The Future of Gambling: A multi-faceted quandary

Posted on: 05 Feb 2013

Category: Articles

by Claudio Caruana

In the early days of the European Union, Member States held a firm opinion, based on the principle of subsidiarity, that the regulation of gambling was a matter to be dealt with internally by each Member State, as they argued that it fell within the remit of public policy. By the lapse of time an opportunity loomed and regulated jurisdictions emerged. By creating a highly regulated environment and enticing fiscal incentives, Malta has been on the winning side of the sphere and many operators have set up or relocated to the island. Maltese licences have allowed operators to obtain licences in one Member State and enabled them to offer their games to customers resident in other Member States, by virtue of provisions on the freedom of establishment and the freedom to provide services within the single market. However, not all has been rainbows and butterflies for Maltese licencees. Despite the strict Responsible Gaming policies in place in Malta, countries such as Germany and Norway swiftly reacted and imposed blanket bans on online gambling, while other jurisdictions have sought to protect state-sponsored monopolies and kept overseas gaming operators at bay; all in the name of public policy. ECJ judgements have done little in the way of clarity!

This jurisdictional mayhem within the European Union has spearheaded debate in Brussels on the need for an EU-wide licence, aiming at a harmonised regulatory regime bringing down the barriers between different Member States; comparable to the financial services harmonisation of laws. Having many European governments facing mounting debts, Member States have seemingly forgotten their hard-fought struggle for the curtailment of online gaming, under the guise of public policy and morality, to justify falling foul of the basic EU freedoms. The truth of the matter is that governments are set to fill their coffers through regulated gaming regimes and they have no choice but to accept regulated gaming to raise taxes which will help save their already frail or ailing economies. As a result, the recent consensus to regulate gaming in Europe is likely to speed up the harmonisation process.

The regulatory regime in place in Malta offers a comprehensive legal framework placing great emphasis on due diligence processes, technologies implemented, intellectual property rights, player and consumer protection mechanisms, security of data, payment mechanisms and anti-money laundering procedures. It leaves other jurisdictions behind with much to be desired! Malta’s successful model has in fact been replicated in other jurisdictions outside Europe.

Being at the forefront of the industry, Malta has called on the European Commission to remove the obstacles being placed on operators and to enable licencees registered in any Member State to be able to operate in another with a degree of comfort and certainty as regards to the future. Malta is eager for the European Union to adopt its regulatory model, so as to put a stop to the arbitrary discrimination being placed on licencees.

Although having other jurisdictions issuing licences would mean that Malta will face direct competition, one can anticipate that the operators which have already set up in Malta will stay and appreciate the value of the knowledge and expertise developed on the island, which, through the Lotteries and Gaming Authority, has achieved an orchestrated balance between the stringency of licence conditions, operatability and player protection. Moreover, after harmonisation, the Maltese licence will gain considerable strength since licencees will not be required to apply for domestic licences everywhere they operate and this pay double taxes for the same gaming operation. Nevertheless, after harmonisation, it will be interesting to see how tax revenue will be shared between Member States.

It is still yet to be found out what harmonisation will be delivered by the European Union. A total regulation or a maximum harmonisation directive are unlikely to be negotiated between Member States, and it is envisaged that a minimum harmonisation directive will be implemented, in order to afford Member States a margin of appreciation and allow them to ensure that adequate systems are in place to curb illegal gambling operators, money laundering, as well as to avoid problem gambling. This will be implemented in a manner which fits the best interests of the respective Member States. Malta hopes that the directive would lay down a standard Responsible Gaming Policy detailing the minimum conditions required to be satisfied by every licencee. Should such conditions be fulfilled, Member States would be disabled from blocking licencees operations on the basis of public policy.

What is certain is that in the years preceding harmonisation, jurisdictional chaos will continue. As is currently being witnessed, many Member States have opened their markets and are issuing domestic licences. Although a Maltese licence would still have strength, it is envisaged that foreign regulators will favour domestic licencees and will create further barriers, in a bid to re-domicile these licencees to their regulatory regime, in order to get a bigger bite of the tax cake!

All licencees, wherever domiciled, stand to lose greatly if the EU harmonisation process stalls. We hope that all stakeholders unite and make their voice heard in Europe in order to end this discrimination!