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Online Gaming 2024: Understanding Unregulated Markets

09 April 2024

CONTENTS

The unregulated market business model generally relies on two components, the licensing hub (aka “.com licences”) and the target jurisdiction. In some cases, operators may forego the former and operate from tolerant jurisdictions which turn a blind eye or do prohibit online gambling operations. Places such as Costa Rica, however most suppliers, payment processors and customers themselves require or prefer the operator to be licensed.

Therefore, addressing major changes expected in 2024 for each component in turn:

Licensing Hubs

Gibraltar

All forms of remote and non-remote gambling operations are licensed under the Gambling Act 2005. The main focus of the jurisdiction is remote gambling for the unregulated (.com) market, with 20 B2C operators and 29 B2B operators currently licensed as of January 2024. The categories of online B2C licences cover the following activities:

  • Betting (which includes betting on real and/or virtual events such as sports betting, betting on lotteries and exchange betting);
  • Gaming (which includes casino gaming, poker, and bingo); and
  • Financial spread-betting.

On 30 May 2022 a Command Paper was published by the government setting out consultation process questions and text of a draft Gambling Act. This new Act is a major revamp of the existing law and sets out a much more prescriptive and transparent regime.

The consultation process has been completed but the publication of the new Gambling Act has been delayed due to disagreement at government level on the licensing of marketing service providers. This may therefore push the implementation of the new Act into the first half of 2024. 

As it stands the draft Gambling Act provides for a separation of the single licensing regime into 3 separate categories of B2C, B2B and Support Service Licences. This will materially widen the net for those who will then require a licence to supply into Gibraltar.

This new system will still preserve the existing sheltering arrangement for smaller suppliers of gambling software, though we can expect that to be limited and more precisely defined.

The proposals lay the ground for more proportionate presence requirements depending on the licence type and scale of business.

Whilst we await the final version of the new Gambling  Act,  a separate consultation was conducted on the licensing fee framework, see: licensing fees consultation. This marks a significant milestone for licensing fees in Gibraltar, prescribing a segmented and proportionate approach to the wider array of licence categories and verticals proposed under new Act. The bigger B2Cs and B2B aggregators could be paying significantly more based on their annual gross yields whilst smaller operators will make a gain. This is a promising development, which will allow for a wider mix of smaller innovative entities to enter the market.

In parallel Codes of Conduct and technical & operational specifications will be drawn up by the regulator for separation consultation with the industry.

Curacao

Curacao is currently undergoing a reformation of its existing online gambling regime (NOOGH) which depends on a master licence – sublicence arrangement with minimal regulations, to a fully regulated and transparent direct licence regime.

This process is taking a long time but is expected to be in place sometime in 2024. Draft regulations were first introduced for consultation in 2021 which radically reform the licensing and compliance framework. Pressure from the Dutch government (who have provided financial support to help with Covid) have resulted in this new draft gambling legislation referred to as “Landsverordening op de kansspelen” or “LOK” for short. On the 18th December 2023 LOK in its latest form (factoring in advice given and amendments proposed by the Social and Economic Council in April 2023 - SER -advies.LV op de Kansspelen & RA -12-23 LV OntwerpLv op de Kansspelen) was presented to parliament for review (LV de Kansspelen) and simultaneously published along with an explanatory document.

In the interim and until LOK is voted through or further amended by the Curacao Parliament and subsequently implemented and made effective, operators (i.e. existing sub-licensees) may apply for their own direct licence under the existing NOOGH law. Even if operators do not apply for their own direct licence during this interim period, sub-licences are encouraged to register as such (no costs involved). As announced on 1 September 2023 by the Minister of Finance the window for new standalone licence application will be available from the 15 November 2023, will application to be made via a dedicated portal.  

The window for registration as an existing sub-licence and/or subsequent application for a direct licence will be open until the 31/3/24, thereafter will need to wait for new law (LOK)/application process.

There will  be no-grandfathering of existing sub-licensees (i.e. those who have not already applied for their own direct licence) to new LOK licence, once master licence under which it operates expires or LOK becomes effective whichever is earlier, a new licence will need to be in place. This could lead to a gap between the effective date of the LOK and grant of a licence under it during which time the operator would need to shut down. In addition existing sub-licensees will not be able to add in additional domains after the 31/3/24 deadline.

However, any direct licences granted (if application is in by 31/3/24 deadline) will then be grandfathered to the new licence regime under LOK, holding provisional licence status until that LOK licence is in place.

Any sub-licensee who has not been registered on the portal by 31/3/24 will not be permitted to operate. requirement. This is further set out and explained in a memorandum issued to existing NOOGH licence holders on 18 December and updated in Mid March 2024: chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://gamingcontrol.spin-cdn.com/media/online_gaming/20240313_31st_march_2024_deadline_guidelines.pdf

In its recently updated transitionary period guidance the GCB mentioned that it will issue regulations in connection with minimum KYC requirements required of its license holders’s customers. The GCB expects to issue these regulations in April 2024. These regulations are based on current Curaçao laws relating to AML/CTF under NOIS and NORUT (The National Ordinance on Identification when Rendering Services and the National Ordinance of the Reporting of Unusual Transactions).

Currently, the Gambling Control Board (GCB) is the gambling regulator as well as the supervisory authority for compliance with AML/CFT laws. Under the draft LOK, the GCB will continue these powers under a new name, namely the Curacao Gaming Authority.

Tobique

Tobique First Nation is a First Nation located in New Brunswick, Canada (similar to Kahnawake). Tobique First Nation has the right to self-governance under section 35 (1) of the Canada Constitution Act, 1982. Tobique First Nation is the first Maliseet Nation to create a regulatory body to oversee all forms of gaming from its territory, including land based and online gaming..

The formation of the Tobique Gaming Commission is empowered to issue licences to gaming operators and appoint a third party direct licensee who is entitled to recommend the issuance of licenses on behalf of Tobique. This sole and exclusive direct licensee is Differentia Licensing Advisory Group Limited.

Tobique`s aim is to become the global online gaming licensing jurisdiction of choice with a common sense nonbureaucratic approach. Legislation and guidance have been created by industry experts from the gaming community.

This new licensing jurisdiction commenced its online gambling licensing process in late 2023, when the first licence was granted in March 2024.

A summary of the application process and regime:

  • There are no requirements for a local corporate entity.
  • There will be a light touch infrastructure presence requirement in Tobique.
  • The licence is for one year and renewable.
  • The Licence application fees are EUR 18,000, with annual Licence fees of EUR 18,000 for year 1 and beyond.
  • There are three online B2C licensed verticals: gambling, skilled gaming and social gaming, where the gambling covers games of chance, lotteries, and betting.
  • There is a gambling software license which is not compulsory for supply to B2C Tobique Operators and can be extended to aggregator type supply. Under an aggregator licence third party gambling software can be supplied. In any event the gambling software will need to be certified in accordance with recognised standards of reputable licensing jurisdictions and by approved independent test labs.
  • Critical suppliers will need to be notified and approved.
  • Several responsible gambling management and information features and measures will be prescribed including self-exclusion.
  • AML regulations and codes of conduct will apply Financial Action Task Force’s “International Standards on Combatting Money Laundering and the Financing of Terrorism and Proliferation” measures.
  • Restricted target jurisdictions (as updated from time to time) are: Afghanistan, Canadian Provinces of New Brunswick and Ontario, China, Cuba, Central African Republic, Democratic Republic of Congo, Haiti, Iran, Iraq, Israel, Libya, Myanmar, N. Korea, Russia, Somalia, South Sudan, Syria, UK, USA, Yemen and Venezuela.

Timor-Leste

At this point in time little is known about this new online gambling licensing hub based in Indonesia. However, an organisation known as the Virtual Gaming Association (VGA) of Timor-Leste announced in a special industry event on 2 February 2024, that it will be recommending to the Timor-Leste government to grant both B2C and B2B licences, based on regulation modelled on Malta and the Isle of Man rules.  Licences expect to be granted in the second or third quarter of 2024. It was also confirmed that the VGA will be conducting a consultation process with the industry to further refine its regulatory approach.

Anjouan

Similar to Timor-Leste, very little is known about the licensing regime of Anjouan, part of the Comoros Islands. At this stage it seems almost too good to be true with very low barriers to entry, no gaming tax and a one size fits all online gambling licence.

General

The defining factor in deciding between Tobique, Anjouan and Timor-Leste as alternatives to Curacao, will not necessarily be how easy and cheap it is to obtain and operate the licence but how others view the licensing regime. Principally this will be the payment service providers and gambling software platforms. A balance will need to be struck between a low cost / lenient jurisdiction which may be good for B2C operators but viewed as high risk and out of bounds for the suppliers due to lack of credible regulation. Against the alternative of a higher cost, tougher application process but well-regulated regime designed to keep out bad actors, keep crime out of gambling and safeguard players.

Curacao was always the favoured jurisdiction for online operators seeking a low cost, quick entry and minimal ongoing compliance regime. That regime, as mentioned above is undergoing change to bring in higher licence fees, presence requirements and a more robust regulatory and compliance framework and compliance. In the interim and before the alternatives of Tobique, Anjouan and Timor-Leste were or are ready to accept applications, operators (and suppliers) have been opting to be licenced in Isle of Man and Estonia. Both of these allow for targeting of unregulated jurisdictions and have recognised regulatory regimes acceptable to most if not all suppliers.

Target Markets

There is a moving “target” and constantly changing as new regulatory regimes come online or increased enforcement and other measures create unacceptable risks for operators and suppliers relying on their .com licences.

Therefore, there is no prescribed list of acceptable target jurisdictions, especially as .com regulators all have different risk appetites. These risk appetites are generally founded on several factors such as:

  • Presence (infrastructure, mind & management) in the .com jurisdiction substantiating the argument that the gaming /wagering contracts are struck and legally binding in that jurisdiction vs their point of consumption where the laws may be vague or non-existent.
  • International treaties and cooperation agreements – this is particularly true for EU member states where Article 26 provides for free movement of goods and services between member states. Therefore, Malta and Estonia as member states can justify supply under their licensing regimes to other member states. However, where those other member states bring in local licensing which is held by the EU Commission as proportionate and non-discriminatory, then that argument may fall.
  • Extra-jurisdictional enforcement – target jurisdictions may have laws which allow them to initiate proceedings for breach of their laws in other jurisdictions, namely .coms.
  • Tax laws and treaties – in parallel with regulatory prohibitions and associated enforcement in target jurisdictions, these same countries may impose taxation on goods and services supplied in their jurisdictions. An example would be VAT, which may need to be registered for and paid in respect of player revenue, irrespective of local licensing.
  • High risk jurisdictions – typically these relate to Financial Task Action Force’s (FATF) prescribed black and grey list of countries. In addition .com regulators may impose restrictions on accepting players from countries with high corruption, where many entities are heavily sanctioned, countries considered to be funding terrorism, conflict zones, etc.

As well as the above factors largely driven by .com regulators’ concerns, the operators and suppliers may themselves find certain countries unappetising due to other issues such as:

  • IP blocking
  • Payment blocking
  • Lack of online payment solutions
  • Blacklisting
  • Player civil actions
  • Cost of player acquisition
  • Arrest warrants for executives travelling in target jurisdictions
  • Tax liability and enforcement
  • No local advertising possible

The lists can go on, where it really comes down to risk appetites of operators, suppliers and their owners and executives who may be held personally liable.

Understanding and mitigation of risk is therefore key. Strategies such as adopting low level advertising footprints and non-localised offerings in target jurisdictions are commonly adopted. Use of the Advennt platform enables subscribers to monitor and measure the risks as they evolve, to facilitate these mitigation strategies.

Currently some of the lower risk target jurisdictions which may be commercially viable to operate in and where local licensing is not yet in place are Canada (excluding Ontario), India (excluding Sikkim, Nagaland, Tamil Nadu and West Bengal), New Zealand, Finland, and Norway. There are many emerging markets in Africa, Latin America and Asia which can also be analysed, where in these cases operational considerations will also play a large part in the decision making.

Unregulated products

So far in this series we have discussed gambling products which are subject to regulation or prohibited. Regulation generally means high barriers to entry, high fees / taxes and significant time / effort spent in complying with complex and in some case rehabilitating regulations.

In essence most gambling laws worldwide have definitions in place which dictate which products will be deemed to be gambling activity. These comprise of 3 elements: a stake/ wager/entry fee paid by a player; presence of chance or luck; prizes in the form of money or money’s worth payable to winners.

Depending on the jurisdiction, at least two of the three above elements must be present to take the product into the realm of gambling. In some jurisdictions all three will need to be present, making them more accessible to such offerings.

Again, as an over- simplification there are broadly two types of products that fall within this unregulated category, namely free entry competitions and skill-based competitions/games.

The rules and definitions will differ significantly between countries and often within countries, for instance in the USA each state has its own definition on what constitutes a game or chance and therefore gambling.

In general, the higher the predominance of skill over chance the more likely a product is deemed to be a game of skill and outside gambling regulation. In some cases, the element of chance will need to be eliminated by superlative skill (UK) or so insignificant as to be completely immaterial. In the most extreme cases the element of chance will need to be shown as completely absent, which is often very difficult to achieve.

The free entry exemption in many jurisdictions does not preclude the ability to also have a paid entry route present. In such circumstance a player will have a choice of entering a prize competition, raffle or other arrangement for free or for a fee. Rules vary between jurisdictions but often the free entry route must not be discriminated against or made harder in an effort to encourage paid entry. A prize raffle linked to a product or services promotion is also considered free entry in some jurisdictions, if the cost of the promoted product is not increased to pay for the raffle prizes.

The unregulated business model has become widely commercialised in recent years given the attraction of a regulation free offering. This can lead to problems of its own, particularly in the UK where the Gambling Commission is pushing for a clampdown to eradicate commercial free prize raffles.

These unregulated products are often seen as loopholes or workarounds to avoid regulation. As unregulated products they are not subject to the same controls to protect vulnerable persons. This is particularly evident in the case of minors who are a target audience for networked online video games (eSports). Some of these eSports products contain features such as loot boxes which are in themselves chance based engines generating in game items (“skins”) often for a fee.  This creates a cross over into gambling and in some jurisdictions the use of loot boxes is banned.

There are also predatory sites which allow skins to be traded or used as a virtual currency for gambling. All these developments in the unregulated space will no doubt lead to some form of future regulation to safeguard vulnerable persons and protect against cheating which can be prevalent in eSport, via the use of augmenting software.

Finally, the absence of regulation and licensing may itself cause problems for operations when it comes to their supply chain. In particular payment service providers will require in depth legal analysis per jurisdiction on the legality of the offering before they accept them. As this business model is relatively new and untested and as many unregulated products appear so like gambling ones, suppliers are hesitant to move ahead without a licence being in place.

This rapidly evolving and complex area needs to be thoroughly analysed and planned before embarking on it. The Advennt platform addresses this sector and will facilitate this planning phase and ongoing monitoring of the changes as  they happen.

If you would like to know more about upcoming developments for sports betting and gambling regulations in unregulated markets, get in touch with our team of experts at support@advennt.com or fill up our enquiry form at the bottom of our Contact page.