Select Committee on Delegated Powers and Regulatory Reform Nineteenth Report


Annex

PROPOSAL FOR THE DRAFT REGULATORY REFORM (GAMING MACHINES) ORDER 2003

Letter from the Clerk to the Department for Culture, Media and Sport

The Committee has given preliminary consideration to this proposal and requests that the Department provide further written information in relation to a number of matters.

TIMING OF THE PROPOSAL

The consultation paper which preceded this proposal was published in March 2001. The consultation paper envisaged that the reforms that apply to 'jackpot' machines under the proposal would similarly apply to 'higher-value' machines. Because of regulations passed in December 2001 which amended sections 34(5C) and (5D) of the Gaming Act 1968 and the provision contained in section 1(4) of the Regulatory Reform Act 2001 ("two-year rule"), the reforms under the proposal that apply to 'jackpot' machines could not be extended to 'higher-value' machines. According to paragraph 95 of the Statement accompanying the proposal ("the Statement"), this has reduced the anticipated annual benefit of the reform to the industry from £9.5 million to £1.85 million. The Statement, at paragraph 12, indicates that the extension of the provision to 'higher-value' machines will be included in a gambling bill which the Government intends to introduce in due course.

Please explain why the Department has decided to proceed with this proposal despite its limited scope given that the wider reform envisaged by the consultation could have been brought forward either in a regulatory reform order to come into effect at the expiry of the two year period to which section 1(4) of the 2001 Act applies or as part of the proposed gambling bill.

The Statement, at paragraph 161, indicates that "second-stage" scrutiny of the proposal will be delayed by a requirement to seek EU clearance of the Gaming Board's guidelines which are to accompany the order. Please state when the Department expects to receive EU clearance and, assuming the proposal proceeds, when the Department envisages laying a draft order for "second-stage" scrutiny.

NECESSARY PROTECTION

Maintenance of necessary protections

Under section 6(2)(d) of the 2001 Act, the Minister is required to state whether the existing law affords any necessary protection and, if so, how that protection is to be continued. Paragraphs 67 to 68 of the Statement deal with this issue by describing new protections both in the proposal (the requirement on operators to redeem non-cash media on demand) and in the new Gaming Board guidelines annexed to the Statement. The Statement does not however describe explicitly existing protections. Please state the necessary protections which are contained in the existing law and in the current Gaming Board guidelines, and how those necessary protections are to be maintained.

Part of the purpose of the proposal is to dispense with the requirement that 'jackpot' and 'higher-value' machines should be able to accept payment for a single game. Please state whether, in the view of the Department, the requirement that machines should be able to accept a single payment for play provides a necessary protection and, if so, how that protection is to be maintained.

Enforcement of Gaming Board guidelines

In the Statement, at paragraph 68, the Department sets out the safeguards which are to be included in the new Gaming Board guidelines. These include, for example, the requirement in respect of machines that take banknotes or smartcards that a player should make a decision to commit each separate tranche of £2 (or less). The Committee is aware that the 2001 Act (Explanatory Notes, page 23) envisages that an order may replace a protection that was statutory in origin with something that is non-statutory provided that the scrutiny Committees "could be convinced that there is a guarantee in practice that doing so would maintain necessary protection for the future". On consultation, some concern was expressed that Gaming Board guidelines are only partly effective.

Please provide evidence which demonstrates the effectiveness of the Gaming Board guidelines.

The Gaming Board guidelines are not in final form (paragraph 60 of the Statement). Please state what reassurance the Department can give that the guidelines will retain the safeguards which are included in the draft version attached to the Statement.

Smartcard readers

According to the Statement, at paragraph 68, the guidelines will provide for premises which have gaming machines which use smartcards to have free-standing smartcard readers so that players can check the amount remaining on their cards. The guidelines indicate that the reader facility will, in practice, be provided by the machine.

Please state whether it is to be a requirement on operators to provide free-standing smartcard readers and, if so, how such a requirement would be enforced given that the guidelines are enforceable against suppliers of gaming machines only.

7 April 2003

Letter from the Department for Culture, Media and Sport to the Clerk

1.  Thank you for your letter of 7 April seeking further information about this draft Order. We are happy to help.

2.  I set out our answers to the Committee's questions below. They are of course to be read in conjunction with the narrative in your letter, which I have not sought to repeat.

3.  We are as you ask sending a copy of this letter to the Clerk of the House of Commons Regulatory Reform Committee. I hope that you will by now have seen my separate letter to him last week.

Please explain why the Department has decided to proceed with this proposal despite its limited scope given that the wider reform envisaged by the consultation could have been brought forward either in a regulatory reform order to come into effect at the expiry of the two year period to which section 1(4) of the 2001 Act applies or as part of the proposed gambling bill.

4.  It would have been an option to bring forward the wider reform envisaged by the consultation, with the proviso that it could not come into effect until the end of the two-year moratorium imposed by section 1(4) of the Regulatory Reform Act 2001. However the Department saw no reason not to proceed with a modest package of reform that will deliver small, but real, advantages to the industry and will do so immediately upon its passage.

5.  The Department hopes to be able to bring forward a wider Gambling Bill next session, but at this stage Ministers are not in a position to make any commitments with respect to the availability of Parliamentary time.

Please state when the Department expects to receive EU clearance and, assuming the proposal proceeds, when the Department envisages laying a draft order for "second-stage" scrutiny.

6.  The Government made its notification to the Commission early in March, and the Commission received it on March 7th. The notification, number 2003/0088/UK, can be viewed on the European Commission's web site at http://europa.eu.int/comm/enterprise/tris.

7.  Member States are required to observe a three month standstill period before the regulation is made or brought into force. The procedure provides an opportunity for the Commission and other Member States to comment if they consider that the proposed regulation has the potential to create a technical barrier to trade. There is no formal notification from the Commission unless they or a Member State consider that there is such a barrier to trade. We are advised that, if that is the case, we will be informed of it by 9 June 2003.

8.  Subject to that and to the Committee's report and the report from the Regulatory Reform Committee of the House of Commons, we hope to be able to lay the draft Order at its second stage in late June.

Please state the necessary protections which are contained in the existing law and in the current Gaming Board guidelines, and how those necessary protections are to be maintained.

The protections

9.  There are two necessary protections in the law. The first derives from the fact that players must play in coin (for jackpot machines, s. 31(3) of the Gaming Act 1968, and for higher-value AWP machines, s.34(5B)). Taken together with the fact that the highest value coin is £2, this means that players must make a separate decision to commit each new unit of £2, or less, to play. The proposals affect this requirement in the case both of jackpot and higher-value AWP machines.

10.  The second protection in the law is that players are paid out in cash when they win. The Order affects this requirement as it applies to jackpot machines, but not as it applies to higher-value AWP machines. This protection in respect of jackpot machines appears at section 31(4) of the 1968 Act. In respect of high-value AWP machines it is at section 34(5C) of the Act.

11.  The Gaming Board's overall guidelines on gaming machines contain a number of protections. The most significant ones are minimum agreed percentage payouts, required contents of displays on machines, controls on the use of bank meters, and limitations on permitted linkages between games such as 'hold' and 'nudge' features.

How the protections will be maintained

12.  The Gaming Board is not amending its overall gaming machines guidelines, and the protections which it currently contains will therefore remain in place.

13.  The necessary protection that players are paid out in cash when they win will be replaced by an equivalent protection in the law. The Order does not affect the wording of section 34(5C) of the 1968 Act, which provides this protection in respect of higher-value AWP machines. So far as jackpot machines are concerned, the Order replaces the existing section 31(4) but continues the protection which it contains by requiring that machines pay out either in cash or by non-cash means which are redeemable on demand.

14.  There is no significant difference so far as the player is concerned between being paid out in cash directly by a machine and being paid out by non-cash means which are redeemable on demand at the premises.

15.  The necessary protection in the law that players must make a separate decision to commit each new unit of £2, or less, to play will be replaced by a protection in guidelines. The new guidelines which the Board proposes to issue in respect of machines using banknotes, smartcards and other non-cash media will ensure that the maximum amount that players can commit to play - without making a separate decision to commit further money to play - is £2.

16.  The Board's guidelines apply to all licensed suppliers of gaming machines. Players can rely on the Board's guidelines applying to any machine which they might use.

17.  The Department considers that these protections are entirely equivalent to what currently exists in both of these areas.

Please state whether, in the view of the Department, the requirement that machines should be able to accept a single payment for play provides a necessary protection and, if so, how that protection is to be maintained.

18.  The Department does not believe that the requirement that machines should be able to accept payment for a single needs to be maintained. As explained in the Home Office's March 2001 consultation document (para 50) this is not a necessary protection. We do not consider that it adds to consumer safeguards to have law which requires that players must always be able to insert, in effect, their loose small change into a gaming machine.

19.  Each machine shows the price of a game so that the player knows how much it costs to play. It will be up to the industry to decide whether to attempt to attract casual players by installing the mechanisms needed to accept coins for a single play.

Please provide evidence which demonstrates the effectiveness of the Gaming Board guidelines.

20.  The Gaming Board is recognized internationally as a highly effective and competent regulator. The British gaming industry - including its gaming machines component - has a high reputation for integrity, reflecting the work of the Board over the last 30 years in controlling entry to the industry and regulating its detailed performance through its certification and enforcement powers and through codes of practice and guidelines.

21.  Breaches of the Board's guidelines on gaming machines are extremely rare. Should a breach occur, the Board would deal with it by discussion with the supplier or the manufacturer. Ultimately, the Board can if need be remove a supplier's licence, but it would be unprecedented for this to happen as a result of an operator not adhering to the guidelines. The supplier would have a very great deal to lose.

22.  The Gaming Board's guidelines benefit the industry as well as the public, providing a common standard which it is the interest of both manufacturers and suppliers to support and follow.

The Gaming Board guidelines are not in final form (paragraph 60 of the Statement). Please state what reassurance the Department can give that the guidelines will retain the safeguards which are included in the draft version attached to the Statement.

23.  There is no intention either on behalf of the Gaming Board or the industry of removing any of the safeguards in the draft of the guidelines submitted to the Committee in the explanatory statement. After the Order has come into law the Board may need to amend the guidelines if circumstances change or if it transpires that they are not working properly and effectively. But that will not mean that consumers lose any of the safeguards which they currently contain.

Please state whether it is to be a requirement on operators to provide free-standing smartcard readers and, if so, how such a requirement would be enforced given that the guidelines are enforceable against suppliers of gaming machines only.

24.  This is not to be a requirement. We do not think that a separate smartcard reader is necessary. It is better for the player to have a reader conveniently sited in the machine he is playing. This will aid enforcement, since the Gaming Board can exert more direct control over the suppliers and manufacturers who will install these machines.

25.  The Gaming Board does not license manufacturers. However, it has a close relationship with them. If the Board has objections to a particular machine that a manufacturer has made, it can exert its influence on the suppliers (whom it does licence) not to use or site it.

23 April 2003


 
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