NSoft

NSoft or strict rules: Outcome-based vs prescriptive regulation

Zlatan Omerspahic, Head of Legal and Compliance at NSoft, delivers a regulatory overview of the gambling industry, including key learning points from 2019 and what to expect in 2020.

It is very difficult to find an industry that is changing as fast as the gambling industry, due to all the technological changes. Also, the existence of generally strict rules provides the market participants with special attention because of the high risk of imposing regulatory sanctions if they do not operate in accordance with the rules of regulators in all countries.

What have we learned in 2019?

It is precisely the challenges we faced in 2019 and those that await us in 2020 in the wake of the intention to further regulate the market and thereby impose additional sanctions for business non-compliance.

One of the most striking examples was the ban on marketing activities of gambling entrepreneurs in Italy, which was a hot topic throughout the year. This ban has shown that the regulatory process can impose solutions that are neither efficient nor legal. The essence of the ban was as follows:

  • banning advertising relating to games with cash winnings and gambling, including indirect advertising, the press, billboards and electronics, etc ..
  • the ban was also applied to any sponsorship agreements involving any type of communication and promotional content
  • the prohibition also applied to any existing contracts, implying that the decision had a retroactive effect as well

However, the fact is that the complete ban was in breach of applicable regulations since, as outlined in the EU Commission Recommendation of 14 July 2014: “commercial communication of online gambling services can play an important role in directing consumers to an offer which has been allowed and is supervised“. 

The regulations have previously stipulated that the Member States must provide marketing monitoring measures in such a way that marketing can be limited with measures that are proportionate and reasonable, which is certainly not a total ban. The real question that will only be answered later is what has been the impact of Italy’s advertising ban on operators’ profitability?

When it comes to 2020, the question is whether outcome-based regulation, such as seen in the UK and Sweden, leaves more open to interpretation, does the prescriptive regulation, like that in the USA, limit operators’ competitiveness? However, the relationship of regulation that is open to interpretation with prescriptive regulation is a question that is not being asked for the first time. 

With the rapid development of technology affecting gambling businesses, this ambiguity is to become more significant and multiple regulatory bodies will face the issue of how to regulate the regulatory process and regulations that are part of it? The question is whether it is advisable to allow for a more free interpretation or stricter rules? 

From a legal certainty point of view, it is always better to have stricter rules, as this reduces the possibility of arbitrary interpretation and discretion by regulatory authorities that can be misused, but on the other hand, too strict rules are closing the market more and disable the possibility of delivering quick solutions that the industry sometimes imposes.

The usage of biometric data in the gambling industry

More and more questions are being raised in the context of limitations raised by the GDPR regarding the use of biometric data in the gambling industry. Keeping the current provisions as a legal basis where the collection of biometric data is consent-based, then its use is pretty much doubtful, even with the aim of improving security standards and reducing the harmful effects of betting. 

Operators will increasingly need to look for effective solutions to counteract the negative effects of betting, such as underage betting, money laundering and identifying players who have betting addiction issues. For this reason, all existing GDPR provisions, in the context of these operators’ efforts, should certainly be further considered in 2020.

Market expectations 2020

When it comes to potentially interesting markets, we certainly expect a lot from SECAP’s public consultation in 2020 and the drafting of the first sports betting law in Brazil. During the 2019 public consultations, there were many interested operators, and a significant step forward in regulating this significant market is expected this year. 

Another South American state, Columbia decided in late 2019 to allow, through the regulatory framework, the registered operators to offer virtual games to players.

As for the European market, the Netherlands will begin to offer licensing in the summer of 2020 and the process offers many benefits. These benefits are primarily reflected in a low corporate tax of only 20% percent, but no tax on bets, no VAT tax on the sale, as well as another important benefit is that the Netherlands Gambling Licence is recognized by many countries all over the world.

All this points to a very interesting and challenging business year 2020.

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