On the Front Lines of Regulatory and Risk intelligence With Acuris
Nick Parfitt, Head of Market Planning, Acuris Risk Intelligence
Nine months into 2020 and we are firmly living in a world that is unrecognisable compared to where we were when we awoke last New Year’s morning. The gaming industry was already experiencing significant headwinds with material fines for regulatory compliance issues in various jurisdictions and macro issues such as the uncertainty over BREXIT. And whilst the current situation we are in has certainly exacerbated demand, it has also significantly increased Fraud and Identity Theft through more and more “scams” relating to all-things coronavirus. As I write this article, the once green-shoots of the lifting of lock-down restrictions appear to be going into reverse and likely will only get worse before it gets better. However, for many online operators with no exposure to sports gaming, they are indeed having an excellent year by focusing on converting sports gaming to the “stay at home” gambler.
As a “glass half full” personality, I recognise that we are in a serious and perilous position but that is no excuse to throw in the towel. More than ever we need to address the future of the gaming industry, look for new avenues of revenue in a digital environment, ensure full and transparent regulatory compliance, and utilise technology and more novel data sources to build a sustainable approach to acquiring customers, not criminals or fraudsters, maintain a good relationship and provide appropriate services. Moreover, there is a real danger that over-compliance will push players and operators into non-regulated markets which will have the knock-on effects of no tax revenue, minimal player protection and no measures to ensure a robust framework for the sustainability of the industry. We need to better improve how we as an industry react and adapt in a way that meets these varied goals yet still return share/stakeholder value.
If we take the UK for example, so far this year the UK Gambling Commission has issued seven outcomes of investigations that range from the suspension of licenses to company closures as well as large fines for regulatory failings, which includes Social Responsibility and Anti-Money Laundering deficiencies.
One particular operator who had its license revoked earlier this year and subsequently withdrew from the UK market was driven by “Commission officials were concerned that the funds used posed a risk to the licensing objectives, notably, preventing gambling from being a source of crime or disorder, being associated with crime or disorder, or being used to support crime.” This is a clear example of the fundamental importance of enhanced due diligence on entities and their owners/controllers for prevention of financial crime.
We are also observing a lot of activity in Malta with our clients at both the FIAU and Malta Gaming Authority who are increasing their own checks and audits on gaming companies, mainly due to the expected Moneyval audit report due later this year. The intention is to deliver a more positive position of the changing and newly shaped regulatory frameworks that Malta has been working towards for some time. It is essential for Malta as a country to be seen to be moving at pace through effective regulatory action and to be taken seriously as a country with regulatory “teeth”. Positive developments this year are that authorities are backing up their audit findings with significant fines; €568,373 in administrative penalties for firms who failed to return risk assessment questionnaires, as well as the single largest ever fine of €733,160 by the FIAU for a gaming company that was identified to have “violated 10 different provisions of the law, the FIAU said”.
Failing to return a risk assessment questionnaire to me raises many red flags, suggesting lack of understanding of the business’ operations, scope and regulatory obligations, and will likely highlight weaknesses in AML/CTF (countering of terrorist financing) policies, procedures and controls; if I were the regulator these companies would be where I would focus next.
The company that was fined ~€733K was cited as having an incorrect source of wealth screening, dealing with Sanctioned areas and inadequate monitoring controls, reflecting the seriousness and size of the fine.
Affordable and socially responsible gaming practices has been a major focus the UKGC over the past 24 months and have noted that there are just under half a million problem gamblers who have their lives damaged by debt, depression, family breakdown and, in the worst cases, suicide. The challenge for operators here has been to respond in a manner that goes beyond simply complying with a self-exclusion list and to introduce data and technologies that can automate the decisioning process in an effective and efficient process which doesn’t impact the player’s overall experience.
Recently a major gaming operator has hired the former Labour MP, Tom Watson, to advise on problem gambling which is very welcome, and hopefully, his findings and advice can benefit the industry as a whole through clearer and more insightful guidance, leading practices and the sharing of data. Clearly, this is a significant opportunity to ingrain the principles of sustainability whilst meeting social responsibilities that benefit society as a whole.
We see data and tech being a major area of development around player affordability here at ARI and we are assessing some extremely insightful data points that trigger vulnerability instantly.
On the point of sustainability and affordability, there is real concern about bottom-line costs in meeting these goals as it is becoming a thin line between meeting regulations and having a market in the UK that some operators simply will not find commercially viable. This is a real problem as many have indeed opted out of the UK due to regulatory scrutiny.
The final area I wish to focus on from our work in the field is that of fraud gangs targeting operators, “bonus” abuse now on an industrial scale, identity theft and account take-over resulting from data hacks and breaches, or scams that harvest consumers’ information. These fraud typologies have increased significantly due to so many people being at home, or being vulnerable due to fear, greed or necessity through “get rich quick schemes”.
At Acuris Risk Intelligence our fraud intelligence desk monitor and harvest data on cybercriminals that is being traded on criminal dark web forums for the sole purpose of impersonating and defrauding individuals through gaining access to bank accounts, gaming websites, stolen card details as well as other payment/remittance services. We also see the types of frauds being carried out and how criminal gangs on a global basis are reacting, and massively profiting, from scams such as saying you’re due for an HMRC COVID-19 tax refund, to real (but operational) companies defrauding the furlough schemes, or fake medicines, masks and other PPI equipment that never arrives but in the process, they have the applicant’s personal information.
The impact on an individual is perhaps obvious but never underestimate the mental stress this can create as it can take months to obtain remedy, and once your data is out there it cannot be erased. For gaming operators, this can mean unacceptable credit card chargeback schemes for fraud, which is an issue the regulator is likely to take a keen interest in.
So how do we protect consumers? We believe it must be through the combination of technology, data and dialogue. Everyone is talking about single APIs, single source of truth and this in some ways is on the right tracks, but there is no silver bullet and over time the industry will change and demand more from suppliers to help them navigate a path to sustainability. We understand this and is why we see a mix of data, tech and multiple partners as the key for what is a complex requirement, particularly when operating in multiple jurisdictions.
Furthermore, whilst I touched on the use of dark web data to protect consumers and operators, for problem gambling and social responsibility we have seen that a focus on Enhanced Due Diligence reports that incorporate a deep-dive on the person’s “source of wealth” provides real insight into a player’s affordability but should only really be used for higher-risk situations, but the incorporation of automated checks through APIs for SoW validation can also scale to other risk tiers. Additionally, partnering with other niche data vendors, for example, we work with a specialist UK company to access most of the UK’s credit application data, as well as looking at the player’s profession and analysing any gaming-specific triggers. Proactively interacting early enough and in the right way, can help someone keep control of their gambling and you will retain them as a customer, instead of them choosing to opt for a self-exclusion or closing their account entirely. In the long term, this approach is more sustainable for your business.
It's interesting to analyse this quote from the UKGC around customer profitability modelling: “We want to see you harnessing the same innovation and tools that are used to determine customer profitability, to drive customer protection. There is perhaps no better way to demonstrate a drive to raising standards than through a genuine and public commitment to meeting your social responsibilities”.
In summary, we aren’t lacking the information, technology, guidance or community to tackle these ever increasing challenges, and they should not be viewed through a lens of mandatory regulation; it is the right thing to do and ultimately, if they aren’t tackled effectively, the entire industry over the coming years will be in jeopardy.
Learn how Acuris Risk Intelligence helps companies globally meet their financial crime compliance obligations by visiting us at www.acurisriskintelligence.com