The licensing process in Great Britain requires operators to assess their rationale for taking business from jurisdictions where they do not hold a licence. Some operators are faced with this task for the very first time and the consequences are already visible.
As legal advisors to the online gambling industry for a number of years, we have been involved with various projects where operators and/or their suppliers have had to assess the legality of their operations by considering the application of various laws around the world to their on-going (or legacy) activities. Such an exercise would ordinarily be undertaken at the behest of a third party, be it a bank, investor, listing authority, IPO sponsor or nominated advisor. But for such a requirement, most operators took their regulatory lead from their banks or software suppliers who would contractually require them to exclude certain territories.
It was probably the first wave of US licensing of online gambling activities a few years back which lead to certain European operators and suppliers having their risk rationales assessed, for the first time, by a regulator. This proved quite a challenge as it became clear that certain parts of the regulators’ community did not appreciate the concept of a “grey” market, but instead expected their licensees to operate with affirmative legality.
The recent licensing process in Great Britain has required all applicant operators to disclose to the Gambling Commission (the “Commission”) the legal justification for their deriving revenue from jurisdictions in which they did not possess a licence. We are yet to see how this particular aspect of the licencing procedure pans out as, at the time of writing, most applications are still in the final stages of being processed.
The Commission’s stated aim was to give an understanding of the sophistication of prospective licensees, which goes to the heart of “suitability” and financial viability.
The process has been quite cathartic for certain operators who have had to assess their jurisdictional breakdowns for the first time and prepare themselves for the road ahead. Some fairly dramatic consequences ensued as operators closed jurisdictions down, sold certain parts of their business to other operators or came to the conclusion that the regulatory impositions of the Commission were too great for them to entertain.
Sadly, in what is a collegiate industry, one unsavoury aspect of the licensing process was the continued rumour that certain operators were pressurising the Commission to adopt a particular approach in relation to competitors and certain jurisdictions from where they derive revenue. It was a real shame that certain operators felt the need to adopt such tactics despite the very clear guidance from the Commission that operators were entitled to take different views on risk and adjust their businesses accordingly and that the Commission would not necessarily judge them any differently provided that the rationale that they adopted was a clear and justifiable one.