David Clifton: Licensing Expert – BREXIT = No exit from robust gambling regulation

cliftondavies-davidclifton-bettingonfootball2I moderated a European Update panel session at the annual conference of the International Association of Gaming Advisors, which took place earlier this month in Malta.

Predictably, one topic that produced heated debate was the lack of harmonization, or even hope of harmonization, of gambling laws and licensing processes across the EU Member States but this led on to the following questions:

  • is there really no room for a greater consistency of approach concerning consumer protection principles encompassing social responsibility and advertising restrictions and
  • if some alignment of thinking has been possible on technical standards and betting integrity, why is there such inconsistency of approach across Europe in relation to enforcement of, for example, AML rules?

These are questions that produce conflicting answers when debated by an international panel. They are also questions regularly posed to me by newcomers to the gambling industry, some of whom are also struggling to understand why they need to obtain a multitude of licences in different European jurisdictions when the EU Treaty motto promises an “ever closer union among the peoples of Europe” – apart from with the peoples of the UK of course.

Differing attitudes of European regulators towards grey markets was also discussed. Something often not appreciated by remote gambling clients who ask us to assist them through the UK licensing process is that the Gambling Commission expects them to conduct their own due diligence investigations and to put controls in place to ensure that they meet legal requirements in other jurisdictions to which they presently provide gambling facilities or services, or which they intend to target for business.

The Commission additionally requires information from existing B2C gambling businesses on the revenue that each of those jurisdictions generates as a percentage of the overall revenue generated by their remote gambling activities, although this is subject to the following thresholds:

  • in the case of operators with total revenue of less than £5 million per annum – any markets they are targeting where the revenue is more than 10% of their total revenue and
  • in the case of operators with total revenue more than £5 million per annum – any markets where they get 3% or more of their total revenue from players.

Not only that but, in line with the Commission’s aim to ensure probity and responsible behaviour, it also requires businesses to tell it about any additional markets (ie those with less than 10% or 3% revenue respectively) they are actively targeting in order to grow their business. Examples of “actively targeting” include:

  • Directing the home page towards a jurisdiction in that jurisdiction’s language and/or
  • That jurisdiction’s currency can be chosen and/or
  • Payment methods available include those only available in that jurisdiction and/or
  • The homepage has customer service for that jurisdiction or material aimed at particular countries.

The Commission’s rationale is twofold.

  • Firstly, it is concerned about the implications for financial risk if a significant proportion of a prospective licensee’s business is with grey markets, believing that this could have implications in terms of probity and likelihood of responsible behaviour if the laws of another jurisdiction are knowingly or recklessly being flouted.
  • Secondly, the Commission has “a particularly acute interest” in deterring black market operators or suppliers from competing in the British market, something that it believes should be of equal concern to operators that it already licenses.

However, it is not only applicants for operating licences that must fulfill the Commission’s expectations in the above respect. The same information must be supplied by licence-holders in their regulatory returns. Furthermore, since May 2015, licence condition 15.2.2 has required all licensed operators to notify the Commission if they become aware that a group company that is not a Commission licensee is advertising remote gambling facilities to those residing in a jurisdiction in or to which it has not previously advertised. Explaining the reason for this changed condition, the Commission said that it “ensures we continue to monitor information supplied by applicants at licensing stage”.

It also needs to be remembered that it is not only B2C operators that are required to fulfill the Commission’s above expectations. B2B licence applicants too are required to explain where their revenue comes from by setting out approximately what proportion of revenue comes from, or is expected to come from:

  • Operators with point of consumption licences in jurisdictions other than Great Britain,
  • Commission licensed operators and
  • Other operators where the B2B applicant may be uncertain about the players’ locations.

B2B applicants are required to tell the Commission how they decide with whom they will deal (i.e. what process they go through and what contractual constraints they impose on their clients, including for example requiring operators to block players located in particular jurisdictions) and whether or not they implement any technological or other protections themselves.

Both B2C and B2B operators therefore need to consider carefully why they think provision of gambling facilities or services is not illegal in each jurisdiction in which they conduct business. Usually the answer will be because either (a) they are licensed to operate in each such jurisdiction or (b) they have satisfied themselves that it is not illegal for them to provide gambling facilities to players, or gambling services to businesses, in each such jurisdiction.

In the latter case, the Gambling Commission recognises that it is possible for different people to come to different views on the issue of the risks of providing gambling facilities or services in a given jurisdiction, but it expects:

  • Gambling businesses to tell it who they have been advised by and
  • To understand the legal rationale for the advice given.

In jurisdictions such as Germany for example, the gambling laws are so discredited in the sense of infringing EU laws on freedom of services, as well as breaching the principle of legal certainty, that many advisors would consider it to be a relatively risk-free environment within which gambling operators licensed elsewhere than in Germany can presently justifiably conduct their business there.

However, in other jurisdictions the position is far from clear-cut and the Gambling Commission expects responsible operators to assess the consequences of continuing to receive a noticeable stream of income where there are real doubts about the legality of them doing so. Failure to conduct such an assessment or to take appropriate steps arising from that assessment may reflect on an operator’s integrity and therefore its continuing suitability to hold a licence.

The Commission expects all of its licensees to exercise due care, to have a reasonably coherent rationale for what they are doing and to keep the licensing objectives in mind when making business decisions. It has warned publicly that “it will not be acceptable to hide behind wilful ignorance or implausible assumptions or arguments at the application stage or subsequently”.

Reverting to the IAGA European Update session, one audience member suggested that the “elephant in the room” was how the British remote gambling industry would be affected by a Brexit vote in the forthcoming EU Referendum. The consensus of the panel appeared to be that, in regulatory terms at least, very little would change.

In Europe, mutual recognition of gambling licences issued in EU Member States is now a long-lost dream. Co-operation rather than harmonisation seems to be the way forward and that does not demand membership of the EU club, as Alderney and the Isle of Man have effectively proved.

The Gambling Commission is not suddenly going to relax its regulatory standards if the UK exits the EU. Indeed to the contrary, it will inevitably continue to place consumer protection at its core. It will continue to ensure that those it licenses meet legal requirements not only here in the UK but also in other jurisdictions in which they conduct their business to the same exacting standard that I have described above.

The UK will continue to need clear and effective anti-money laundering and data protection laws whether or not it remains part of the EU.

In short, in my view at least, Brexit will not result in an exit from continuing robust regulation of UK gambling operators. Indeed, as some across the English Channel might express it, “plus ça change, plus c’est la même chose”.

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David Clifton – MD – Clifton Davies Associates

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