Jersey Gambling Commission: 2011 Annual Report and Accounts.

2011

Annual Report & Accounts

CONTENTS

Chairman's Statement ......................................................................................................................... 3

The Commission's Developments......................................................................................................... 4 Legislative Developments......................................................................................................................................................................... 4 Relationship with Government and Partnership Agreement with the Economic Development Department .... 4 Our Values ....................................................................................................................................................................................................... 5

Our Strategic Aims ....................................................................................................................................................................................... 5

The Board ............................................................................................................................................ 6 The  Executive....................................................................................................................................... 7 Approach  to  Regulation ....................................................................................................................... 8

Anti Money Laundering /Combating the Financing of Terrorism .......................................................... 9 Terrestrial Commercial Industry .......................................................................................................................................................... 9 E-­gaming .......................................................................................................................................................................................................... 9

Licensing  and  Regulatory  Activity ....................................................................................................... 10 The  Social  Responsibility  Panel .......................................................................................................... 11

Objectives ......................................................................................................................................................................................................11 Reporting Procedures ..............................................................................................................................................................................11 Priorities ........................................................................................................................................................................................................11 Industry Support ........................................................................................................................................................................................11

Financial Statements.......................................................................................................................... 12 Financial Commentary .............................................................................................................................................................................12

Independent Auditor's Report to the Minister for Economic Development ........................................ 13 Respective responsibilities of Commissioners and independent auditors .......................................................................13 Scope of the audit of the financial statements ...............................................................................................................................13 Opinion on the financial statements ..................................................................................................................................................13 Statement of the Commission's Responsibilities ..........................................................................................................................14

Income  and  Expenditure  Accounts ..................................................................................................... 15 Balance  Sheet  as  at  31  December  2011 .............................................................................................. 16 Cash  Flow  Statement ......................................................................................................................... 17 Notes  to  the  Financial  Statements ..................................................................................................... 18

Chairman's  Statement

I am delighted to introduce this, the first annual report of the Jersey Gambling Commission (JGC). Since being appointed in shadow form in July 2006, the JGC has been busy and it is worth reflecting briefly on this period. Using the data received from its three public consultations (broadening the industry, regulatory principles and harm reduction), the Commission has provided advice and guidance to the Minister regarding legislative reform, formed a Jersey Bookmaker's Liaison Group to prepare the industry for change and liaised with regulatory colleagues both in Jersey and further afield to ensure that the JGC would be known and respected on the international stage.

In 2007 the JGC assisted the Economic Development Department (EDD) with its research and policy formulation on internet gambling, culminating in the successful debate establishing the Internet Gambling (Disaster Recovery) (Jersey) Regulations 2008. These regulations allowed for the licensing of dedicated hosting providers and were the first genuine reform of the Island's gambling legislation for forty years. In March of last year these Regulations were amended to provide for a full e-gambling licensing regime. Legislative change also took place in other areas. In 2009, the States passed a significant amendment to the Gaming Machines Regulations and, in 2010, fees were raised for the first time in over ten years. This was an important step, reflecting the Minister's statement to the Assembly that the Commission would become self-funding over a period of years.

Royal Assent was granted to the Gambling Commission (Jersey) Law in 2010 and the JGC formally came into being as a statutory body on 3rd September 2010. As part of the transitional provisions, EDD

staff who had worked on gambling regulatory matters were offered the choice of transferring full-time to the Commission and I am delighted to say that they all accepted, moving across to the Commission on 3rd October, but continuing to assist their colleagues in EDD until the end of that year. The Commission is now totally independent, with it's own budget, staff and responsibilities. I would also like to give my formal thanks to Jenny Turner for all the hard work and commitment that she gave to the JGC while it operated in shadow form and wish her a pleasant and well deserved retirement.

A new Gambling (Jersey) Law was presented to the States and approved in July 2011 and now awaits Royal Assent. The JGC is working with the Law Draftsman to update the Regulations, which should be presented to the States later this year. If approved the new Law and Regulations will then be brought into force together under an Appointed Day Act. To that end, 2012/13 will be a period of great change, both for the Commission and the Island.

Change can sometimes be difficult to accept and get used to, but I look forward to a less bureaucratic regime and more targeted risk-based regulation as a consequence of what is a considered and pragmatic set of reforms. The JGC is well able to cope with a new regime and indeed welcomes it, but whatever happens, we will continue to regulate the industry according to the key licensing principles incorporated into the Commission Law and use our judgement and best endeavours to be firm but fair, open and accessible, realistic and proportionate.

Graham White, OBE Chairman

The  Commission's  Developments

Legislative  Developments

The JGC has been working with Economic Development and the Law Draftsman for several years on reform of the Island's gambling legislation. In March 2011 the States approved the Minister's Proposition 199, which amended the former Gambling (Remote Gambling Disaster Recovery) (Jersey) Regulations 2008. These amendments empower the Commission to accept applications for full e-gaming licences and undertake the required due diligence. Reaction to the new Regulation has been positive and the Commission is currently processing its first application under the new regime.

As part of the requirements of the Law, the Minister has a duty to direct by Order how the Commission should consult on Codes of Practice and more generally. The Minister made such an Order and it came into force 25th October 2011. The Commission recognises this move to a regime regulated by flexible and dynamic codes brings an important change in emphasis, from criminal liability for even the smallest breach,  to  the  adoption  of  regulatory  sanctions  for  administrative  and  minor  breaches  of  licensing conditions. This is a positive step and reflects the view of the Commission that criminal sanction should be a last resort for what is a largely compliant industry.

The new Regulations required to bring the draft Gambling Law into force are also being produced, and this will be the final legislative change to modernise and update the current 1960s legislation.

The Commission undertook three public consultations on the future of gambling and has used the information gathered to form its recommendation to government, but it is the Minister, and not the Commission that ultimately decides on public policy. That said, the Minister has proposed and the Commission supports a set of legislation that makes allowances for different levels of regulatory oversight, that brings consistency and proportionality and which, as far as is possible, is not specific to one particular type of gambling. In this way the final set of legislation should be less likely to need regular minor modifications.

Relationship  with  Government  and  Partnership  Agreement  with  the  Economic Development  Department

The Commission's relationship with the States is governed by a Partnership Agreement agreed between the Minister and the Board and signed in December 2010. The Agreement notes the role and objectives of the Commission and provides for up to three formal meetings per year between the Minister and his officials and the Board. Although the States approved a five-year transition for the JGC to financial self- sufficiency, the economic downturn and the resultant comprehensive spending review meant that funding was reassessed. The Minister thus provided the Commission with a grant in 2011 of £119,000 to cover staff costs and has also allowed the Commission Executive to maintain their former offices within the Department. This is of mutual benefit as it has reduced the operating expenditure of the Commission while allowing for continued cross-over of knowledge in the legacy areas previously managed by Commission staff.

The Department has provided the Commission with a grant of £38,600 for 2012. The Commission carries a cash surplus going forward, but this is deferred income for the following year. Unless there is a significant and on-going increase in licensing fees during the year, this level of grant will result in an operating deficit for 2012. This will be addressed as part of the formal meetings noted above. The current Partnership Agreement will lapse with the cessation of public funding in December 2012.

The Commission also acts as an adviser to the Minister and Jersey Government on gambling matters. Perhaps the most pressing issue of dialogue has been with regard to access to the UK remote gambling market, a process known colloquially as White Listing'. Although both the Isle of Man and Alderney were added to the UK White List at inception in 2007, Jersey had not then completed its legislative reviews and was unable to apply. The JGC has and will continue to work with the Jersey Government to redress this imbalance and ensure that the Island's regulatory regime is recognised for its equivalence with that expected by the UK and internationally.

Our  Values

The JGC will work with diligence and integrity in line with its core principles. To that end we will:

• regulate in accordance with generally accepted international standards to prevent fraud and money laundering, and prevent gambling being permitted to be a source of crime;

• ensure products and services licensed by the Commission are verifiably fair to consumers of those services; and

• ensure licensees act responsibly and implement safeguards necessary to protect children and vulnerable people.

Our  Strategic  Aims

The JGC gears itself towards fulfilling five core aims:

• To protect consumers, the young and the vulnerable;

• To regulate fairly and responsibly in a manner proportionate to the sector;

• To recommend when gambling legislation needs updating and is kept fit for purpose;

• To advise Ministers and government on all matters relating to gambling and gambling regulation;

• To ensure that the Commission works to support government policy, defends the Island's reputation and the commitment to economic diversification.

The Board

GRAHAM WHITE

After 17 years as an Officer in the Army, Graham joined the Gaming Board for Great Britain in 1983. In 1996 he became Chief Inspector, a post he held until  2005.  Graham  was  Co-chair  of  the  Technical  Working  Group  of European Regulators; Member of the Financial Fraud Information Network and the Joint Action Group on Organised Crime, and visiting lecturer to the Universities of Las Vegas and Salford on gaming legislation.

He is a past trustee of the Gordon Moody Association, an organisation that provides residential treatment for addicts and was Chairman of Responsible Play,  (now  Gambling  Therapy). He  is  currently  working  with  the  Royal College  of  General  Practitioners  on  a  programme  in  how  to  recognise problem  gamblers.   In  January  2006  Graham  was  appointed  as  Special Adviser on Gambling Regulation and asked to Chair the then shadow Board. Formally appointed by the States, Graham's term of office lasts until 2015.

PETER CRUICKSHANK

Peter joined the Westminster Bank in 1968, leaving in 1972 to join Kirkland Whittaker (CI) as a currency dealer becoming Chief Dealer in 1979. In 1984 he  moved  to  establish  CI  Money  Brokers  Jersey  &  Guernsey,  the  first independent  Jersey  and  Guernsey  money  broking  business  and  which became the largest and most successful money broking group in the Channel Islands. Peter remained as Chairman of CI Money Brokers until 2001.

Between 1990 and 1992 Peter was Secretary of the London Sterling Brokers Association,  representing  the  Association  in  dealings  with  the  Bank  of England  Money  Markets  Division  and  he  has  also  held  a  number  of directorships. A Member of the States appointed Public Lotteries Board since 1977, Peter is also an accredited Jersey Heritage guide for offshore towers. Peter's appointment was confirmed by the States and lasts until 2015.

JEREMY ARNOLD

Jeremy has been a career accountant, working for Touche, Ross in Sydney and San Francisco before joining Arthur Andersen in London. He became a partner in 1974 and transferred to the Toronto Office in 1976 where he ran the audit practice for 13 years. His other work experience within the Firm has been  in  practice  management,  training  and  quality  control. In  1989,  he moved back to Europe to work in the Brussels Office until his retirement in 1994.

Since retirement, Jeremy has spent his time on projects, which has involved considerable time in the Middle East. He also has a number of non-executive directorships. Jeremy  was  appointed  a  shadow  Commissioner  by  the Minister for Economic Development in 2006 and confirmed by the States in 2010. His term lasts until 2015.

The  Executive

JASON LANE

Jason  joined  the  Jersey  civil  service  in  1999. Progressing  from  the  Chief Ministers Department where he worked in the strategic and business planning team, Jason became Gambling Controller in 2001. As part of governmental reforms in 2003 that department became part of the newly formed Economic Development Department (EDD) and Jason took responsibility for most of the Department's regulatory functions as Director of Regulatory Services. Jason became Chief Executive of the Jersey Gambling Commission on its inception in 2010.

Jason has degrees in Politics, International Relations and a PhD in Policing. He is a Board Member of the Gaming Regulators European Forum (GREF), Co- Chair of the GREF working group on technical issues, an active participant in the IAGR e-gaming working group and a member of the International Masters of Gaming Law.

DAVID EVANS

David worked in intelligence units of the Occupational Pensions Regulator and Financial Services Authority before joining the Inspectorate of the Gaming Board for Great Britain (latterly the Gambling Commission) as Inspector (Intelligence & Operations) in 2001. David was the Money Laundering Reporting Officer for the Board/Commission; he also represented the Gaming Board on the Financial Fraud Information Network.

In 2006 he joined the Jersey Civil Service as Legal and Intelligence Manager within the Regulatory Services division of EDD. Joining the JGC at inception, he has responsibility for probity investigations on applicants for gambling licences, together with the production of guidance and Codes of Practice for the regulated sector. David has represented the JGC on the States of Jersey Anti-Money Laundering/Counter Terrorist Financing Strategy Group and is Secretary of the Social Responsibility Panel.

MARIO SETUBAL

Mario joined the then States of Jersey Computer Services Department in 1996 before moving in 1998 to Jersey Post as a systems developer. In 2000 he moved  into  the  private  sector,  joining  Kleinwort  Benson  Jersey  as  senior systems developer, a post he held until 2006. Joining EDD, Mario became Technical & Compliance Manager, working on a number of technical projects.

In 2010 Mario elected to transfer to the JGC and is currently updating and developing  the  Commission's  technical  standards,  and  relevant  codes  of practice,  as  well  as  overseeing  regulatory  compliance  within  the  Island's bookmakers.   He  also  maintains  the  Commission's  web  site  and  the Commission's IT infrastructure.

Approach  to  Regulation

The Commission will at all times be a proactive and responsive regulatory agency, acting reasonably in discharging its powers and ensuring compliance with its core responsibilities under the Law. The Commission will always seek to achieve non-intrusive and voluntary compliance with regulatory requirements in line with its duty under the Law to not impose unnecessary burdens. Licensees and applicants are therefore encouraged to volunteer matters that may be of interest to the regulator and will be assessed according to the level of voluntary compliance and the seriousness of the issue on a case by case basis.

The Commission recognizes that the industry is innovative and dynamic and consequently keeps an open door' approach with its licensees and with technical and other experts in the wider industry to ensure that the JGC is at the forefront in its capacity to deal with and accommodate change. As part of this process, the Executive will liaise with allied regulators, both in the Island and overseas in order to ensure that Jersey helps to develop international best practice in gambling regulation and, importantly, with regard to social responsibility.

The need to ensure that Jersey is seen as a good neighbour and is cognizant of the small but important impact of addiction on players is one taken most seriously. The Commission has established a Social Responsibility Panel and a specialized Fund exists to which all licensees are invited to contribute. Jersey has a statutory levy that can be mandatorily applied in the event that the needs of the Fund are not met by donation.

In line with its belief that communication should be open and proactive, a Jersey Bookmakers Liaison Group has been established. All licensed bookmakers are members by virtue of their licence and meetings are held biannually or by request. The Commission believes that this arrangement has been extremely positive and worthwhile and would welcome a similar group for other sectors.

As the likelihood of further legislative change draws near, the Commission would like to put on record its preference for a risk-based approach to licensing and regulation. This needs to apply across all sectors, but should be particularly beneficial for the non-commercial sector. The current level of detail required for the majority of the charitable and social sector is burdensome and unnecessary, while the parameters of operation are likewise too broad to cover arrangements ranging from a 20p per ticket raffle to lotteries generating hundreds of thousands of pounds. The Commission thus expects to reduce bureaucracy and costs for small-scale social events, but wishes to see enhanced risk-based regulation for commercial operations.

Anti  Money  Laundering  /Combating  the  Financing  of  Terrorism

Terrestrial  Commercial  Industry

In 2008 the then shadow Gambling Commission in collaboration with the Joint Financial Crimes Unit presented to the Jersey Bookmakers Liaison Group the Anti-Money Laundering Code of Conduct for Licensed Betting Offices. The Code was voluntarily adopted and is still in place, however it does require revision to reflect the statutory establishment of the JGC.

The Commission will also progress discussions with the officials from the Joint Financial Crimes Unit in regard to securing Enhanced Due Diligence for key individuals involved with e-gaming applications particularly, but also more widely when the new Gambling Law comes into force. The Unit believes that it is possible to undertake broader search criteria for those identified persons, but a process and scale of cost is yet to be determined.

E-­gaming

As well as the detailed requirements of the Jersey Gambling Commission Law and remote gambling regulations, e-gambling operators are also subject to other legislation. In line with Financial Action Task Force recommendations and compliance prior to the IMF review of Jersey's regulatory standards in October / November 2008, the business of operating an online casino was included within the Money Laundering (Jersey) Order 2008.

Identification measures apply where a person carries on the business of operating an online casino, and they must register under the Supervisory Bodies (Jersey) Law 2008 and pass a fit and proper assessment. Unlike many jurisdictions, AML/CFT requirements apply to any activity conducted by a company that is incorporated in Jersey and which conducts activities anywhere in the world.

Subject to future amendment of the Order, the JFSC is the current designated supervisory body for the business of operating a casino[1], but it is likely this function will be transferred to the JGC in due course. In the meantime, the JGC will work with the JFSC to devise and implement guidance in respect of duties and compliance criteria for e-gaming firms.

Licensing  and  Regulatory  Activity

The Commission licences and regulates three main areas:

• Terrestrial Commercial Gambling

• Remote Commercial Gambling; and

• Charitable, Club and Social Gambling.

The terrestrial commercial industry is made up of 29 licensed bookmakers, credit betting, on-course bookmaking, together with ancillary licensed products such as server-based gaming machines. There are also commercial licences available for operating an arcade although currently none are in operation. The procedure for licensing these businesses has been inherited by the Commission from the now disbanded Gambling Licensing Assembly and regulation and procedure is governed by various regulations, most of which date back to 1965. The Commission believes that the bureaucracy and procedure needed to licence new business should be substantially revised and simplified, but cannot do so until such time as the Gambling (Licensing Provisions)(Jersey) Regulations 1965 are repealed and replaced with a set of fit for purpose modern provisions. The Commission has been liaising with the industry to ensure that as far as is practicable, new arrangements are put to the States Assembly for debate during the latter part of 2012.

Remote gambling remains a new sector, albeit disaster recovery provisions have existed since 2008. Currently there are two licensed data centres and the Commission is considering the first application for an operator's licence. Development of the sector will rest in large measure upon changes in the licensing and regulation of remote gambling across the EU and in the UK particularly.

Although concentrating on the amendments necessary to bring the new Law into effect, the charitable, club and social sector ironically present some of the greatest challenges within the current regime. Prior to transfer to the Commission, the Department had half a post dedicated to this sector, largely because of the volume of work and the relatively inefficient system that it was forced to maintain because of the framework of the 1960s legislation. The Commission has inherited this framework, but not the post, as the postholder retired before the transfer date. For that reason the Commission has had to consider what represents the best use of its resources.

With an Executive of three, a demanding legislative programme, the implementation of a new licensing process and the other administrative changes needed in the formation and good stewardship of the Commission, the decision was taken that less resource had to be given to this sector. The justification is clear and needed to be managed proportionately in terms of risk. Registrations and permits that would have been processed in 1-2 days may now take up to a week, occasionally longer because of illness, leave or other business. The Commission hopes that its suggestions for simplifying the regulation of this sector and balancing fees against the level of regulatory oversight required will mean that in the longer term this sector will have a freer hand to raise money for good causes and substantially less bureaucracy.

Inter-regulatory contact is also an important role of the Commission. In May 2011 the JGC hosted the annual conference of the Gaming Regulators European Forum and has consequently initiated discussions with a number of gambling regulators in other jurisdictions and is developing a programme of co-operation as appropriate.

The  Social  Responsibility  Panel

The Panel was constituted by the Commission in January 2011, when it appointed Advocate Brambilla as Chair and both Dr Tracy Wade and Ms Andrea Macqueen as Panel Members, David Evans is Secretary to the Panel. The Panel is purely voluntary and is responsible for setting guidance and overseeing policies and progress on the Commission's social responsibility functions. It also offers advice to the Commission and Chief Executive on these matters.

Objectives

The objectives of the Panel are to:

• Recommend to the Commission a strategy towards social responsibility related issues and to monitor relevant external developments making recommendations to the Commission as appropriate;

• Create and maintain the Commission's social responsibility policy and to consider whether they continue to meet the social responsibility strategy and objectives and make recommendations to the Commission as appropriate,

• Review and monitor the Commission's social responsibility risk exposures and advise accordingly;

• Review the social responsibility content contained in the Commission's financial reports and report when appropriate to the Commission.

Reporting  Procedures

The Chair of the Panel aims to meet with the Commission at least twice per year, informing the Board of the matters the Panel has reviewed and making recommendations when requested, or when considered appropriate.

Priorities

The Commission is cognisant of the timescales needed for the development of a credible strategy to mitigate the risks of problem gambling and accept that this will take a number of years to achieve. In the first year of existence, however, the Panel has:

• Updated the Bookmakers Code of Conduct for Responsible Gambling;

• Reviewed the need for a generic Self Exclusion Policy for the Island;

• Provided input into the E-Gaming Code of Practice for Responsible Gambling;

• Given feedback and support for the establishment and monitoring of the dedicated Jersey page of Responsible Play.

Industry  Support

The Panel has been pleased with the support given by terrestrial licensees to its work and notes the vital role of the voluntary contributions paid by licensees into the Social Responsibility Fund. These monies have paid for the creation of the Jersey Gambling Therapy site (http://www.gamblingtherapy.je) as well as posters and flyers advising Jersey residents about how they can get help. While the level of support has been good, it has sadly not been universal, with two operators failing to contribute to this valuable work.

Financial  Statements

Financial  Commentary

The Commission was created by statute on the 3rd September 2010, and elected to adopt the calendar year as its financial year, with the first reporting date being 31st December 2011, a 16 month period.

Although originally designed to operate on a decreasing grant of £579,000 phased over five years, the need to rationalise States spending through the Comprehensive Spending Review led to the Minister reducing this to £157,600 over two years[1]. The Commission is aiming, therefore, towards financial self- sufficiency from 2013 onwards.

As well as the Minister's grant, the Commission receives funds from commercial licence fees and charitable, social and club registrations and permits. Licences are all renewed on an annual basis, but some are collected in advance, notably the betting office and bookmaker's licences, which are renewed during the month of September for the following year.