Strategic objective: , Programme 2 detailed here

Performance:

• 96% of identified and reported illegal lotteries investigated
• feasibility study to determine the regulation of illegal lotteries
• implement and monitor compliance with the licence conditions

The NLC’s responsibilities in regulating the National Lottery, as set out in the Act and applicable regulations, are as follows:

NATIONAL LOTTERY REGULATION

Central to the mandate of the NLC is the regulation of the National Lottery. A Licence to Operate the National Lottery was awarded to Ithuba in 2015, in terms the Lotteries Act No. 57 of 1997, as amended. The NLC’s responsibilities in regulating the National Lottery, as set out in the Act and applicable regulations, are as follows:

• Advise the Minister on the issuing of the Licence to conduct the National Lottery;
• Ensure that the National Lottery and Sports Pools are conducted with all due propriety;
• Ensure that interests of every participant in the National Lottery are adequately protected;
• Ensure that net proceeds of the National Lottery are as large as possible;
• Advise the Minister on the efficacy of legislation pertaining to lotteries and ancillary matters;
• Advise the Minister on establishing and implementing a social responsibility programme in respect of lotteries;
• Make such arrangements as may be specified in the Licence for the protection of prize monies and sums for distribution; and
• Advise the Minister on any matter relating to the National Lottery and other lotteries or any other matter on which the Minister requires the advice of the Board;

As part of the ongoing regulatory work and delivering on the Annual Performance Plan target for the period under review, the following was conducted in regulating and ensuring the Operator’s compliance with, and performance against, the Licence Agreement and the Act:

Ensuring that all persons that run or are associated with running the National Lottery are fit and proper

All directors and staff of the Operator, together with Retailers who sell National Lottery tickets are vetted. The NLC also ensures that key contractors that conduct business with the Operator are also vetted to ensure that the integrity of the National Lottery is maintained and players are protected.

Regulatory approvals and ministerial advice

The NLC receives proposals from the Operator for new games or changes to existing games, introduction of alternate channels of play and amendments to game rules and prize pay-out structures. These proposals are assessed and approved by the Board as required in the Act and the Licence Agreement.

Various proposals were submitted by the Operator during the year under review and the necessary approvals were granted once compliance with the Act and Licence Agreement was verified. Before recommending approval on any proposals, the NLC considers the following issues:

• player protection
• projected returns to good causes
• protecting player funds
• legality
• impact on the National Lottery brand and intellectual property
• rationale for the design of the game
• marketing plan and market research analysis in respect of the game
• analysis of competing products, such as promotional competitions, Society Lotteries and other games of chance.

Protecting National Lottery players

Protecting players is central to our regulatory mandate. The following are some of the important activities we perform to protect players:

• ensuring that the Operator pays prizes promptly by conducting regular reviews of payments to prize winners;
• protecting players against possible fraud, by checking that the Operator implements appropriate security measures to verify the identity of winners who claim prizes;
• conducting reviews to ensure that the Operator protects the anonymity of winners, in line with Licence requirements;
• approving and monitoring descriptions and procedures for key processes (e.g. draws and prize payments);
• ensuring that clear information is available to players, including information on games available, how to play and how to claim prizes;
• handling complaints from players should they be unhappy with the service they have received from either a Retailer or the Operator, after having exhausted the Operator’s complaints handling procedures;
• ensuring that there are controls in place to protect players against excessive play; and
• ensuring that there are controls in place to protect against underage play.

Ensuring that National Lottery draws are fair

Through inspections, reviews, certification and testing:

• we have ensured that all draws are fair, number selection is random and results are accurately recorded;
• approved procedures that govern the way in which National Lottery draws are carried out are implemented accordingly;
• every draw is overseen by Independent Auditors who also provide assurance that the draw is carried out properly in line with approved procedures;
• the Operator is required to carry out periodic tests and re-accreditation of draw equipment/systems to ensure randomness of draw results; and
• the recently adopted Random Number Generator (RNG) is independently tested and accredited for randomness and independence.

Monitoring of payments to the National Lottery Distribution Trust Fund (NLDTF)

We have ensured that the proportion of National Lottery ticket sales that goes to good causes, as well as any other prescribed payments, are transferred from the Operator to the NLDTF in accordance with timelines specified in the Licence.

For the period under review, we verified that the Operator’s payments are complete and accurate.

Monitoring Operator computer gaming systems through Independent Verification Systems (IVS)

The NLC monitors the reliability, security and efficiency of the National Lottery’s central gaming system and network of terminals to ensure that every National Lottery ticket bought is properly recorded and included in the relevant draw.

The system allows the NLC to agree sales figures and prize shares and make certain that the number of winners and prize amounts are accurate after each draw. The system also enables the NLC to confirm that monies due to good causes are correctly determined.

Monitoring of protection and payment of prize winners

During period under review following was monitored and verified:

• that the right prize allocation has been made and paid across all games.
• that the Operator transfers prize money won, but not yet claimed, into the Participants Trust Fund, to keep it secure for future prize claims.
• that unclaimed and expired prizes are transferred to the NLDTF. These are prizes that have not been claimed within 365 days after the draw date.

Protection of the National Lottery Brand and integrity of the National Lottery

We have monitored the National Lottery website and other media to ensure integrity of the National Lottery information displayed therein. We also verified that Trade Marks, Copyright and National Lottery logos properly appear on all National Lottery materials displayed or made available to the public. This is to ensure that players are able to tell the difference between the National Lottery and other gambling products available in the market.

Retailer inspections were regularly conducted to ensure that Retailers comply with regulatory requirements, which include, amongst others, the following:

• that Retailers do not sell National Lottery tickets to persons under the age of 18;
• that all National Lottery retailers know and enforce controls to prevent excessive play; and
• physical security inspections and system security reviews and tests were performed to ensure reliability, security and availability of all National Lottery systems and products.

Monitoring the implementation of Social Responsibility Programme, B-BBEE, Supplier Development initiatives, Localisation and economic empowerment requirements

The Act and Licence Agreement stipulates that the Operator shall initiate and support opportunities for social and economic empowerment, affirmative action, employment equity and representation, training and skills development, promotion of small businesses and job creation, advancement of women in business, as well as winners counselling and financial advice.

The Operator is also required to show commitment to and comply with all B-BBEE legislation and undertake to localise its procurement of goods and services to the extent that it is reasonably possible, without having a detrimental effect on the running of the National Lottery.

The Operator has submitted the required progress reports on the above initiatives and the NLC has verified the information reported.

Complaints about the National Lottery

The NLC has also handled complaints raised in connection with the National Lottery. Complaints are reported to the NLC as escalation after exhausting the Operator’s complaints handling processes. However, the NLC accepts all complaints and forwards to the Operator all those that require to be preliminary handled by it. A follow-up is conducted to ensure that all complaints are adequately handled by the Operator in line with Licence requirements.

LOTTERIES COMPLIANCE AND ENFORCEMENT

Society lotteries

The Act permits Non-profit Organisations (NPOs) to raise funds through lotteries. Interested NPOs are required to register with the NLC. Through our education and awareness initiatives on this opportunity, we have noted an increase in organisations registering as societies. On registration as a society, the society is eligible to submit a lottery scheme to the NLC for registration. The Act allows an NPO to operate up to six schemes in a year raising a maximum of R2 million per scheme.

The Act authorises the NLC to conduct inspections to determine and ensure that society lottery activities are conducted in line with the Act. The summary of society lotteries related activities conducted during the year is indicated below:

The summary of revenue generated by the 65 schemes licenced by the NLC is reflected below:

Our focus for the new financial year will be to continue with creating awareness on society lotteries and assisting NPOs who wish to run such schemes in complying with the Act.

Illegal lotteries and schemes

As part of our enforcement mandate, we identified and were informed of various forms of schemes that were advertised requiring public participation. It is only through detailed legal analysis that we were able to ascertain whether or not such schemes were lotteries, and if so, whether they were permitted in terms of the Act or were conducted without prior approval of the Board, which would render them illegal.

Society lotteries that were non-compliant with the Act were identified. These were mainly run by profit-making companies with the assertion made that some of the proceeds from such schemes would benefit NPOs. We were successful in having such schemes declared illegal as they were contrary to the Act. These schemes were subsequently discontinued.

Competitions that were run as promotional competitions, but not in compliance with requirements of the Consumer Protection Act, were also identified as a form of illegal lotteries. Three major companies operating in South Africa had such competitions declared as illegal lotteries and the companies were instructed to discontinue competitions. These are considered to be key achievements for the NLC for the year under review, in delivering on our mandate of monitoring, regulating and enforcing on lotteries. Below is a table summarising the number of investigations conducted for the year:

Feasibility study on the regulation of illegal lotteries

Following the research conducted in 2016 to identify and assess the impact of illegal lotteries in South Africa, we conducted a feasibility study to ascertain whether such identified illegal lotteries can be regulated.

The objectives of the study were to:

• determine the feasibility of legalising illegal lotteries;
• outline the pros and cons of regulating such schemes;
• explore the views of industry stakeholders;
• benchmark/analysis of other international jurisdictions on regulation of similar schemes; and
• outline the key issues that policy and legislation should address.

Findings from the feasibility study are still to be discussed with thedti before making them available to the public.

The NLC participated in the National Gambling Amendment Bill discussions. Our comments were submitted regarding the exclusion of the National Lottery from the definition of a contingency on which bets can be taken, which we support.

The NLC is committed to discharging its regulatory mandate through applying compliance and enforcement principles of transparency in our processes, ensuring confidentiality of information relating to the National Lottery and other lotteries, timely investigation of any illegal schemes, consistency and fairness in the application of the Act and other laws.