Consultation Response on proposed changes related to financial penalties – Understanding the Seven Steps Behind Gambling Commission’s Penalties

Below, Stephen Spencer, former ‘Head of Forensic Accounting’ for the UK Gambling Commission, Consultant for Luke ARC and leading expert on regulatory settlements, breaks down the Commissions recent consultation response.

By Stephen Spencer

The Gambling Commission’s refreshed Statement of Principles for Determining Financial Penalties will come into effect on 10 October 2025 and offers a newly structured and more transparent framework for calculating financial penalties under the Gambling Act 2005 (or a payment in lieu of a financial penalty as part of a regulatory settlement). This is more than just an update; it’s a move towards making the decision-making process clearer.

What will be coming into effect is a newly defined seven-step process which comprises two elements, ‘Disgorgement’ and ‘Penal’. Within the Penal element is the most significant shift, the introduction of five levels of seriousness, each directly informing the starting point of the financial penalty, typically calculated as a percentage of the licensee’s Gross Gambling Yield (GGY).

Disgorgement element – step 1

Before diving into the larger Penal Element, the Commission first considers if it can accurately identify the financial detriment suffered by customers and/or the financial gain derived directly from the breach.

• If this can be accurately calculated that amount forms the disgorgement element and will be added to the financial penalty amount.
• If a disgorgement element cannot be reasonably accurately identified, then the disgorgement element is nil. However, this has the consequence that the number of customers effected and financial gain influences the seriousness assessment in the Penal element.

Without jumping ahead to far in this article, it may be in the interest of operators to assess this during the early stages of enforcement action as it could positively influence the assessment of seriousness and contribute to mitigating factors as set out in the Penal element.

In historic examples under current process which Luke ARC have witnessed, it is often the case where non-compliances related to customers who were making minimal losses or were in fact winning, the Commission has stated they could not calculate the profit via non-compliance. In many cases, there are operators who do not necessarily profit due to non-compliance, however their procedures do not align correctly to the LCCP or related guidance.

Penal element – steps 2 to 7

Step 2 – Seriousness and starting point

Step 2 assesses the seriousness and uses this to set up the starting point for the financial penalty.

To asses the seriousness the Commission has set out 25 non-exhaustive considerations which it will use to make a judgement on the level of seriousness. The considerations are broadly covered by:

• scale, duration, and recklessness of the breach;
• Impact on the Licensing Objectives, vulnerable consumers and the general public;
• Involvement of senior management and boards; and
• Attempts to conceal or ignore the breach.

Out the back of the Commission’s judgement pops a level of seriousness which is rated on a five-point scale, from Level 1 (least serious where the impact is low, the breach is small in scale and controls/procedures were largely effective) to Level 5 (most serious where the impact is very serious, the breaches are widespread across the Licensee with deliberate intent and there are serious weaknesses in controls and procedures).

Looking at previous enforcement action, breaching the Anti-money laundering licence conditions (12.1.1 and 12.1.2) or non-compliance with Social Responsibility Code Provisions 3.4 (Customer interactions) and 3.9 (Identification of individual customers) are unlikely to be viewed as “low” or “limited” threats because of their impact on the licencing objectives, consumers and general public.

Looking at the new statement of principles, Licensee’s will move up through the seriousness levels where factors like multiple breaches of these conditions occur and are over protracted periods of time. In these instances, we have seen that it is difficult to get away from the view that the failures are systemic and brings in the involvement of middle/senior management and the board. Once the senior team are evidenced as being aware of these types of failures, licensees will be entering into the territory of governance failings, poor ethical conduct and breaches with deliberate intent, features of level 5 seriousness and issues that bring a high probability of individual PML reviews.

Of course ignorance will not be an excuse, as relevant PML holders and senior leadership should maintain assurance and oversight of all regulatory requirements, as has always been the case.

Using the seriousness rating, the Commission applies a percentage of GGY from the breach period to set the baseline financial penalty:

Seriousness Level	Percentage of GGY
Level 1	0% – 0.99%
Level 2	1% – 2.99%
Level 3	3% – 4.99%
Level 4	5% – 9.99%
Level 5	10% – 15% (or higher in exceptional cases with rational)

The Commission accepts in some circumstances GGY will not be an appropriate starting point, with examples given such as business models not reliant on GGY such as white labels PFL/PML holders, cases relating to society lotteries or external lottery managers.

Step 3: Mitigating and Aggravating Factors

Once the base financial penalty is set, additional adjustments up and down follow reflecting how the licensee handled the breach.

The Commission has provided a non-exhaustive list of aggravating examples which appear to be consistent with historical aggravating factors such as repeated breaches, failure to act or take action at pace and concealment. What is new is the identification of illegal market activity.

Similarly, mitigating examples are reflective of previously identified mitigations, voluntary disclosure, cooperation and proactive remediation.

Step 4: Deterrence Adjustment

To make non-compliance costlier than compliance, further uplifts may be judged and applied. This is not new and is used as a mechanism to maintain standards in the industry and remind operators that there is a continuous expectation for Licensees to be compliant and be effectively implementing AML and social responsibility policies and procedures.

Step 5: Discount for Early Resolution

Licensees that quickly own up and cooperate leading to early investigation resolution may receive up to a 30% discount, especially if admissions are made within 28 days of the Commission’s findings.

Step 6: Affordability Check

At this point any disgorgement element calculated at step 1 is added to the adjusted penal element to give a total penalty amount. This amount should not be at a level that causes the Licensee significant financial hardship or its ability to continue trading.

Accordingly, the Commission will examine financial information regarding the resources of the Licensee, any parent companies or the ultimate beneficial owner. If sufficient information is not provided the Commission will conclude that the total penalty amount is appropriate, so it is important to accurately and efficiently articulate the full and frank financial position of the business, group or ultimate beneficial owner.

Interestingly, where the penalty is adjusted for affordability both the pre and post affordability adjusted penalty will be set out in the sanctions register and any other publication. Historically, initially proposed penalties have not been made public and in some cases, in the background, we have seen reasonable reductions on fines due to affordability.

Step 7: Final Proportionality Review

Whilst not in the consultation, the outcome has resulted in a new final closing step being introduced where a final adjustment can be made through a judgement to ensure the penalty is proportionate in all the circumstances. Only time will tell how this step is applied, but if affordability played a part in the assessment providing an upper limit for the penalty then it is unlikely that an upward adjustment will be applied and if it would have been whether it is publicised.

If you have any questions about the seven-step financial penalty process, the current process, or would like to speak about your internal policies/procedures, their implementation or your governance set up please feel free to reach out to Stephen@LukeARC.com.

Luke ARC are leading experts in every step of the UK Gambling Commissions Compliance and Enforcement process and are here to help so email for a free consultation.