On 23 August 2018, the Gambling Commission (the “Commission”) announced that it had reached a regulatory settlement with Camelot in respect of weaknesses in its control and governance measures. The settlement required Camelot to pay £1.15m and offers further proof of the Commission’s stringent enforcement policy and follows recent high profile settlements. The full statement from the Commission can be found here.

The investigation

The Commission launched its investigation into Camelot’s compliance with the conditions of the National Lottery licence (granted pursuant to section 5 of the National Lottery Act 1993) (the “National Lottery Licence”) on 7 December 2016 following reports of control and governance failings (the “Investigation”). The National Lottery Licence can be accessed here.

After initially identifying Camelot’s failings, the Commission took the decision to put its Investigation on hold to allow Camelot to focus its efforts and resources on implementing solutions to address concerns raised. The serious nature of Camelot’s breaches appears central to the decision to suspend the Investigation. However, none of the Gambling Act 2005, the Licence Conditions and Codes of Practice or the Commission’s Licensing, Compliance and Enforcement policy statement provide for the suspension of an investigation. Based on previous public statements by the Commission it appears to be the first time that such a step has been taken. The Commission did not suspend the National Lottery Licence in parallel to suspending the Investigation.

In response to the Investigation, in December 2016, Camelot developed a programme of activity it called the ‘Operational Excellence Programme’ (the “OEP”). Additionally, in February 2017, the Commission directed Camelot to conduct a Board Effectiveness Review (“BER”) using its powers under Condition 17 of the National Lottery Licence.

In November 2017, once the OEP and BER were sufficiently progressed, the Investigation was resumed and the Commission went on to conduct a review of other control related failings that had emerged since the start of the Investigation.

The Commission’s findings

The Commission identified the following control related matters that were sufficiently serious to warrant the imposition of a penalty package:

  1. an incomplete results page on the National Lottery website in respect of a Lotto Olympic medal prize promotion;

  2. incorrect prize outcome messages or incorrect QR scanner results being sent to holders of a winning ticket through Camelot's mobile app;

  3. failure to process certain direct debit instructions;

  4. inadequate measures in respect of information security and physical security;

  5. a lack of a service agreement with the Post Office, which pays out prizes on behalf of the National Lottery; and

  6. failure to report Key Licensee Subcontracts (as defined in the National Lottery Licence).

As a result of the above, Camelot was found to be in breach of the following conditions of the National Lottery Licence (see the National Lottery Licence for all definitions):

  • Condition 5.1: The Licensee shall ensure that at all times its running of the National Lottery is Fit for Purpose.

  • Condition 5.10A(b): The Licensee shall ensure that all processes and procedures are Fit for Purpose.

  • Condition 5.15(a): The Licensee shall ensure the security of all equipment, systems, data, ticket materials and other consumables used in connection with the National Lottery and any Constituent Lottery and all proceeds arising from any Constituent Lottery and Ancillary Activity so as to minimise opportunities for theft, fraud or misuse.

  • Condition 5.17: The Licensee shall ensure that any data and other information relating to any Constituent Lottery cannot be accessed, read, added to, removed or altered by unauthorised persons

  • Condition 5.20(b): The Licensee shall ensure that an appropriate level of security is maintained in or over Secure Areas.

  • Condition 7.42: The Licensee shall ensure that material to enable a Player to play in a Constituent Lottery is accurate, does not mislead players and is compatible with the terms and conditions, rules, procedures and game specific rules of the Constituent Lottery.

  • Condition 10.4(c): The Licensee shall establish and keep up to date on a monthly basis a register of Key Licensee Subcontracts.

  • Condition 10.9(a): The Licensee shall provide secure accommodation for the exclusive use of Commission Staff at the Licensee’s head office or at such other location as the Commission shall specify.

  • Condition 12.4(a)(iii): The Licensee shall not allow any person to become a party to any Key Licensee Subcontract without the prior consent of the Commission.

  • Condition 15.15(a): Every Licensee Subcontract, Series Subcontract and Sub Series Subcontract shall contain such provisions to enable the Licensee to fulfil its obligations under and comply with the Licence.

Camelot was also found to have committed a further ten licence condition breaches, but the Commission did not require further action having considered Camelot’s positive response to the Investigation.

The penalty package

Camelot accepted all breaches identified in the Investigation and agreed, as part of the regulatory settlement with the Commission, to contribute £1.15m to its ‘good causes’ scheme in lieu of a financial penalty. In addition, Camelot provided voluntary undertakings in respect of the Post Office, Key Licensee Subcontracts and information and physical security issues. This penalty package follows previous penalties imposed by the Commission against Camelot, including:

  1. a £3 million penalty package in December 2016 for failings in respect of a potential fraudulent National Lottery prize claim and payment (which occurred in 2009);

  2. a £300,000 financial penalty in July 2016 following the publication of inaccurate Lotto Millionaire Raffle results (on 10 October 2015); and

  3. a £100,000 financial penalty in August 2014 following the initial miscalculation and subsequent communication and publication of an incorrect National Lottery Lotto jackpot prize (in October 2013).

In a public statement following the Commission’s announcement, Camelot said that it had carried out an extensive programme to strengthen its controls, processes and governance arrangements.