Transforming corporate culture by “driving personal accountability and responsibility” for lookers-on seeing most of the game?

White Paper Series: Transforming corporate culture by “driving personal accountability and responsibility” for lookers-on seeing most of the game?
Expert Insight provided by Bahar Alaeddini, a Partner with Harris Hagan

In the first wave of consultations following the release of the White Paper, the Gambling Commission announced plans to change licence condition 1.2.1 to “clarify and extend the roles” that trigger a requirement to hold a personal management licence (“PML”).

The key proposed changes are to extend the requirement to hold a PML to a licensee’s Board Chair and, on a case-by-case basis, to CEOs and directors of “parent companies or subsidiaries in the group”.

In this article, we consider the current requirements, the Gambling Commission’s proposals and what they will mean in practice. Before we do so, we consider the correlation of PML requirements with corporate culture.

Corporate culture
Corporate culture is not mentioned in the White Paper or consultation, but we think both the Government and the Gambling Commission would agree that culture is inextricably linked with personal responsibility and accountability.

Every decision made by gambling businesses, their Boards, PMLs and other key decision-makers must be underpinned by the licensing objectives if it is to minimise harm and help ensure the success and sustainability of the industry we cherish. There is no one-size-fits-all approach, but business leaders undoubtedly play the most important role in building a strong foundation and effective corporate culture that protects the most important asset – a gambling licence.

What is culture?

Culture is a set of behaviours and mindsets that characterise a business. As we know from our client experience, whilst there are commonalities, the culture of every gambling business is individual.

Why is it important?

Business leaders are generally expected to manage the drivers of behaviour to create and maintain culture. In sophisticated regulated industries, the regulator is also considered to play an important role given its central position, unique viewpoint and often a desire to drive change.

Who needs a PML currently?
Under licence condition 1.2.1, any person responsible for a “specified management office” (see licence condition 1.2.1(2)) must hold a PML. The purpose of this requirement is to ensure individuals with certain responsibility are suitable, which is checked every 5 years (not, “renewed” as the Gambling Commission incorrectly states because PMLs are indefinite in duration!).

“Management office” is defined in section 80(5) of the Gambling Act 2005 as:

the “office of director” (where the licensee is a company); and
any position where the appointment terms require the person “to take or share responsibility for”:
“the conduct of a person who performs an operational function [see section 80(6)] in connection with a licensed activity”; or
“facilitating or ensuring compliance with terms or conditions of the operating licence”.

What are the proposed changes?
The Gambling Commission proposes to:

make clear that the person responsible for “overall management and direction of the licensee’s business or affairs” (which triggers a PML requirement) “is likely to be the CEO, MD or equivalent”;
require the person “chairing the Board (where the licensee has such a body)” to hold a PML (note: this does not mean you need to appoint a Chair and it specifically refers to the licensee rather than a parent company);
make it clearer that those responsible for AML and CTF, including the Money Laundering Reporting Officer and Nominated Officer, need to hold a PML; and
assess, on a case-by-case basis, whether CEOs and directors of “parent companies or subsidiaries in the group” need to hold PMLs too.

Why is it changing?
The consultation was very clear on this; the Gambling Commission is “concerned” by the number of enforcement cases and repeated failures by the same licensee.

Individuals make decisions, and, therefore, these individuals will determine whether or not a gambling business is compliant. These proposals therefore come as no surprise. They are a blunt instrument for, firstly, “driving personal accountability and responsibility” and, secondly, ensuring the Gambling Commission has “adequate regulatory reach over individuals when failures are found”.

From our extensive enforcement work, both for gambling businesses and PMLs, the Gambling Commission has a mounting focus on identifying who (generally within senior and executive management) was responsible for failures. “Responsibility” could mean day to day responsibility or executive responsibility, but in our experience, not enough consideration is given by gambling businesses or the Gambling Commission – outside enforcement action – to mapping out individuals’ responsibilities (in full or shared) and considering governance and control.

In principle, it seems to us that the Gambling Commission is striking the right balance with these proposals, particularly with the requirement that Chairs must hold PMLs. Increasing the number of PMLs, particularly at a senior level, will drive personal accountability and responsibility, and thereby hopefully enhance the corporate culture.

By personally licensing the Chair of the Board, the Gambling Commission will “ensure that those responsible for scrutiny, strategy and leadership at the most senior level within the organisation” will improve Board focus on, and accountability for, the licensing objectives and encouraging them to set the tone from the top and lead a culture of compliance.

It is worth noting, the Gambling Commission could have proposed that each member of a licensee’s Board hold a PML. Whilst it did consider this option, it decided it would have unintended consequences of diluting accountability and making it harder to take enforcement action.

Implementation issues, timelines and practicalities
Question 106 of the consultation requested feedback about implementation issues, timelines and practicalities. Unpicking the proposals, we make the following initial observations:

Will there be a grandfathering period?
How will the new Chair and potential director PML requirements be applied to large multinational gambling businesses? Will it extend to the Chair of a parent company? Based on the current wording, this seems unlikely, but clarity is required.
Although not expressly mentioned, it seems clear to us that the requirement as presently drafted applies to both Executive and Non-Executive Chairs.
Will Part III of the LCCP, setting out the personal licence conditions for PMLs, remain unchanged? Or will the Gambling Commission use this is an opportunity to set an enhanced standard of conduct for a Chair or business leader?
Will there be a delineation between the responsibilities of Board members’ holding PMLs and others?

The word count of this article has been reduced for the IAGA website. If you would like to read the full version, it is available here: White Paper Series: Transforming corporate culture by “driving personal accountability and responsibility” for lookers-on seeing most of the game?