Operators heavily reliant on the European market need to be aware of tolerance shifts on the part of regulators, or changes in the law, writes Hilary Stewart-Jones, chairman and CEO of Skywind Group. Regulators on the other hand need to recognise that market conditions and over-zealous regulatory moves are clear factors in the resurgence of the offshore market.
Austria was historically a more benign regime for offshore suppliers; there were claims that the gaming regime was contrary to EU principles (of freedom of services via workers, citizens, goods and capital (see Article 56 of the Treaty of the Functioning of the European Union)) since it was the preserve of a monopoly,
Several things have changed to drastically alter this state of affairs. First, after several conflicting court judgements, the Supreme Court determined in 2010 that Austria’s monopoly was compatible with EU law.
Second, the European Commission in 2017 decided it would no longer pursue infringement proceedings in connection with single market arguments in connection with online gambling.
Third, Brexit occurred reducing the number of operators who could legitimately still make any Article 56 arguments. Gibraltar, though technically not an EU member state, also made its exit at the same time as Britain.
Market exits on legal challenges
Finally, following a series of open pitches by advocacy firms there followed a flurry of “bettor’s remorse” cases aimed at operators licensed in Malta, which following Brexit was the only EU hub jurisdiction left in the game. These cases paved the way for players to claim recovery of losses. In mid-2021 the Supreme Court squarely found in the players’ favour. The court found that since the operator in question did not have a licence in Austria, the underlying activity was illegal, thereby making the wagering contract voidable (i.e. reversible). Whilst these legal challenges continue, despite numerous out of court settlements being made, several large operators have exited the market. Worse than that, players have also been advised to bring a series of test cases against board members personally in an attempt to recover their losses. This is certainly not what the average Maltese board member will have signed up for and, in common with the British trend towards Personal Management Licence accountability for operators, will only ultimately deflate the calibre of candidates being prepared to do the job.
Austria is one of the fourteen richest countries in the world and this spate of bettor’s remorse-type claims absent any proven wider harm (and the magic ingredient of causation – would the player have lost the same money with another operator?) will hopefully be limited to one jurisdictional misfire, and one which will be reversed after further legal appeal. However, in the shorter term the market has been heavily disrupted.
In common with Germany, after a prolonged stop start process the Remote Gambling Act was eventually passed into law in April 2021, with the licence application process opening from April 2021. Also, in common with Germany there have been expected practices to have been adhered to in the run up to the licensing application process. These comprise the well-known “prioritisation criteria” (no localisation); no active marketing permitted after June 2019, and age verification having been in place since 2019. To put the long awaited changes in context the process for reform was initiated almost a decade ago and it was largely thanks to the efforts of local lawyers that any form of guidelines for best practice emerged during that interregnum.
Currently the Netherlands has not emulated Germany’s deposit limits, even though the head of the KSA (the Dutch regulator) has asserted that he is in favour of overall maximum spending limits which are not set by the players. He is also looking to enforce against operators who do not exercise sufficient “duty of care” obligations and there may be further advertising restrictions as early as next year. In the meantime, there have been a steady stream of cease and desist orders against unlicensed operators.
No access until license granted
To date, 22 licences have been issued to 14 operators and those that had not secured a licence by 20th September 2021 were being advised that even if they adhered to the 33 months of “cooling off” (the prioritisation protocols plus age verification and limited marketing) they should shut down the market until a licence is granted.
It is also a criminal offence for customers to wager on unlicensed websites, as well as for banks to support them, which will also curtail lawful money movements and may ultimately lead to proceeds of crime issues.
The legal online gambling market was estimated to be worth €596.7 million from January to July 2022 and will grow as licences are granted. Early pressures for a tax cut, from 29 percent to 25 percent GGR over certain thresholds, have been resisted, which suggests parliament remains immune to operators complaining about having to compete with the illegal market.
As can be attested throughout the history of online gambling regulation, inaugural regulations once in place almost never decrease in reach, and the KSA will not be the first or last to want to demonstrate some muscle flex. The hope is that the KSA will see that alienating the industry is not the path to what good regulation looks like.
Sweden implemented its online licensing regime in 2018, causing a number of operators to apply for a licence. However, some Swedish lawyers have consistently advised that it is only gambling which is “directed” at the market which is caught by the Swedish Gambling Act. The government at the time the bill was passed asserted “… that the restriction in the law should not be applied to online games that are not aimed at the Swedish market …”. “Thus, it is not enough for a website where gambling is provided to be accessible from Sweden for the law to be applicable, it is required that it is designed for the Swedish market. This may be decided after an overall assessment where relevant circumstances may include whether the website contains Swedish text or offers deposits or winnings in Swedish currency.”
This leaves the operators who are licensed not in an ideal place, especially where the regulator – the Spelinspektionan – is proving almost as fond of fines as its British counterpart.
Changes were, however, mooted earlier this year, one being that the Swedish Gambling Act should include unlicensed offerings accessible in Sweden. This met with resistance at a treasury and court level. The treasury regarded it as unreasonable to target businesses that have no real interaction with Sweden and the Administrative Court in Linkoping concluded that: (a) the government may not have the authority constitutionally to make the change; and (b) offences would be difficult to both investigate and prosecute – always a factor in considering whether to implement laws, non-compliance with which may be criminal.
Creative regulatory approach
However, this has not stopped the regulator which has looked at creatively approaching “connecting factors” to determine whether offerings are aimed at the Swedish market. It is reported to be looking issues, such as whether a payment service is predominantly used in Sweden (e.g. like iDeal in the Netherlands). It is also looking into whether the website uses an e-identification system primarily used in Sweden.
It remains to be seen if it will continue to try to fill gaps left by the legislation, particularly where the legislature has very firmly rejected the opportunity to widen the Act’s purview. That alone, if nothing else, would seem an obvious starting point for legal challenge. A more beneficial pursuit surely would be to work less combatively with the operators which are locally licensed.
The position in Denmark is not dissimilar to Sweden. The Danish market has been regulated since 2012, when the whole online market opened, apart from the lottery which remains the preserve of Danske Spil. The authorities only regard an operator as needing a licence if it aims its offering to the Danish market. For example, by offering content in Danish, by offering Danish customer service, or accepting Danish payment methods (such as Dankort). It also covers conducting direct marketing to Denmark.
This list is not exhaustive, however, and will depend on the circumstances of the case. Given the ease of getting a licence, the Danish Gambling Authority estimates that the grey market only accounts for 10-15 percent of Danish gambling revenues. Interest groups have started to lobby for a change to the “targeted supply” approach and instead adopt the “accessible from” principle. This has apparently struck a chord with politicians, so unlicensed operators should not be complacent about future developments.
It’s tough these days to be in charge of an operator or supplier’s market strategy and securing a local licence hardly seems worth, in some cases, the wall of pain that follows. It is even more of an endurance for those who have to publicly display their wounds due to market disclosure requirements. The good news is that, despite stock lows, online gambling, particularly sports betting, is continuing to boom in North America without the same regulatory friction and with the World Cup around the corner there will be a beneficial ripple effect even for European centric operators.
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