Market Focus: United Kingdom

The central piece of legislation underpinning the UK market is the 2005 Gambling Act, which replaced the 1968 Gaming Act. Initially, the 2005 Act applied to those persons or businesses which had a physical connection with Britain, however this was amended in 2014 from a ‘point of supply’ style regulatory regime to a ‘point of consumption’ one. In simple terms, this criminalised the activity of supplying gambling services to UK players from anywhere in the world without the prior obtaining of a UK licence. It also had the effect of levelling the playing field between online operators not based in the UK yet which were targeting the UK and their UK-domiciled counterparts.

As part of this, three important changes were introduced, including the aforementioned switch to a Point of Consumption (PoC) regime, under which any operator wherever they may be domiciled would now be liable to pay tax on those earnings, was perhaps the widest ranging in its impact.

Since 1 November 2014, all operators advertising gambling services in the UK and/or transacting with customers physically located in Great Britain, must hold a licence from the Gambling Commission (UKGC). Later, in December 2014, legislation was introduced requiring all operators (regardless of their location) to pay remote gambling duty on all transactions with customers whose normal place of residence is in the UK.

The 2005 act sets out three main objectives: Preventing gambling from being a source of crime, ensuring that gambling is conducted in a fair and open way and, finally, the protection of children and the vulnerable from exploitation due to gambling.

It is divided into eight parts, interpreting key concepts and definitions of important terms, establishing the powers and duties of the UKGC, addressing offences, protecting children and licensing.

In respect of online gambling, the Act asks questions which establish if gambling takes place. These seek to confirm if the type of activity is gambling, what type of gambling it is, whether it takes place online and whether the person or persons involved are providing facilities for gambling. If any of these criteria are met, then a licence is required from the UKGC.

Population: 66.44 million

GDP per capita: $39,720.44

Internet penetration: 81.4%

Prime Minister: Boris Johnson (Conservative Party)

Principal regulatory body: United Kingdom Gambling Commission[/box]

The definition of gambling falls under three headings: Gaming, betting and participating in a lottery. While the definitions of betting and participating in a lottery are fairly self-explanatory, gaming means playing a game of chance for a prize.

Playing can involve a sole participant, even in those instances where a computer represents other players, while prize is defined as anything given including money or money’s worth. UK legislation defines games of chance as games involving both chance and skill, even where the chance element can be eliminated by a high level of skill.

Individuals provide facilities for gambling if the person involved invites others to gamble in accordance with arrangements made by him, or if the individual provides, participates in, operates or administers arrangements for gambling by others. Licensed activities include arcades, betting, bingo, casinos, gambling software, gaming machines, lotteries and remote (online gambling).

The 2005 act states that a person commits an offence if during business activities manufactures, supplies, installs or adapts gambling software without first obtaining an operating licence. Gambling software is defined as any computer software for use in connection with remote gambling but does not include anything to be used solely in connection with a gaming machine.

What constitutes gambling software is defined by several factors outlined in a document published by the UKGC in June 2014. In the document it stated it was concerned with who retained ultimate control of product development, the assertion being that this is the person who may or may not be acting illegally.

These factors include who is responsible for design and functionality together with testing and approving design changes. The ownership of the intellectual property, the terms of the contract and whether that contract is financially remunerated, or a payment of time and expertise is also included.

Since 1 November 2014, an operator must hold a licence from the UKGC to advertise in the UK, however the UKGC has confirmed that advertising-only licences will not be granted.

Advertising is defined as doing anything to encourage one or more persons to take advantage (whether directly or through an agent) of facilities for gambling, with a view to increasing the use of facilities for gambling or bringing facilities for gambling or information about them to the attention of one or more persons.

The content of advertisements is regulated by both the Advertising Standards Authority (ASA) and the Committee of Advertising Practice (CAP), which can issue binding rulings against operators over advertising.

The Secretary of State can pass regulations relating to gambling advertising by controlling the form, content, timing and location of advertisement for gambling, including requirements for specified words to be included in the advertisement. However, to date, no secretary of state has chosen to exercise this power.

The regulator

The UKGC is the central authority in charge of regulating casinos, bingo clubs, gaming machines, lotteries and the online gambling sector. It issues licences to operators and individuals, creates regulatory standards to govern the industry and advises government and local authorities on regulations. In its capacity as regulator it also can issue fines against operators for non-compliance, attach additional conditions to a licence and suspend or revoke operator licences as needed.

The central means by which it regulates is in the form of the licensing conditions and codes of practice document (LCCP). A living document, the LCCP can be added to and/or amended in line with industry needs without the need for an amendment to the 2005 Gambling Act. The UKGC assesses operator conduct against these standards and issues fines, suspends or revokes licences based on individual clauses.

If the suspicion is that an operator has acted improperly, the UKGC has the power to call an operator licence in for review, initiating an investigation to substantiate the suspicions. However, it can also act against any operator including a suspension or revocation without first initiating a review.

UK gambling licences are categorised into ‘remote’ (online) and ‘non-remote’ (land-based) and operators must hold separate licences for each vertical. Licences are awarded on an application basis and not subject to tender. They are also separated by individual strand of business.

In respect of sports betting online, licences are separated into betting on real and virtual events, pooled betting, general betting and remote betting as an intermediary. Operating licences also exist for online bingo, online casino, online society lotteries and online gambling software.

In addition to these main licences, four new ‘host’ sub-categories were introduced in April 2017, exclusively for those operating B2B gambling businesses. These include host licences for online casino, bingo and betting, split between real and virtual events.

These licences can only be granted in circumstances where two criteria are met, namely whether the applicant has a gambling software operating licence and, on the proviso, that the applicant does not contract directly with players.

Application fees for licences, together with annual fees payable by operators are not set at a uniform level and vary based on the operator’s annual gross gambling yield. The annual gross gambling yield is set at those who operate with a yield of less than £550,000 per annum, capped at a maximum annual gross gambling yield of £1bn or greater.

The first annual fee is due 30 days after licence issue, with subsequent annual fees due every year before the anniversary of the day the licence was issued. Operators who apply for a combination of different kinds of licences receive a discount on their annual fee on this basis.

Applications for online gambling licences can only be submitted online via the UKGC’s online application form. Most of the application requirements are similar, although there are differences between land-based and online business models. Documents required include information on the firm’s ownership and management structures, company set-up docs, terms and conditions, accounts and copies of any licences held in other operating jurisdictions.

Taxation

Taxation rates are set at varying rates and on various calculation methods between verticals at rates between 3% and 21%. General betting duties start out at 3% for financial spread bets, rising to 10% for all other types of spread betting. Fixed-odds and totalisator bets are taxed at a rate of 15%, while pool betting duty is also levied at 15%.

Remote gaming duty, i.e. the tax payable by all online operators was set at a rate of 15% under the Act but was increased to 21% in April 2019 in combination with the reduction in maximum stakes for fixed-odds betting terminals to £2.

Restrictions

Other than restricting UK-based gambling to licence holders, the UKGC imposes no restrictions on operators.

Local Expert View

Richard Williams, partner, Keystone Law

Richard Williams is a London-based gambling lawyer, focusing on the land-based and remote gambling sector in the UK and internationally. He has a particular interest in cryptocurrency, marketing and advertising, AML and social responsibility. Williams has recent experience advising operators in relation to compliance assessments and licence reviews and has just been involved in a major judicial review of GB gambling legislation. He holds the ICA Certificate in Money Laundering Risk (Betting and Gaming) and is a regular contributor to industry publications and a speaker at international gambling conferences.

EGR Compliance: Where are the biggest opportunities for operators entering the UK market?

Richard Williams (RW): I’m sorry to be negative, but now is not a great time to be considering entering the UK gambling market. It’s well documented that the press, government, All Party Parliamentary Group (APPG) and the UKGC are all giving the gambling industry a hard time and that increasing regulation and revised legislation is on the cards. With the recent gaming duty increase, ban on credit cards, focus on AML and social responsibility compliance and licence reviews and suspensions, it’s no wonder that operators are leaving the UK market and concentrating on jurisdictions where there is potential for growth and better ROI. While opportunities for ‘regular’ B2C gambling operators are therefore limited, it’s not all negative news.

I see opportunities for niche gambling operators to thrive, for example those focusing on esports, financial or novel betting markets. While the regular slots development market is saturated, there is scope for developers to build skill games and customer retention products. Given the crackdown on remote gambling, I also see an improved outlook for land-based operators such as casinos, when customers realise that going out to a casino is more fun than playing online. There will be a time when the internet becomes stale. I also expect to see lotteries being boosted by the recently increased financial limits, so we should see more external lottery managers popping up. Time will tell how the industry shakeout pans out – let’s all hope there is something left of it at the end of the day!

EGR Compliance: Where are the biggest deficiencies in UK regulation and how would you address them?

RW: I don’t think there is any big deficiency in UK regulation. The UK gambling market is probably the most highly regulated market in the world and that regulation is being enforced strictly by the UKGC. I do not think we need a new Gambling Act, as the existing legislation is not ‘analogue legislation for a digital age’ as some commentators have claimed. The Gambling Act 2005 has always covered remote gambling and, in my view, it remains fit for purpose. My biggest concern is about the money laundering regulations and the way that those regulations are being interpreted. Sometimes you need to go back to the letter of the law to establish what operators are actually required to do, rather than what they are told they need to do.

EGR Compliance: Is the UKGC doing a good job of regulating the UK market?

RW: It depends which side you are on. Looking at it from the regulator’s viewpoint, the UKGC is doing an incredible job of ensuring that operators are compliant. Just looking at the paperwork involved in some licence reviews makes you realise what a huge and complex job a review is. And the Commission is dealing with many compliance assessments and reviews at the same time. It’s good that industry standards have been raised by this compliance work. However, from an operator’s viewpoint, this can be seen as over regulation and there has to be a happy medium. I would like to see more of a joint effort to raise standards rather than a hostile attitude to the industry (and which after all, funds the regulator).

EGR Compliance: How would you describe its approach to international operators?

RW: I think the UKGC is doing the right thing by telling international operators they must not presume that more relaxed regulatory standards abroad will be acceptable in the UK. Over the last 12 months there has certainly been a focus on the Maltese-based operators, particularly in relation to AML and SR compliance. That’s right because Malta is in the EU and is subject to the same money laundering regulations as the UK. Some international operators see this as an attempt to drive them out of the UK but, in reality, there is nothing protectionist about this.

EGR Compliance: Has the rise in remote gaming duty made the UK market more or less attractive for operators looking to set up shop here?

RW: The increase in RGD from 15% to 21% in October 2019 will have inevitably hit operators and it’s quite a hike. However, it’s not catastrophic as it is imposed on profits. But with all the other compliance costs, including GAMSTOP, licence fees, responsible gambling contributions etc, there will be a point at which operating in the UK is not worth it. I think it’s really important that the industry works out how much it is paying to the Exchequer in duty and publicises this. I was incensed when the NHS told the industry it was having to pick up the cost of treating problem gamblers. Some of this duty operators pay should be ringfenced for training and treatment of problem gamblers and not just put in the general tax pot.

EGR Compliance: Would the UK benefit from a wholesale reform of its gambling regulations?

RW: No, I don’t think it is necessary to replace the Gambling Act 2005 or to make any significant revisions to the licence codes or conditions. Some tweaks to the legislation and LCCP may be required to deal with the more extreme issues that have been highlighted. Like it or not, we are going to see more focus on affordability. The Gambling Act 2005 has only been in force for 14 years – it’s still early days!