Isle of Man: E-Commerce
Online Gambling Regulations Act 2001
During 2001 the Department of Home Affairs progressed first the primary and then the secondary legislation to legalise the operation, from the Isle of Man, of well regulated on-line gambling sites. The primary legislation, the On-line Gambling Regulation Act, came into force in May. Four sets of Regulations were approved by Tynwald in June, and there are a series of guidance notes etc. Various sets of regulations were updated in 2004, 2005 and 2006. All are linked below to full originals on the IOM Government site.
The application fee increase from GBP1,000 to GBP5,000 was explained as pertaining to increased due diligence checks and the licence fee, originally GBP80,000 per annum, is now substantially lower (GBP35,000 per annum for a full licence and GBP5,000 per annum thereafter for a sub-licence); in addition licence holders were required until 2005 to deposit GBP2m as a guarantee for the payment of customers and to establish a formal reserve for gaming based on a stated formula. Direct taxation of gaming revenues is limited to 2.5% of 'gross gaming yield', and the Treasury has stated that it considers all gaming revenues to be outside the scope of VAT.
Isle of Man gambling and e-gaming legislation and regulations can be found here.
The current rate of duty for domestic betting has also been reduced from 6% to 2% of the amount staked. This new rate is roughly the equivalent to a 10% rate based on gross yield. For international bets the rate is 0.3% of the amount staked.
The Treasury Minister Richard Corkill said of the changes: "By taking appropriate and prompt action now, we have removed the uncertainty attached to the future of Island-based businesses operating gaming on the internet. We have also on behalf of the betting industry maintained a competitive environment for all bookmakers licensed and situated in the Isle of Man."
The 2001 Online Gambling Regulation Act described above was quick to attract licence applications, and in September the Isle Of Man Minister for Home Affairs, Alan Bell, revealed the names of the first three companies to be granted Internet gambling licences on the Island. A further three licenses were issued in the following year.
However, after this initial success, the Isle of Man saw a steady exodus of prominent online gambling firms in 2003, a situation that many in the industry blamed on an inflexible regulatory environment.
In the early stages, when the Isle of Man opened its arms to online casinos in 2001, the island attracted the cream of the online gambling firms, including Littlewoods, MGM Mirage and SunOnline (whose Casino Atlantis online was later bought by Kerzner International). However, the five firms that were initially granted licences dwindled to just one, Littlewoods, after MGM Mirage closed, and Rank Interactive's Hard Rock Casino online moved its operations to Alderney. Earlier in the year, Casino Atlantis also closed, and Actionline's Club Fiore left the island for Canada.
Whilst a lack of access to the potentially large US market (where online gambling is technically illegal) has hampered growth in the industry, some observers have cited the Isle of Man's 'tier one' regulatory status as one of the most crucial factors behind the industry's decline in the jurisdiction.
"The Isle of Man pioneered well-regulated online gambling, and there were always going to be some growing pains associated with a new industry. But they could have made it easier for some of their licensees to do business," Tobin Prior, CEO of Casino Atlantis told Online Casino News.
Prior pointed to certain rules such as anti-money laundering regulations, which only permitted customers to withdraw money via the same method as they had deposited it as one example of over-regulation. “Customers could only withdraw to the initial deposit method, so they couldn't make larger withdrawals via alternative methods such as wire transfer if they had initially deposited by credit card, even though both methods were acceptable in the jurisdiction,” Mr Prior explained, adding that: “Decisions were taking a long time, and procedures that had been put in place changed - there was too much of a straightjacket put around business decisions.”
Meanwhile, Derek Cannon, the Isle of Man's Gaming Inspector conceded that the creation of an online gambling licence had been "a very sharp learning curve – although we’ve had licensed gambling for 40 years in the IOM, we were the first to put our heads above the parapet as regards online gaming”.
Mr Cannon revealed that the experience of the last couple of years had led the island's authorities to consider a relaxation of certain regulations, and spoke of the creation of an ambassador for the industry in an attempt to sell the jurisdiction to online gambling firms. “At present, some of the lower tier jurisdictions are moving towards more stringent regulation, and the Isle of Man has the option of moving closer to the lower tiers in terms of becoming less restrictive”. However, the online gaming market will remain closed to American punters in order to protect the island's reputation in the US, Mr Cannon announced.
In November, 2003, the Isle of Man's Department of Trade and Industry announced that it had appointed former Rank Interactive Gaming island director, John Gilmore, as the jurisdiction's new e-gaming Ambassador. According to the Trade and Industry Department, Mr Gilmore would address the issues which have led several of the island's online casinos to leave for other jurisdictions, and looking for appropriate solutions.
Then in January, 2004 Irish bookmaker Paddy Power announced that it intended to relocate its London-based telephone betting service to the Isle of Man, in order to take advantage of the more attractive tax regime. The bookmaker had also decided to base its online casino away from the UK mainland, although it has decided to locate it in the Channel Island jurisdiction of Alderney, which does not levy betting taxes.
By May, 2004, it was becoming clear that changes in the regulatory structure of the e-gaming sector in the Isle of Man were being successful in attracting some big name players to the jurisdiction. "The recent reduction in our licensing fee together with revisions that allow peer-to-peer gaming and pooled jackpots have removed significant barriers to e-gaming business," observed Trade and Industry Minister Alex Downie, according to IoM Online, who added:
"These changes, based on feedback from the industry, will allow the Island to offer a much more attractive proposition for those e-gaming enterprises looking for an offshore location for their business and headquarters."
The government said it had issued six gaming licences in the previous twleve months to firms such as Paddypower and Chronicle, two of the largest players in the online sports betting sector, attracted by the island's favourable regulatory regime and low duties.
At the time of writing, there are 45 online gambling licensees listed by the IoM's Gambling and e-Gambling department.