Wednesday, November 19, 2014

The impact of the Gambling (Licensing and Advertising) Act 2014

The Gambling (Licensing and Advertising) Act 2014 has changed the way in which gambling is regulated in Great Britain from a point of supply to a point of consumption basis. Ewen Macgregor, a Partner with Bond Dickinson LLP examines the implications of these changes for the industry.

 

There have been some significant changes to the regulation of remote gambling since the Gambling (Licensing and Advertising) Act 2014 ('the Act') came into force at the start of this month. Previously, remote operators only required a licence if they had at least one piece of remote gambling equipment located in Great Britain. Remote gambling operators who located all of their equipment offshore did not need a licence and were not subject to the regulatory supervision of the Gambling Commission (UKGC). 

From 1 November 2014, gambling in the UK is regulated at the point of consumption rather than the point of supply. This means that remote gambling operators now require a licence from the UKGC if their gambling facilities are used in Britain, even if no equipment is located here. From 1 December 2014, they will also be liable to pay remote gaming duty of 15% on their profits generated from UK customers, no matter where in the world the operator is situated1. This is a major change in the way the gambling industry is regulated, as previously around only 15% of remote gambling operators had a UKGC licence. 

In addition, only licensed operators are able to advertise their services to British consumers. The advertisement of gambling is unlawful if an operator does not hold the required licence from the UKGC for the gambling to take place as advertised. A remote gambling operator will commit an offence if their remote gambling facilities are capable of being used in Great Britain and a remote operating licence is required for the gambling to take place as advertised, but the operator does not have the requisite licence2.

Background to changes

It is estimated that online gambling has a 10.9% share of the overall EU gambling market and that the UK has the largest remote gambling market out of all the EU countries, with gross gambling revenues of over €2.5 billion in 20113, but most of this gaming comes from overseas4. The Government's impetus for the changes was based on the fact that overseas based operators were not required to:

- contribute to research, education or the treatment of problem gambling; 

- report suspicious gambling to the UKGC or sports bodies; 

- report crime to the Serious Organised Crime Agency (SOCA); or 

- to test products to UKGC standards. 

The desired change also supported the Governments objective of a 'fairer tax system,' albeit that this aim was disputed by many in the industry.

The White listing system, in which non-EEA jurisdictions apply to the British government for permission for their operators to be able to advertise gambling services in Britain, is essentially taxpayer and licence-fee funded. Many British facing brands are located in white listed countries or other EEA states like Gibraltar (such as Betfair, William Hill and Ladbrokes). The Government considered that it was unfair for overseas operators to be subsidised in this fashion and effectively compete directly with British based companies without contributing in the same way to the costs of regulation, or towards the British economy5

The Government hopes that the new regulatory regime will increase protection for British consumers, as previously they may have encountered differing standards, depending on the operator they used to gamble with. The benefits of changing regulation so that gambling is regulated at the point of consumption rather than supply brings Britain into line with the approach of other European countries. 

In addition, it hopes to:

- Put domestic operators on a level playing field by making the non-domestic operators obtain an operator's licence. 

- Ensure that the UKGC's work with overseas operators is properly funded meaning that British based operators and the taxpayer will not subsidise this. 

- Provide a legitimate way for global operators to enter the British market that may assist in reducing the incidence of illegal gambling provision in Britain and provide an incentive for improved standards worldwide. 

- Make consumer protection consistent - all operators active in the British market will be expected to meet UKGC standards. 

- Simplify the system for consumers and advertisers - it will be straightforward to determine whether an operator is authorised to provide services in Britain and will become possible for the UKGC to provide advice to consumers about the majority of websites they may be using to gamble. 

- Permit instant regulatory action in the event of a problem.

Industry criticism

Unsurprisingly, many gaming companies disagreed with the Government's perception that the previous system adversely affected British consumers and suggested that there was little concrete evidence in support of this. Others suggested that requiring overseas operators to obtain a licence would duplicate the regulation already taking place in the jurisdictions where most British facing operators are based, and with which the UKGC were already familiar. White list jurisdictions are required to demonstrate they have the capacity, technical and regulatory ability to enforce gambling regulation and inform the UK Government of any changes to their regulatory systems. They were also required to comply with relevant British advertising codes of practice, which apply to the form and media in which they advertise their gambling facilities or services. 

However, the Government considers that there is nothing to stop a Member State from implementing an authorisation system notwithstanding the fact that an operator already holds an authorisation in another Member State, provided that such a system is compliant with EU case law on issues such as proportionality and discrimination. The Government also rejected suggestions that non-statutory changes such as increased regulatory co-operation and memoranda of understandings would improve things, as without a statutory system, the UK would have limited ability to enforce the provisions of an agreement if a party withdrew its co-operation6. In addition, there are operators targeting British consumers from other countries that do not have an independent regulator or a robust system of gambling regulation. Seeking out such jurisdictions and negotiating agreements would undoubtedly incur further cost - again something that the taxpayer would bear. 

High Court challenge

The legislative framework introduced by the Act was recently the subject of a High Court challenge by the Gibraltar Betting and Gaming Association (GBGA), which claimed the new regime was 'unlawful because it is an illegitimate, disproportionate and discriminatory interference with the right to free movement of services guaranteed by Article 56 TFEU.' In addition, the GBGA claimed that the new regime would actually undermine consumer protection and create perverse incentives which would encourage the uptake of unlicensed gambling. 

However, Justice Nicholas Green disagreed, rejecting the claim and concluding that the GBGA had not established that the new regime was unlawful under EU or domestic law, and it served a series of legitimate objectives. He stated that remote gambling services are highly profitable for those that provide the service, but the financial benefit to the provider can be at the expense of the social welfare of the consumer and can bring about a high consequential social and economic clean-up cost for the State7. He considered that if the Government could not lawfully move to a point of consumption regime, the prospect of any form of regulation of remote e-commerce becomes increasingly difficult. 

 

Our thoughts

Whilst one can understand the Government's financial rationale for switching the regulation and taxation of remote gambling in the UK to the point of consumption rather than supply, it remains to be seen how successful the new regime will be in practice and what level of enforcement action the UKGC will take against operators whom it considers to be breaching the new rules. 

There are some grey areas which remain to be tested. For example, the question of whether blocking access by British consumers to websites of overseas' operators is sufficient to avoid committing the offence of unlawful advertising. The UKGC says that the position is arguable, and that consumers can circumvent blocking measures. Further clarification has been given recently in relation to land-based advertising of online gambling where the UKGC has stated that gambling operators cannot advertise their services without both making it clear in the product as advertised, and in reality, that betting with that particular operator is not available to those in Britain8

Justice Green make it clear in his judgment that a an unlicensed operator whose services are capable of being used by customers in Great Britain will commit a criminal offence if it advertises its services in this jurisdiction and this will apply even if the operator has no intention of targeting British customers, but is not able effectively to block such customers accessing its services9

Translating the land-based guidance to online advertising by making it clear that if the facilities are not available in Great Britain will help to some degree. However, the bottom line is that, operators should ensure they have fully addressed the due diligence and technical challenges of making sure that consumers do not circumnavigate blocking measures. Operators should have clear policies and due diligence procedures in place to ensure they have a robust evidence trail in the event of an investigation by the UKGC. 

Of some, albeit limited, comfort to operators is the fact that the Government has stated that it will watch and learn how the new regime operates in practice and if lacunae or flaws emerge it will consider strengthening the legislation10. Only time will tell. In gambling, the many must lose in order that the few may win11

 

Ewen Macgregor
Partner
Bond Dickinson LLP, London
ewen.macgregor@bonddickinson.com

 

1. Profits are the amounts due to an operator as stakes or for use of facilities it provides for remote gaming, less amounts paid out as winnings. 

2. Section 3(3) Gambling (Licensing and Advertising) Act 2014.

3. Library of the European Parliament, Online gambling in the EU, May 2013, p2.

4. Department for Culture, Media and Sport, Remote gambling regulation - impact assessment (IA No. DCMS 029), June 2011,p9.

5. Ibid, paragraphs 51 and 52.

6. DCMS, Remote gambling regulation - impact assessment (IA No. DCMS 029), June 2011, paragraph 63.

7. Gibraltar Betting & Gaming Association Ltd and the Secretary of State for Culture, Media & Sport and others [2014] EWHC 3236 (Admin).

8. www.gamblingcommission.gov.uk/pdf/Sports%20body%20letter.pdf

9. Gibraltar Betting & Gaming Association Ltd and the Secretary of State for Culture, Media & Sport and others [2014] EWHC 3236 (Admin), paragraph 50.

10. Ibid., paragraph 117.

11. George Bernard Shaw.


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