holders are required to make a contribution to research, education and treatment in relation to problem gambling. ELMs, licensed societies and local authorities should ensure this provision is met either directly or through membership of a trade body that makes a donation to a recognised organisation on behalf of its members. A licensed society must meet this provision and it can be rightly included as an expense of the lottery or can be taken from other non-lottery financial reserves.
ELM’s are also required to make a contribution but it cannot form part of the expenses of a lottery although in the Commission’s view it is permissible for the funds to come from the part of the expenses paid to the ELM by the society for providing their services. While the Commission does not specify the recipient or the amount of the contribution, many licensees choose to make a donation to the Responsible Gambling Trust, based on a percentage of their gross gambling yield.
Further information about social responsibility requirements is available in the Commission’s Licence conditions and codes of practice (LCCP). You can also download sector-specific extracts from the LCCP.
Regulatory returns
Licence condition 15.3 requires that all ELMs submit an annual regulatory return to the Commission. The return must be submitted within 42 days of the end of the annual business period. This must contain all of the necessary information requested by the Commission and is best submitted securely online.
Where the ELM makes the arrangements for any part of the lottery they must record the proportion of the proceeds of the lottery generated by the ELM’s activity and include this in their regulatory return, together with details on the annual managed proceeds split by product type. In some circumstances, the ELM may need to request this information from the society.
For example, if the ELM is only ‘making arrangements’ in respect of one aspect of the lottery campaign such as direct mail, the ELM is only required to report the proceeds generated by that aspect of the lottery.
Lottery Submissions
The licence conditions attached to all lottery operating licences include a requirement that in respect of each lottery promoted a submission must be sent to the Commission within three months of the date of the lottery, showing the total proceeds and how they have been distributed. It is the responsibility of the society and the ELM to ensure that any lottery submission made in respect of the distribution of the proceeds of a lottery is a true and accurate reflection of how those proceeds have been distributed.
Where the ELM is instructed by a society to make lottery submissions on its behalf the ELM must ensure that the society approves every submission before it is made.
Information to lottery players: proceeds and prizes
Social responsibility codes attached to all lottery operating licences include a requirement to take account of the Commission’s guidance on providing information to lottery players about how proceeds are used and the likelihood of winning a prize and how those prizes are allocated. This information must be available prior to participating in a lottery.
Further information about these requirements can be found in the Commission's guidance Information to lottery players: proceeds and prizes.
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Last updated: 17 October 2024
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