Gambling operators are faced with a raft of upcoming legal and regulatory developments. This roadmap sets out what we think will be the key issues for UK-licensed gambling businesses over the next 18 months.
The new General Data Protection Regulation (GDPR), the text of which was agreed on 15 December 2015, is expected to be formally approved during 2016, and will be effective up to two years later. It is likely that UK-facing businesses will no longer be able to rely on 'implied consent', and that only explicit and active consent is sufficient moving forwards.
Comment: Given the importance of data to the gambling industry - and with fines of up to the higher of €20 million or 4% of annual worldwide turnover - ensuring compliance with the new GDPR will be a key issue for operators. Operators should consider reviewing their data protection policies now, to ensure that the way they collect consent is as future-proofed as possible.
While the Third Money Laundering Directive applied only to casinos, the Fourth Money Laundering Directive (4MLD) applies to all providers of "gambling services". During 2016 the European Commission is likely to hold talks on how 4MLD will affect gambling operators and by 26 June 2017 4MLD must have been implemented by the UK and other EU member states. The Gambling Commission has recently criticised certain operators' Anti Money Laundering (AML) failings, and has called on the gambling industry to act on the lessons that have emerged from those failings.
Comment: 4MLD is likely to mean an increased administrative burden and compliance costs for online gambling operators, particularly for multi-jurisdictional operators. Businesses will need to plan well in advance of the June 2017 implementation date to ensure compliance. As for criticism of AML failings, many commentators, including the former chief executive of the Gambling Commission, have predicted that further cases of poor AML compliance will be exposed during 2016. As we discussed in a recent briefing, the first high profile public statement in 2016 was the identification by the Gambling Commission of a number of failings on the part of Paddy Power in relation to keeping crime out of gambling and protecting vulnerable people from being harmed or exploited.
On 26 November 2015 the gambling regulators in the UK, Denmark, Alderney and the Isle of Man announced a pilot scheme to streamline the procedure for testing online games: the multi-jurisdictional testing framework (MJTF).
Meanwhile, the Gambling Commission has undertaken a consultation on its testing strategy for compliance with Remote Gambling and Software Technical Standards (RTS), the deadline for comments on which was 11 February 2016. The Commission proposes a simplified approach, defining major and minor updates to games and software, with greater scope for minor updates to be tested in-house and a more streamlined approach to testing of multiple updates in certain circumstances.
Comment: Given that the MJTF scheme should allow operators to benefit from "passporting" between participating jurisdictions of games tested to common standards, operators and suppliers will be interested in whether other countries follow the example of the pilot group. Operators will also welcome any streamlining of the Gambling Commission's testing strategy.
On 6 April 2016 various additional social responsibility-focused LCCP provisions kick-in for non-remote licence holders, including in respect of multi-operator self-exclusion, local risk assessments and the sharing of local risk assessments with licensing authorities.
On 30 April 2016 amendments to the RTS will come into force, implementing rules relating to auto-play functionality (all remote gaming licences) and amended requirements for customer-led reality-checks (remote gaming, except P2P).
Responsibility for the creation of the multi-operator self-exclusion scheme for UK remote operating licence holders (LCCP SR Code 3.5.5) has been passed to the Remote Gambling Association. The Gambling Commission hopes it will be in place by the end of 2017.
Comment: With the strengthening of social responsibility a key objective of the UK regulator, operators will need to make sure they are on track to implement the new LCCP and RTS provisions.
Customer Funds Reporting
In a phased approach, starting in April 2016, the Gambling Commission will require remote operators to file reports on a four-weekly basis, detailing weekly reconciliations between customer funds and liabilities. Initially, those operators holding the largest volumes of UK player funds will be required to file the reports. Other operators must be prepared to begin filing on two months' notice.
Comment: The Commission has clarified that it already expects operators to conduct weekly reconciliations. The reports will be filed through the eServices portal (like regulatory returns).
Transparency: Disclosure of Ownership Interests
From 6 April 2016 most UK companies and LLPs will be required to identify and record the people who own or control them on a "register of people with significant control" (a "PSC register"), and from 30 June 2016 they will also have to file this information on the public register at Companies House.
Comment: Any operator with a UK corporate entity in its ownership structure will need to start taking steps to comply with these new requirements. Previously this kind of ownership disclosure has only been required in relation to companies with a stock market listing; going forwards, similar levels of ownership disclosure will also apply to privately-owned UK companies and LLPs.
.Bet Domain Names
Following short periods during which registrations of .BET domains were limited to eligible trademark holders, and were then available using a Dutch Auction format, open registration of the domains began on 3 March 2016.
Comment: .BET was launched to support the gambling industry by making it easier for consumers to find betting sites. Operators will be monitoring whether the availability of the new domain names makes a difference in this regard.
Taxation of Freeplays in Remote Gaming
In its 2016 Budget, the UK Government announced that, with effect from 1 August 2017, it will amend the treatment of freeplays for the purposes of Remote Gaming Duty. The intention is to bring the treatment of remote gaming freeplays (i.e. discounted or free gaming) into line with the taxation of free bets. The Government's aim is that, when a person uses a freeplay to participate in gaming, the freeplay will have a value for calculating the operator’s dutiable profit; however, freeplays given as prizes will not reduce the operator's profit. The detail surrounding these changes has yet to be revealed; the change will be implemented next year in the Finance Act 2017.
Comment: This change was not trailed in advance by the UK Government and was unexpected (with many industry observers instead concerned about possible changes to the taxation of FOBTs or VAT on UK advertising by offshore operators). The cross-border industry in particular has already experienced a significant potential increase in the level of UK taxation, in the form of the diverted profits tax as well as the point of consumption basis of taxation. The new treatment of freeplays (including free spins and bonus credits) will provide yet further impetus for online gaming and bingo operators to review their operational structures and marketing arrangements. While we have yet to see the detail of the new treatment of gaming freeplays, we expect operators will take a fresh look at their customer retention programs to see whether there are more cost-effective tools they can use.
Regulator Cooperation and EU Policy Initiatives
A "Cooperation Arrangement" dated 27 November 2015 has been signed by the majority of EEA member states. This envisages that regulators will share information more readily with each other, either in relation to specific operators or wider industry issues. The Cooperation Arrangement sets out in detail the types of information that each regulator is prepared to share. For example, in relation to the UK, the Gambling Commission is willing to share information where this will assist cross-border investigations by multiple regulators.
This Cooperation Arrangement was called for in 2012 by the EU Commission, as part of its goal of an EU framework for online gambling. It is expected to lead to new policy initiatives being adopted – either at national level or across the EU – covering a wide range of issues such as match-fixing and responsible advertising. It may also eventually reduce the administrative burden on operators who hold licences in multiple EU territories, for example by leading to some level of passporting between jurisdictions.
The EU Commission previously (in July 2014) made an EU-wide policy recommendation in this area, urging member states to implement specific measures to tackle problem gambling and underage gambling. The EU Commission asked member states to provide it with statistical information on issues such as player self-exclusion and advertising breaches by 19 July 2016. The EU Commission has said that it will evaluate the implementation of its recommendation by 19 January 2017.
Comment: This cooperation arrangement was welcomed by the European Gaming and Betting Association (EGBA) who hope that it will lead to a streamlining of national regulation and therefore reduced costs for cross-border operators. It is likely to be some time before that benefit is achieved. Of more immediate concern for the sector is the fact that policy debates may begin to spill across borders. Lobbying by sector groups can occasionally be fraught, but online operators need to ensure that they collectively play an effective role in shaping any EU-wide policy debate. Given the developed state of online gambling in the UK, the UK-facing industry in particular has the chance to be at the forefront of the debate.
Point of Consumption Changes Driving M&A Activity
In 2014 the UK shifted from a "point of supply" to a "point of consumption" regulatory regime and amended its tax laws so that online gambling operators – including those based overseas – would be required to pay tax in the UK on a point of consumption basis. Separate legal challenges were brought in the UK courts by the Gibraltar Betting and Gaming Association (GBGA) against the new regulatory and tax regimes, and the tax regime challenge was referred to the Court of Justice of the European Union.
Comment: Many operators have been considering their merger and acquisition options and assessing whether scaling-up may help them to weather the increased pressure on their margins and the increased regulatory burdens resulting from the "point of consumption" regimes. It is expected that the increasing tax and compliance burden will continue to drive M&A activity during 2016.
If you would like to discuss any of the issues covered by this note in more detail, please contact one of our betting and gaming specialists (details below) or your usual Mishcon contact.
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