Gambling regulatory regimes in the EU and beyond
For gambling operators considering establishing a presence in Europe two initial questions are likely to be key: firstly, how easy is it to obtain a licence to offer gambling services and secondly, which jurisdiction will offer the most attractive tax rates? This article considers the different approaches taken by European countries to the regulation of gambling and provides a brief summary of the licensing regimes in the countries which currently permit operators to become licensed to offer gambling services. In a future article we will provide a comparison of the different approaches to taxation taken by European jurisdictions that commonly play host to gambling operators.
Is there a common basis for regulation in the European Union?
There are 27 countries (Member States) in the European Union (EU). To some extent EU laws support the right of companies to trade freely within that zone. Specifically, Article 49 of the Treaty on the Functioning of the European Union (TFEU) protects the right of a business lawfully established in one EU country to operate cross border in other EU states. Article 56 of the TFEU further guarantees the right of EU-based businesses to be allowed to offer their services to consumers based in other Member States. However, Member States retain the discretion to introduce rules that limit operators’ rights to provide services to citizens within their national territory if objectively justified (e.g. to protect consumers or prevent fraud). Any restrictions must be applied consistently and Member States cannot restrict citizens’ access to gambling services if, at the same time, they encourage participation in state-owned lotteries or other gambling services.
Over recent years, the European Commission has investigated potential breaches of Articles 49 and 56 of the TFEU affecting the gambling sector in ten Member States. As a result of these investigations (and decisions of national courts ruling in many cases that Member States must comply with EU law) there has been progress toward liberalisation of the gambling sector. Nevertheless, some Member States have applied and continue to apply discretionary powers to maintain state monopolies and to restrict the ability of operators licensed within other Member States from offering or advertising gambling services to their national citizens.
Different approaches
European countries have differing approaches to gambling regulation depending on a wide range of historical, cultural and political factors. The regimes can be broadly categorised as follows: (i) countries with an open regulatory system i.e. where operators that fulfil the relevant conditions can become licensed at any time; (ii) countries that permit a limited number of operators to apply for a local licence; and (iii) countries that only permit the offering of gambling services by national (often stateowned) monopoly providers.
Below we provide a summary of the way in which a number of European countries regulate online gambling services:
1. Countries with an ‘open’ regulatory system
Malta became the first EU Member State specifically to regulate remote gambling when it introduced the Remote Gaming Regulations in 2004. The Lotteries and Gaming Authority (LGA) is responsible for the governance of all gambling activities. Under the regulations, operators may become licensed: (i) to offer remote gambling of all types of games of chance and games of skill; (ii) to offer remote gambling which involves fixed odds betting, betting exchanges, spread betting and pool betting; (iii) to promote remote gambling from Malta; and (iv) to host and manage remote gambling operators (excluding the licensee). In order to become licensed, operators must pay an application fee and an annual licence fee which differs according to the class of licence. In addition, applicants must demonstrate they are a fit and proper person to be licensed and that they can pass a business and technical ability assessment and once licensed must fulfil a compliance audit. The LGA will license any remote game which can be ‘securely managed’ under the regulations.
Great Britain has perhaps the most liberal gambling regime in the EU. The operation of online betting has been permitted for some time and from September 2007, Since the Gambling Act 2005 came into force, operators have been able to establish online gaming operations in Great Britain, though not many have relocated there This is due to prohibitive tax levels. The Gambling Commission (GC) is the authority responsible for regulating all forms of gambling in Great Britain. Operators must hold a GC licence in order to run a remote service if the operator’s remote equipment is based in Great Britain. Operators must hold a remote licence that covers each type of gambling activity offered and pay an annual licence fee.
Great Britain also allows operators licensed in other states within the European Economic Area (i.e. the EU, and the European Free Trade Association countries Norway, Iceland and Lichtenstein) to advertise their services to British citizens subject to compliance with certain advertising rules. This permission also applies to Gibraltar and the so-called White List jurisdictions (Alderney, Antigua & Barbuda, the Isle of Man and Tasmania). It is worth noting that the British government is currently reviewing these rules.
Gibraltar is technically a member of the EU (as part of the UK) but has a separate constitution granted to it by the UK parliament. All gambling licences (including those for remote gambling) are effectively granted by the government of Gibraltar. Once licences have been issued, licensees are regulated by the Gibraltar Regulatory Authority (GRA). Remote gambling licensees must pay an annual fee. The licensee must be controlled and managed from Gibraltar. Consequently, licensees are likely to be companies incorporated in Gibraltar. It is worthwhile noting that the GRA’s website currently provides that “The Government of Gibraltar only issues remote gambling licences to companies with a proven track record in gaming, of reputable standing and with a realistic business plan. Licences are generally difficult to obtain.” There are currently only 21 operators licensed in Gibraltar.
Operators can also become licensed in the following ‘offshore’ territories that are not technically part of the EU:
• The Isle of Man is an independent territory that has a special relationship with the EU. The Isle of Man Gambling Supervision Commission (GSC) issues gambling licences for a period of five years. Licences for online gambling are granted under the Online Gambling Regulation Act 2001. Licensees must pay an annual licence fee. The GSC may only grant a licence authorising the conduct of online gambling to a company limited by shares and incorporated in the Isle of Man.
• Alderney is a British Channel Island and not part of the UK or the EU. The Alderney Gambling Control Commission (GCC) issues licences in respect of “remote gambling” from a server or servers based in Alderney or Guernsey. After a licence is issued and paid for, the licensee must conclude the games testing and systems documentation processes before it can become fully operational. Gambling servers must be located in a hosting centre approved by the GCC. In July this year the GCC announced a new dual online gambling licensing framework that will apply from the beginning of 2010. In order to offer gambling services to consumers, operators will require an Alderney Category 1 licence. This licence authorises the registration and verification of players, the contractual relationship with them, and the management of player funds. In order to provide gambling platforms (an authorised hosting centre for other operators) operators will require an Alderney Category 2 licence. The GCC has also revised its licensing fees.
2. Countries that permit a limited number of operators to apply for a local licence
Over the past decade Italy has been slowly liberalising its regulatory system to allow operators to provide an increased range of gambling services to Italian citizens. L’Amministrazione Autonoma dei Monopoli di Stato (AAMS) is primarily responsible for administering the gambling sector. Italy operates a system where operators established in certain European countries can apply for a specific number of licences via tender at times decided by the Italian authorities. Generally these licences are for a fixed term period. A key difference between this approach and the British approach is that there is no mutual recognition given to operators already licensed in other EU Member States.
Over the past four years AAMS has undertaken several rounds of licensing tenders and has accordingly awarded different types of licences, including: ‘telematic’ licences that allow betting shops to be operated as a hub for internet terminals in cafes and kiosks; sports betting licences to operate brick and mortar shops and corners and online sports betting, instant lotteries; licences to offer certain skill games online; and licences for slot machines.
Providing online casino games to Italian citizens is currently prohibited. However, in July 2009 legislation was enacted that will allow operators already holding online gambling services licences to offer cash game poker, bingo and other casino games (once the operators have paid a one-off fee). Up to 200 remote licences will also be granted by AAMS (for a nine year term) for the provision of online betting, games of skill, betting exchanges, bingo, national number games and lotteries. In order to be eligible for these licences operators must be based within the EEA (i.e. the EU, Norway, Iceland and Lichtenstein), pay a one-off fee to obtain a licence and comply with various technical standards. AAMS must enact secondary legislation before these additional remote licences can be granted.
Latvia allows operators with companies registered in Latvia and with servers located in Latvia to become licensed to offer certain online gambling activities including betting, roulette and card games. Remote gambling operators without a Latvian licence are prohibited from offering their services to nationals but no enforcement action has so far been taken against offshore operators.
France and Denmark currently prohibit the offering of gambling services by operators other than the State-owned/controlled monopoly operators but both are currently debating proposals to open up their national gambling market to competition (at least in part) from commercial operators. Both Member States are considering rules which will broadly replicate the Italian model i.e. there will be no recognition of licences offered in other EU Member States and the proposals include strict sanctions against those offering online gambling without a local licence.
3. Countries that prohibit the provision of gambling services
Despite numerous investigations by the European Commission and legal challenges by gambling operators (for example Ladbrokes in the Netherlands and Stanley in Italy) the majority of EU Member States only permit the provision of gambling services by the national monopoly providers. For example, in Austria, Finland, Germany, Greece, Netherlands, Portugal and Sweden all gambling activities are primarily reserved for the state-owned and controlled monopoly operators. In order to ensure that national citizens cannot access the websites of remote operators, several of these countries have enacted legislation that requires Internet service providers to block citizens’ access to websites of ‘unlicensed’ operators. In addition, other countries (for example in the Netherlands) have created a blacklist of operators and requested that banks block financial transactions between nationals and these operators.
In many cases these EU Member States have also enacted legislation to prohibit operators from advertising services to their nationals. The Dutch Ministry of Justice has recently requested that the Dutch football association reminds all football clubs that they are prohibited from promoting unlicensed gambling operators e.g. by carrying slogans on football kits.
The big issue—ensuring compliance
Even once established and licensed within an EU Member State it is important to note that operators cannot automatically provide services to citizens located in all other Member States. As described above, many Member States continue to use their discretion to prevent operators established outside of their territory from offering gambling services to national citizens. Licensed operators should ensure that they do not breach national laws by advertising or offering services to nationals in Member States where this is prohibited (or at the very least they should monitor how these rules are enforced in practice).
In addition, to the three broad categories of regime outlined above there are a large number of countries where online gambling is not currently regulated at all (for example, Cyprus, Estonia, Ireland and Slovenia). Where it is unclear whether online gambling provided from outside of the national territory is unlawful or where rules are not enforced in practice, operators often provide their services to nationals and advertise their services in these jurisdictions. However, this strategy raises clear commercial risks and compliance issues.
By April Carr, Associate, Olswang
Olswang is a full service European law firm specialising in the gambling, media and technology sectors. April provides EU and UK competition and regulatory law advice for clients in a wide range of industries including the gambling, sport and broadcast sectors. april.carr@olswang.com
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