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.