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UK’s new e-gaming and betting regulations could create a new black market

The unregulated e-gaming and betting market will likely balloon under the UK’s proposed “point of consumption” regime, says Peter Howitt of the Gibraltar Betting & Gaming Association

Recently Gibraltar welcomed the 4th KPMG e-gaming Summit. The summit has grown in size each year and this year’s was attended by an audience of over 200 delegates that included regulators, remote gambling operators and a range of suppliers (lawyers, accountants, software providers, payments providers, telecoms and data specialists).

The growing popularity of this relatively young summit highlighted just how successful Gibraltar has been at attracting and retaining the most reputable large e-gaming and e-betting operators in the world, reinforcing Gibraltar’s reputation as the EU e-gaming hub and reminding us how much more Gibraltar can still do to communicate its industry success stories and its regulatory reputation in Europe. 

High on the summit agenda were the proposed changes to the draft UK Gambling Bill and Finance Bill, now in advanced stages as part of the UK government’s next step in plans to introduce a “point of consumption (POC)” regime to licence, regulate and tax all remote gambling firms supplying the UK market.

The POC proposals suggest UK licensing and regulations will apply to all overseas companies wishing to advertise or offer their gambling services in the UK, and will mean that Gibraltar operators supplying UK customers under their Gibraltar licences must also hold a licence issued by the UK Gambling Commission.

In addition, a gambling revenue tax will now be levied against operators based outside the UK when transacting with UK customers.

Without some significant modification, the current POC proposals will create confused regulatory supervision and market disruption on a worldwide basis. Our concern is that, ultimately, this will benefit unlicensed operators based outside of the European Union, to the detriment of consumers.

In my role as Chief Executive of the Gibraltar Betting & Gaming Association, I have been tasked with representing the Gibraltar industry in discussions with the UK Government and civil servants over the last 18 months. The GBGA has tried to engage in a constructive dialogue with the UK government to ensure that any new legislation actually helps the regulated gambling industry, the government and, most importantly, the consumer. To date we have not met with success in our efforts with the UK and this may leave the industry with little choice but to accept the proposed changes or challenge their lawfulness under EU law.

Given the expertise that exists here, we are well placed and willing to help the UK make the move to a world-leading regulatory environment for online gambling, one which builds on the successes of the EU financial services “passporting model” - which allows licensed operators from suitable jurisdiction to supply the UK based on reliance on their home state regulator and licence - and avoids the UK simply going it alone in a sector that it does not sufficiently understand.

In our view, the POC proposals - which the UK government says are intended to protect consumers and provide a fairer basis for competition - are poorly considered, since they undermine the competitiveness of responsible regulated operators and will be damaging for consumers by fostering a dysfunctional market. From a consumer protection perspective, we believe the UK has failed to establish genuine legal grounds for such a change, and has failed to consider the greater risks to consumers and how best they could mitigate those risks.

To begin with, the POC regime abandons the recognition of licences and local supervision by European jurisdictions, including Gibraltar, and in doing so sets up the UK for both practical regulatory failure and a potential challenge under EU law. For example, under the POC regime operators may be based anywhere in the world, including places with no legal and cultural fit with the UK and Europe, and where UK consumers will have no rights of redress and the UK Gambling Commission will have no effective rights of supervision and enforcement. This will result in an increase in remote tick-box regulatory supervision, with foreign operators obtaining a UK licence to transact with UK consumers but without the UK having any real ability or capacity to properly supervise those operators.

The GBGA also believes the proposals will also result in a large number of UK licensed but entirely unregulated and untaxed foreign operators buying a British licence merely as a “flag of convenience”. Such operators will promote their UK brand in order to supply consumers outside of the UK with gambling services without any UK supervision or taxation.

There is also good evidence of the real danger that consumers will now be captured by black market affiliates and operators, who are able to offer better value as they will not comply with the UK’s POC licensing and taxation regimes. The UK does not currently have a significant unlicensed market for online gambling, largely thanks to the pre-eminence of regulated Gibraltar operators, and the UK appears to have ignored the risks of creating such a market by the introduction of the POC regime.

The situation in other countries mirrors our prediction. In Italy, for example, there is point of consumption licensing and tax regime and the Italian regulator estimates that up to 50 per cent of the market is unregulated. In France, it has been estimated that 70 per cent of sports betting takes place with unlicensed regulators and in Spain, recent figures suggest that unlicensed operators supply 30 per cent or more of the Spanish market.

The UK government’s aims and objectives could be met with a more carefully constructed regime that took better account of the existing regulated online gambling industry that work very well. In this respect, Gibraltar has developed a world-leading, internationally recognised centre of excellence in online gambling, where operators provide customers with a safe and secure environment in which to bet.

The UK consumer has considerable trust in Gibraltar licensed operators.  Only a small number of gambling firms have been allowed to obtain a licence here in Gibraltar, and yet we have an estimated 60-80 per cent of all online play or bets of UK consumers.

It is worth highlighting that the UK is currently embarking on a wide range of regulatory reviews in the gambling space, including relating to advertising standards and enforcement, problem gambling and responsible gambling.  Whatever the outcome of those reviews, it is clear that the regulated sector will continue to input and comply with any changes to advertising, gambling limits and support for customers with gambling problems. The unregulated sector will ignore such restrictions and protections. Now is, therefore, precisely the wrong time for the UK to introduce a range of measures that may create space for an unregulated online gambling market that could be as high as 30 per cent (if experience on the continent is anything to go by).

As with the globalisation of financial services, effective supervision of e-gaming requires greater cross-border cooperation and recognition. Whilst the EU is taking steps to encourage a more co-ordinated approach to the regulation of online gambling within Europe, unfortunately the UK has decided to implement a model that ignores its own past mistakes and those of other European jurisdictions that have previously introduced impractical regimes that have, as their effect, an increase in unregulated online gambling.

If the UK POC regime is introduced there is no doubt that it will impact us here in Gibraltar. However, we remain positive about the jurisdiction’s continued success. Reputable jurisdictions must ensure that its key stakeholders work hard to understand the realities of those specialist sectors that they regulate, focusing on better effective regulation and on quality above quantity. In my view, Gibraltar continues to get the balance right and remains the best home in Europe for this sensitive area of electronic commerce.

Peter Howitt is chief executive of the Gibraltar Betting & Gaming Association




Photo: Getty
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Looking to the future

In our last regular article on Gibraltar for a while, Gibraltar Chronicle editor Brian Reyes looks to the economic and political outlook for the short and medium term.

At the beginning of March, over 150 members of the local business community gathered in the World Trade Center construction site for a ‘topping out’ ceremony. As the last beam was placed on the structure, guests heard speeches about Gibraltar’s resilient economy, its potential for international growth and the need to offer global businesses the necessary working environment to remain competitive.

The EU referendum and the prospect of a so-called Brexit are dominating the headlines, and much of the coverage is gloomy. But in the background, Gibraltar’s private sector continues to drive projects which, in the long term, will help attract international investors to the Rock.

Earlier that same day, Gibraltar’s Development and Planning Commission heard submissions from well-known British architect Jonathan Manser, who leads the design team behind Eurocity, another major development that has its eye on Gibraltar and a prosperous future.

There are other schemes too, some still on the drawing board, some already under way. The MidTown Development, a mix of offices and top-end flats, is funded by a local consortium on a prime site in the heart of town. On the east of the Rock, the ambitious Bluewater project promises a mix of luxury and affordable homes alongside a marina. There are plans too for a former Ministry of Defence site named after Admiral Rooke, while in the Old Town, developers and individual home owners are breathing life into this run down but charming warren of steep, narrow alleyways.

Elsewhere, work is progressing on key infrastructure that will be essential for Gibraltar’s future, in or out of the EU.

Experts are finalising the environmental impact assessment for a facility that will store liquefied natural gas for Gibraltar’s new power station, already under construction. Work should resume too on the airport tunnel project, vital to freeing up Gibraltar’s clogged roads. A new sewage treatment plant, although still some way off, is also in the pipeline, a critical and long-overdue element of Gibraltar’s infrastructure.

There are new attractions for tourists - the opening of the Upper Rock rope bridge and sky platform is eagerly awaited by locals too - and important developments in culture and education, where the University of Gibraltar is building strong academic links across the community and beyond.

And against the background of uncertainty over the UK’s - and by extension Gibraltar’s - membership of the EU, the Gibraltar Government is leaving nothing to chance. A team of economists is analysing the different possible permutations of membership of the EU, EFTA or the EEA, including the potential effects on the Rock’s export economy of membership of the Common Customs Union. 

Despite the combative nature of Gibraltarian politics, there is unity on this question. Both the Gibraltar Government of Gibraltar and the Opposition agree that the UK and Gibraltar should remain in the EU and that Brexit could undermine the Rock’s economic model, creating uncertainty that Spain will undoubtedly seek to exploit. They add that the UK must factor Gibraltar into any post-Brexit negotiation with the EU.

Gibraltar’s long-term economic future will also be placed under scrutiny locally this year by the 2025 Committee, which brings together the public and private sectors and unions to draw up 10-year strategies for the different sectors of the economy, identifying challenges and opportunities in areas as diverse as e-gaming and shipping. A key element of this will be to find new opportunities for business in emerging markets in Asia, the Americas, the Middle East and Africa.

In parallel, a cross-party select committee of the Gibraltar Parliament will analyse various aspects of the 2006 Constitution ahead of a constitutional conference with the United Kingdom on a date yet to be determined. Along with the UK’s referendum on EU membership, the constitutional review will dominate much of parliamentary and political activity during 2016 and likely into 2017. If any changes are proposed as a result of the review, they will first have to be put to a referendum before they can be adopted.

Gibraltar is keeping a wary eye too on Spain, which has yet to swear in a government following an inconclusive general election last December. The future of cross-border relations will depend not just on whether the UK remains within the EU, but on the outcome of the post-election wrangling in Spain.

But even as Spanish politicians try to hammer out a coalition pact in a bid to avoid a return to the polls in June, there is grassroots contact across the border.

The Cross Frontier Group, which brings together business and union interests from Gibraltar and the Campo de Gibraltar, is forging ahead with a proposal to access EU funding for cross-border initiatives. Separately, the government continues to maintain contact with Spanish politicians ranging from PSOE senators to the mayor of La Linea, Juan Franco.

The hope is that, having cleared the EU referendum hurdle, Gibraltar will be able to develop positive dialogue with Spain, irrespective of who is in government. There is much to be gained through practical cooperation in areas as diverse as commerce, culture and sport.

There is, inevitably, a degree of caution. Spain’s acting Foreign Minister, José Manuel García-Margallo, has signalled that if Britain left the EU - and if his party remained in power - he would seek to revive the joint sovereignty proposal robustly rejected by Gibraltar in 2002. 

It would be a move doomed to failure because Gibraltar will have nothing to do with such a a proposal, and neither will the UK. Their shared view is that nothing can be decided on Gibraltar’s future without the agreement of the Gibraltarians.

When he was sworn in as Gibraltar’s new Governor last January, Lieutenant General Edward Davis reaffirmed the UK’s double-lock commitment to the people of Gibraltar, underscoring their inalienable right to self-determination and the UK’s commitment to secure their consent in all matters that pertain to the sovereignty of Gibraltar.  

In doing so, he was reflecting the words of one of his predecessors, General Sir William Jackson.

“Gibraltar is neither Spain’s to claim nor Britain’s to give,” Sir William wrote, in a sentence that resonates to this day and sums up the situation succinctly.

“It is the rock of the Gibraltarians.”

This will be the last item on the New Statesman’s Gibraltar hub for at least a while. We’ve thoroughly enjoyed bringing you insights and hopefully greater understanding of the issues affecting the Rock as well as its politics, culture, geology and a great deal else. We would like to thank our sponsors the Gibraltar government, our many writers and above all our readers.

Charlotte Simmonds, editor, March 2014-March 2015

Guy Clapperton, editor March 2015-March 2016

Brian Reyes is the editor of the Gibraltar Chronicle.