Tip of the iceberg: Reflecting on 888's financial penalty

“Safeguarding consumers is not optional,” Sarah Harrison, CEO of the British Gambling Commission, exclaimed after handing out a record financial penalty to 888 recently. The stiff penalty was yet another example of the regulator flexing its muscles in an ongoing quest to drive up industry standards, and other UK operators will almost certainly have kept a close eye on the case to ensure they don’t fall foul of the same mistakes as 888.

At £7.8m it was by far the biggest financial penalty handed down by the regulator – although given the seriousness of 888’s failings the figure perhaps wasn’t actually that surprising. One of the Gambling Commission’s highest penalties up to that point was when Betfred agreed last year to pay more than £800,000 for AML breaches after it found one of the operator’s VIP customers had been allowed to bet using money stolen from their employer.

In comparison, 888 was forced to hand over a hefty total that included £3.5m of deposits made by the self-excluded customers and an additional £4.25m for socially responsible gambling causes.

Gambling Commission CEO Sarah Harrison. Credit: GamblingCommission.gov.uk

The London-listed firm, whose licence was originally placed under review in May, was found guilty by the regulator of “significant flaws” in its social responsibility processes aimed at protecting vulnerable customers. Specifically, the failings had enabled approximately 7,000 players who had self-excluded from its core casino, sports and poker platform to still be able to access one of its sites through its bingo subsidiary Dragonfish, which is run on a standalone platform.

As a result, the group of customers deposited a further £3.5m and staked more than £50m, while signs of problem gambling behaviour displayed by one customer was so significant it resulted in criminal activity.

“This penalty package of just under £8m reflects the seriousness of 888’s failings to protect vulnerable customers,” Harrison continued. “The 888 sanction package will ensure those affected don’t lose out, that the operator pays the price for its failings via a sum that will go to tackling gambling-related harm, and that independent assurance will be given to see that lessons are learnt.”

Additional risk

The ruling certainly throws up some intriguing questions. The industry rumour mill was in full motion following the Gambling Commission’s decision, including arguments circulating over how much 888 was aware of what was going on and to what extent it was the result of technical and/or company cultural issues. EGR sources vary as to their diagnosis, but the latter would almost certainly be far more difficult to fix.

However, arguably of more importance were questions of whether other operators also have legitimate reasons to worry that they could be next in the regulator’s firing line. The companies potentially at most risk are likely those with legacy platforms operating across different verticals. And this could include some big EGR Power 50 names, particularly bingo operators which have dozens of white label sites across numerous platforms.

One source describes the 888 case as the “death knell” for UK-facing white label-focused businesses. “I think it becomes very difficult because there’s too much risk,” he says. “If you are the operator and someone else is using your licence on a white label, it only takes one mistake from them in a marketing email for all your white labels to lose their licence.”

“If you’ve got a hundred white labels and one maverick does something stupid, it screws your whole business,” the source continues. “If I were running a white label operation, I’d get rid of the smaller ones and tell the larger ones they have to get their own licence and they can join the network. Any site doing under £50,000 a month in GGR I suspect will get a notice very soon telling them to migrate to a different platform. And if you’re 888 you’ve got to have such a tight rein on your white labels and make sure all the marketing emails they send out are kosher. I’m not sure it’s worth it.”

The implementation of the UK’s nationwide online self-exclusion scheme should be a major leap forward in this area of compliance. The recently entitled GAMSTOP initiative is expected to come into force before the end of the year, enabling consumers to block themselves for the first time from all online gambling operators licensed by Great Britain’s Gambling Commission via a single request. However, the launch of GAMSTOP will do little to alleviate any current fears, particularly from companies already on the regulator’s radar.

“I don’t think this is an agenda against 888 at all or that they are doing anything other than their job. Every company in the sector needs to be attentive to these kind of things”

Lucky escape

Contrary to some claims, it is understood the issue was neither exclusively, nor predominantly, VIP-related. But why didn’t 888 identify the fault in its systems sooner if it was indeed a technical issue? “It was very tricky to pick up,” one source close to proceedings told EGR Intel on the condition of anonymity. “It’s not like all of it didn’t work – that would have been easy to detect, it only partially worked. It wasn’t something 888 intended to build its business upon and it’s not something it gained a lot of revenue from either.”

888 also claims to have fixed the problem almost instantly after it had been flagged up. “The company has learned from its mistake and made significant changes to its systems and algorithms. So it’s changed a lot in the way it handles compliance and regulation. It has also added some additional safety checks so that even if it has these or similar issues in the future, hopefully it will be able to track them a lot sooner,” the source continues.

It could be argued 888 actually had a lucky escape on reflection. In fact, the operator’s share price on the London Stock Exchange started the day of the announcement on 250p, but within an hour had jumped to 266.25p – one of its biggest increases in months and its highest level since June. This has since fallen to previous levels but demonstrates the seriousness of the investigation and the market’s anxieties about its conclusions.

The Gambling Commission said in a radio interview on the morning of its announcement that although 888 had paid a big financial penalty, the regulator has more drastic weapons it can use in future – and those tools are around licensing. Numerous people in the egaming sector claim the seriousness of the investigation meant there was in fact a genuine fear 888 could face repercussions surrounding its licence.

But any speculation surrounding its UK licence has now been put to bed. The operator is arguably better positioned in dealing with such potential issues going forward than many of its competitors having undergone a top down review of its processes and increased its investment in other areas of compliance. EGR also understands the firm has already undertaken internal audits ahead of an external one conducted on behalf of the regulator, in addition to beefing up its internal reporting systems.

And while the £7.8m figure might feel like a big price to pay for its mistakes, it seems the Gambling Commission is still after a big scalp. Could it come in the form a licence suspension or revocation? “The Gambling Commission is not going to be a pussy cat here,” one source concludes. “I don’t think this is an agenda against 888 at all or that they are doing anything other than their job. Every company in the sector needs to be attentive to these kind of things.”