Accentuating the Positive in the UK

IGamingNews ran a survey several weeks ago to ask what subscribers thought were the most promising jurisdictions for future I-Gaming licenses. The choice was overwhelmingly in favor of the United Kingdom. Does this response hold up to scrutiny?

Developments in the United Kingdom are certainly beginning to take shape ever since the U.K. Home Office established the Gambling Review Body, chaired by Sir Alan Budd. This was the first review of gambling, gaming and betting in the United Kingdom since 1978. The report, released in July 2001, was the first salvo in the effort to create a regulatory framework for I-gaming in the United Kingdom. Point 1.34 makes it clear that "operators should be permitted to set up on-line gambling sites in Great Britain provided they are licensed and regulated by the Gambling Commission."

The U.K. Department of Culture, Media and Sport took up this challenge with their publication of "A Safe Bet for Success - modernising Britain's Gambling Laws," released in March 2002. This was the result of a wide consultation with industry, social responsibility groups and local and national government departments. Point 4.47 states, “We will as the Review Body has proposed, move towards legalising the provision of the full range of on-line gambling services by operators located in the U.K…”.

The seemingly wide acceptance of the proposal for a U.K. license for online operators must not hide the fact that many a proposal to adopt legalized online gambling in other countries has failed for two reasons. First, attempts at licensing have become casualties of politics. This is a much harder issue to tackle and in many cases simply calls for going back to the drawing board. Second, implementation of licenses has led to onerous and misguided rules that require such high compliance costs that undermine the feasibility of business models. Overly prescriptive, scenario-guessing rules that attempt to eliminate all risk make it practically impossible to conduct a feasible, sustainable business operation.

The latter point will be the main concern in the United Kingdom. Current indications are that the government officials understand that such micro-managing of operators will not induce operators to establish themselves in the United Kingdom. The Gaming Act of 1968 is a prime example of overly prescriptive legislation stunting the growth of the U.K. market. What can one expect then from the current legislative process?

The first aspect is structural. The detailed requirements for operators will not come from the legislation in force. It will instead come from the future Gambling Commission which is going to be given much larger powers as compared to the current Gaming Board of Great Britain. Two aspects are crucial here--learning from precedents in other countries constructing licensing conditions and drawing upon the positive points of the existing U.K. licensing system for terrestrial operators. In particular, the underpinning of such a license should be, as pointed out in the Budd Report, that "licensed operators be required to pass and fit and proper test." These tests, whatever form they should eventually take, should serve as the first vetting point for licensees and thus act as a brake on prescriptive regulations.

A second aspect will be on those areas deemed particularly sensitive and where assurances will require deeper action from regulatory authorities. Rightly so, areas such as the prevention of underage gambling and problem gambling will require mechanisms to insure that reasonable efforts are being made to curb these two activities. This was duly reinforced by the U.K. House of Commons Select Committee on Culture, Media and Sport who recommended in July of this year strict guidelines to restrict underage and problem gambling. Currently two aspects appear to insure that the approach to these issues is widely accepted. The first is that in the United Kingdom there is a strong relationship between social responsibility groups and the industry. Thus the chances of reaching an acceptable standard for prevention of these two problems is more probable than waiting for unilateral regulations from authorities. Second, there is a mutual interest in reaching a standard since it will most likely be adopted by the Gambling Commission without adding in further regulation. This provides a strong incentive for both groups to reach an agreement.

The third aspect that looks favorable is the issue of jurisdiction. With the U.S. Justice Department seesawing between country of origin and country of receipt, the United Kingdom is leaning towards a strict country of origin regime. While the overall global approach to this legal matter is not very clear, the Department of Culture Media and Sport seems to understand that anything less than a country of origin regime would stunt growth in operators taking up a U.K. license. This is a critical point as some countries are attempting to restrict online gambling through "border restrictions." Such a system would cause chaos and simply be untenable for an operator.

A final point to be made concerns the “flip side of the coin” – taxation. The Treasury has made constructive moves to develop better taxation regimes such as the move to GPT for bookmakers and extending this regime recently to bingo operators. However, it is not yet clear as to what approach they will take to UK licensees for I-gaming. The key will be whether the Treasury sees this issue as a global one or whether it gets trapped in the arguments of precedents already in the United Kingdom. This is where "joined-up" government will be critical. The DCMS would certainly not wish to create a license that was not going to be taken up due to high tax burdens.

It is clear following the recent US guidance on the interpretation of the Wire Act, the U.K. government's proper treatment of gambling as a leisure activity, and the overwhelming sense that I-gaming will be a "winner" on the Internet, that the recent developments in the United Kingdom are certainly positive. However, there are still some pressing problems which need to be addressed, namely the continuing problem regarding payment methods, money laundering, advertising and the Gambling Commission mode of operations. More on this later...

"Accentuating the Positive in the UK" is the first article contributed to Interactive Gaming News from Wes Himes. His articles will appear in IGN monthly during the second week of the month.