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UK Beefs-Up Remote Gaming Regulation

By Offshore-E-Com Editorial
08 January, 2013


Introduction

Major changes to the regulation of the gambling industry in the United Kingdom were brought about by the Gambling Act in 2007, and this report examines how yet more proposed changes to the legislation will affect remote gambling and gaming firms offering their services to British gamblers.

Industry statistics published by the UK Gambling Commission on December 6, 2012, covering the period from April 1, 2011 to March 31, 2012, suggest that the UK gambling market, both in the traditional ‘bricks and mortar’ sense, as well as online, is a lucrative one. The British gambling industry, as regulated by the Commission, generated a gross gambling yield (GGY) of GBP5.8bn (USD9.3bn), a rise of GBP0.2bn compared with the previous year. While the non-remote betting sector (betting shops, racecourses etc) represents the largest market with a 52% share, the size of the remote gambling market in the UK is considerable: the Commission’s statistics show that UK consumer GGY (includes GGY generated with operators regulated overseas), which includes telephone betting, is estimated to have grown 5% between 2010 and 2011 to reach GBP2bn, representing 4% of the global remote GGY.

Other figures would appear to confirm that the UK is a nation of gamblers, and therefore stands as one of the most important gambling markets in the world. According to the British Gambling Prevalence Survey 2010, 73%, or 35.5m, of the adult population in Britain participated in some form of gambling in the year prior to the survey, with 14% using the internet to gamble - including buying lottery tickets online, betting online, playing casino games, bingo or other slot machine-style games and playing the football pools online.

As at March 31, 2012, there were 288 remote gambling activity Gambling Commission licences held by 207 operators. 

The Gambling Act 2005

The Gambling Act 2005 came into force on September 1, 2007, and replaced nearly all existing gambling legislation including the Gaming Act 1845, the Betting, Gaming and Lotteries Act 1963, the Gaming Act 1968 and the Lotteries and Amusements Act 1976. A primary goal of the legislation is to protect children and vulnerable people, cut crime and keep games fair, and the Gambling Act now governs nearly all forms of gambling undertaken by UK residents.

The Act created the Gambling Commission, an independent non-departmental public body sponsored by the Department for Culture, Media and Sport. The work of the Commission is funded from fees paid by licensed operators. The Commission has regulatory responsibility for amusement arcades, betting, bingo, casinos, gaming machine providers, gambling software providers, lottery operators and external lottery managers (with the exception of the National Lottery, which is regulated by the National Lottery Commission), and UK-based remote gambling operators. Spread betting is regulated by the Financial Services Authority.

Under the Gambling Act, the Commission has the capacity to levy unlimited fines, withdraw licences, bring prosecutions, enter premises, seize goods and suspend and void bets and was described by the previous Labour government as “the most powerful gambling regulator in the world.”

The Act also gives a new role to local governments, empowering more than 1,500 licensing officers (alongside 50 specialist Gambling Commission compliance officers) to inspect gambling premises to enforce the new laws.

The Gambling Act 2005 provided, for the first time, a mechanism for regulation of remote gambling operators providing services in the UK. Remote gambling is defined by the Act as gambling in which persons participate by the use of remote communication including the internet, telephone, television, radio, or any other kind of electronic or other technology for facilitating communication.

The Gambling Act requires remote gaming and gambling providers to obtain a licence from the Gambling Commission if they intend to sell their services to British residents and at least one piece of remote gambling equipment (also known as key equipment) is situated in the UK. This is irrespective of whether or not the facilities are provided for use wholly or partly in the UK. Operators must apply for a specific type of licence depending on the type of service they offer. These include licences for betting, bingo, casino games, gaming machines, gambling software, and lotteries.

Remote gambling and gaming firms selling their services into the UK do not need a licence if all of their gambling equipment is located outside of the UK. However, in order to be able to advertise gambling services in the UK, an operator must be based in a “white-listed” country or a country mentioned in the Gambling Act 2005. Currently, this includes all European Economic Area (EEA) countries (the 27 European Union member states plus Iceland, Liechtenstein and Norway), Alderney, Antigua and Barbuda, Gibraltar, the Isle of Man and Tasmania. To be included on the white list, jurisdictions must demonstrate that their regulatory system for gambling is robust and meets the published criteria. This includes:

·         Preventing gambling from being a source of crime or disorder, being associated with crime or disorder or being used to support crime;

·         Ensuring that gambling is conducted in a fair and open way; and

·         Protecting children and other vulnerable persons from being harmed or exploited by gambling. 

The Gambling Act also includes certain requirements in respect of “fair tax,” and jurisdictions are assessed on whether they follow the same “core values which underpin the British regime.”  In assessing applications for the white list, jurisdictions must also demonstrate that they have the capacity, technical and regulatory ability, and political impetus necessary, to enforce its regulation.

Once on the white list, jurisdictions must inform the UK government of any changes to their laws/regulatory systems.  They must also comply with British advertising provisions, in particular the relevant codes that are regulated by the Advertising Standards Authority, as well as provide a list of their licensed operators. The government can remove jurisdictions from the regulations if at any stage there is concern that their regulatory system no longer satisfies the criteria or is jeopardising the licensing objectives. As yet, no jurisdiction has been removed from the white list.

Operators based in EEA member states, including Gibraltar, have greater freedom to advertise their services in Britain in that they can advertise gambling freely to British consumers, subject to the relevant advertising code provisions, in reliance on the licence issued by their home regulator.

Commenting at the time that the Gambling Act 2005 went into force, then Sports Minister Gerry Sutcliffe observed that:

"Many people like to gamble, and for the vast majority it's harmless fun. This has and always will be the case. But what has changed is the way people gamble. It used to be that you had to leave the house to place a bet, but advances in technology have changed that - TVs, home computers and mobile phones have become the digital equivalent of a betting slip and casino chip."

"The government brought in the Gambling Act because most of our laws were nearly 40 years old and these developments were going unchecked and unregulated. The Gambling Act will give the Gambling Commission and local authorities unprecedented powers to ensure gambling is conducted fairly, children and vulnerable people are protected and crime is kept out."

Proposed Changes

On December 2, 2012, the government published draft legislation which would amend the Gambling Act 2005, and the proposed changes are primarily aimed at increasing regulatory oversight of offshore remote gaming and gambling firms advertising and selling their services in the UK.

While the new proposals appear to be an initiative of the Conservative/Liberal Democrat coalition government which was elected in June 2010, the draft legislation actually has its origins in a consultation commenced under the previous Labour administration which brought into force the Gambling Act 2005.

In 2009, the e Department for Culture, Media & Sport and the Gambling Commission jointly conducted a review to examine the existing system of remote gambling regulation. The review considered the regulation of overseas operators, as well as ways to ensure overseas operators contribute fairly towards the costs of research, education and treatment of problem gambling in the UK. The review proposed that overseas gambling operators should be required to obtain a Gambling Commission licence in order to transact with, or advertise to, British-based consumers. This was adopted as the preferred option in the 12 week consultation which the Department carried out between March and June 2010. The consultation also proposed a more streamlined white listing process for non-EEA jurisdictions.

However, when in July 2011, the then Minister for Tourism and Heritage, John Penrose, made a written Ministerial statement to Parliament outlining the government’s approach to reform of remote gambling regulation, the scale of the proposed changes went further than many in the industry expected. The most far-reaching proposal was that the regulation of gambling services provided to UK consumers should be on a point of consumption basis, rather than on the current place of supply basis.

Making the case for change, the government stated in a document accompanying the Draft Gambling (Licensing and Advertising) Bill, 2012, that, based on experience since the existing regulatory regime came into effect in 2007 the regulation of overseas-based remote gambling operators selling products in Great Britain is “not working as well as intended and has become unsustainable.”

“At present there are different regulatory standards and approaches, and consumers based in Great Britain may experience varying levels of protection depending on the operator they engage with,” the document notes.

Given the numbers of people regularly gambling in the UK, the present government is of the view that the arrangements set out by the Gambling Act 2005 are “flawed” and can no longer adequately ensure the continued protections for British consumers. “The government therefore believes that it is essential, now more than ever, for the protections envisaged in the Gambling Act 2005 to be afforded to all British consumers, regardless with whom they choose to gamble,” the document states.

Whilst the government believes that the majority of operators currently targeting British consumers are subject to established and effective regulatory regimes, it has become particularly concerned about the emergence of gambling sites based in certain European countries where little is known about the level of regulation and consumer protection. “This is concerning and raises the question as to why European operators without  sufficient regulatory oversight should have the automatic right, as is currently the case, to advertise in Britain,” the document states.

The Draft Gambling (Licensing and Advertising) Bill, will, therefore, amend the Gambling Act 2005, and require all operators providing services to the British market, whether based in the UK or abroad, to hold a Gambling Commission license allowing them to target their services and advertising to British consumers. Notably, the proposed changes will mean phasing out the "white list." There will instead be no geographical limitations on the provision of a Gambling Commission license, allowing operators from anywhere around the globe to obtain the necessary permissions. However, the new law places the onus on gambling firms to provide evidence that their home market is sufficiently regulated.

"Operators in well-regulated jurisdictions whose regulators can provide, for example, the necessary compliance information, will not face significant increases in licensing costs - those whose regulators cannot provide such information will need to pay the compliance costs associated with being subject to the same requirements as other Gambling Commission licensees," the government states.

The new arrangements will mean that, for the first time, overseas-based operators will be required to inform the Gambling Commission about suspicious betting patterns involving British customers, to help fight illegal activity and corruption in sports betting.

Although not a part of the Draft Bill, the government also intends to bring about a change in the way offshore operators are taxed in the UK. This will mean that any wagers taken in the UK, whether gambling services are supplied by an overseas operator or not, will be subject to UK gambling levies. The government estimates that this change would boost revenues by GBP55m (USD88m) in 2014-15, increasing to GBP270m by 2016-17.

Explaining the new rules in the Budget report, the government stated: "The current taxation regime for remote gambling has allowed operators to avoid paying UK gambling duties by basing their operations abroad. To broaden the tax base and provide a fairer basis for competition between UK and overseas remote gambling operators, Budget 2012 announces that the government will move to a tax regime that ensures operators anywhere in the world pay gambling duties on gross profits generated from customers based in the UK. This is in line with the actions of several other European countries."

Launching the draft legislation, the UK's Minister for Sport & Tourism, Hugh Robertson, said: "These proposals will ensure that British consumers enjoy consistent standards of protection, regardless of where a gambling business is based, and will also help the fight against illegal activity and corruption in sports betting."

Conclusion

It remains to be seen how the new legislation will work in practice. But all the evidence suggests that it is extremely difficult for governments to regulate the online world, without resorting to draconian measures such as those used by the Chinese government to prevent its citizens from accessing certain websites. What’s more, big names in the UK gambling industry are already thought to be considering a legal challenge to the proposed tax changes, which are thought to contravene EU laws guaranteeing the freedom to provide services within the EU. This could lead to the perception that the UK gambling market, traditionally one of the most liberal in Europe, is over-regulated and over-taxed. This suggests that the government may have to amend the proposals in order to strike the right balance between protecting punters and allowing what is a boom industry to continue to grow.





 

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