Customers are at the heart of every operator’s business. New measures are frequently being introduced to enhance their safety. One such example is financial risk checks, which are gradually becoming the norm.
However, while being well-intentioned, they are still viewed as intrusive by some. This could backfire by pushing players towards the black market.
Ahead of his visit to SBC Summit Lisbon, David Foster, Group Director of International Regulatory Affairs at Entain, discusses the unintentional fallout of financial risk checks and what can be done to avoid overregulation.
SBC News: Thanks for speaking with us, David. Firstly, we’re seeing financial risk checks and similar measures rolled out in some key jurisdictions – how far away are we from these becoming the norm across global regulated markets?
David Foster: It is fair to say that financial risk checks are becoming increasingly common in regulated markets, particularly in Europe. However, the types of checks being put in place, and the manner they are implemented, varies considerably, so we are quite a way from having common standards in this area. This is understandable, since every justification is different and needs to consider the local market realities when developing regulations.
However, where we do need to see greater consistency is around the need for the key principles of good policy making to be adhered to. Regulators should always be focused on making sure that rules are targeted, proportionate, effective, evidence-based and developed in collaboration with the industry.
How closely has Entain been watching the development and rollout of financial risk assessments in key markets like Britain and the Netherlands?
Very closely – Britain is obviously a very important market for Entain Group, as is the Netherlands.
In Britain, the major operators have just finished a trial with the Gambling Commission and Credit Reference Agencies to model financial risk assessments. These assessments are meant to be frictionless to the customer, as they won’t have to submit personal financial documents.
The Commission is evaluating the pilot and it’s essential that checks must be genuinely frictionless to prevent pushing players in the unregulated market. In the interim, we have adopted a more pragmatic approach with the Commission. The voluntary industry code, coordinated by the BGC, has also helped to level the playing field amongst operators and provide welcome clarity on customer checks. The Commission see the benefits of the voluntary code and we continue to work closely with the Commission on the Financial Risk Assessments.
The same can unfortunately not be said for the Netherlands. The checks imposed in October 2024 have not gone smoothly for operators, players or indeed the regulator. There is still a lack of clarity which means that there is a lack of horizontal consistency across operators in how the checks are managed, which is not sustainable. Worryingly the introduction of the checks has coincided with a major fall in channelling rates in the Netherlands. The KSA itself has acknowledged that the unregulated market now exceeds the regulated market in terms of overall GGR.
This creates a paradoxical situation whereby a policy – specifically designed to protect players – has actually had the opposite effect. I hope that the industry and the KSA can come together to find a workable solution which genuinely protects players while not being so intrusive that it drives them into the arms of unregulated black-market operators.
As Entain is active in both of these markets, what have you learned about the potential impact of financial risk checks?
Our key takeaway from our experiences across these markets, as well as the likes of Germany, is that if checks are not approached thoughtfully and with proper consideration of impacts, they can have unintended and detrimental implications for the market. Players vote with their feet, and if the checks are too intrusive, complex or burdensome, they will seek alternatives elsewhere. The problem is compounded when you consider the fact that the players most likely to seek out unregulated offers are often those that are potentially at most risk of encountering gambling harms.
There were a lot of concerns that affordability checks could drive players to the black market. Now that financial risk checks are being rolled out, are these fears being realised or are they being soothed?
Unfortunately, the evidence is hard to dispute. In the Netherlands and Germany, where financial limits have been imposed, we see the black market thriving. Whilst other factors such as tax and product restrictions also play a role in dictating consumer demand, spending limits are without doubt a key driver of this shift.
In the Netherlands, the KSA has stated that despite more than 90% of players using regulated offerings, this equates to only 49% of GGR. This drop has directly coincided with the introduction of financial limits. We also saw a similar pattern in Sweden during Covid when the Government introduced temporary spending caps there, so this is not an isolated example.
Why is the illegal market such a problem? Is the threat of it being overstated?
I feel like the issue of the black market has actually been underplayed in the past. Too often the threat of illegal and unregulated gambling was dismissed as something nebulous or abstract. However, thankfully there are signs that these attitudes are slowly changing as more and more stakeholders become aware of the serious threats that the black market poses.
This can be seen in some of the activity being undertaken across markets in Europe and the US, where regulatory bodies are asking tougher questions and scrutinising the activity of industry players more closely.
The threat of the black market cannot be overstated. It fuels organised crime and facilitates money-laundering and even the financing of terrorism. It provides fertile ground for match-fixers to corrupt sports away from the oversight of regulators, sports bodies or law enforcement. It robs Governments of tax money for operating public services, and it exposes vulnerable customers to harm due to the lack of player protection measures.
What can be done to tackle the black market?
Whilst there is no silver bullet solution, there are plenty of things which – done in conjunction – can and will dramatically reduce the size of the black market. Indeed, Entain commissioned a study with Regulus Partners last year that delved into this very question in considerable detail.
First and foremost, regulatory frameworks need to be attractive for operators and players alike. Regimes that have reasonable levels of tax, broad product offerings and proportionate restrictions encourage operators to acquire licences and allow them to offer players attractive and competitive experiences. Where this is not the case, black market operators prevail because they avoid tax and compliance requirements, whilst being able to aggressively advertise and offer huge bonuses.
From an enforcement perspective, I would like to see more jurisdictions exploring financial transaction blocking options. Such methods have been effective in markets like Norway and Hungary and encouragingly other markets are looking at similar options.
Aside from that, more rigorous enforcement against content suppliers, affiliates and payment providers – perhaps through licensing – will help to suffocate unregulated operators. Similarly, big tech companies – through app stores and search engines – also have a crucial role to play and I am encouraged to see them taking more responsibility in several markets when it comes to the content they carry. These are just a few of the options that can have a big impact in tackling black market operations.
You’ve seen a lot of markets and regulatory approaches in your career. In your view, how can the industry best walk the thin line between player protection and overregulation?
This is the age-old question!
For me, the starting point is for policy makers to genuinely want to strike that balance, rather than succumbing to external pressures as is often the case. Political expediency often obscures the principles of good policy making and leads to overregulation. This continues to be a challenge for our industry. The more we can earn back trust and strengthen our relationships with policy makers and regulators, the more likely we are to get a fair hearing.
Beyond that, I think it is important not to rush when developing regulations and to thoroughly consider the potential impacts and second order effects of regulatory changes. This involves having an evidence-led approach which is developed in consultation with the industry. It also means being pragmatic and not being afraid to review or change things if mistakes are identified.
You’ll be attending SBC Summit Lisbon later in September. What makes this a good educational opportunity for attendees, in your eyes?
For me, the wide array of panellists, experts and delegates means that there is something for everyone at the SBC Summit, no matter what your area of focus is. There are always plenty of learning opportunities and, in an industry that moves as quickly as ours, it’s important to keep your finger on the pulse and stay up to speed with the latest developments.
SBC Summit will take place from 16–18 September at the Feira Internacional de Lisboa and MEO Arena, bringing together 30,000 industry stakeholders for an unmissable three-day experience.
Get your ticket to SBC Summit.