The Gambling (Licensing and Advertising) Bill, announced in the briefing note to the Queen’s Speech in May this year, received its first reading in the House of Commons on 9 May 2013 and has now been published.  Pitmans LLP looks at the potential impact on the way online gambling businesses structure their operations and advertise in the UK.

Current Regime:

Under the Gambling Act 2005, a licence from the Gambling Commission is only required to provide gambling services in the UK if an operator has at least one piece of remote gambling equipment located in Britain.  This means that a gambling operator based offshore who provides remote gambling services to consumers within Britain via a website is required to have a licence from the Gambling Commission only if a piece of its remote gambling equipment, such as a server, is based in Britain.  If this is the case, then a 15% levy on gross profits also falls due.  However, if all of its remote gambling equipment is located outside Britain, no licence is needed and no levy applies.

The Gambling Act 2005 also regulates how gambling services are advertised in the UK.  Operators based outside the UK, but regulated in an EEA state or Gibraltar can freely advertise in the UK.  Operators based in the Isle of Man, Alderney, Tasmania, Antigua and Barbuda are also able to advertise in the UK by virtue of being included in a ‘white list’ created by the Secretary of State.  Operators regulated outside the EEA or the white listed countries cannot advertise in the UK.

As such, currently operators with equipment outside of the UK have been able to advertise and provide remote gambling services to UK residents without shouldering the UK’s licensing or tax burden.  Currently only one major operator, Bet365, has remained in the UK, with all other major operators moving their equipment to more favourable tax regimes.

Proposed Reform:

The Gambling (Licensing and Advertising) Bill (“the Bill”) proposed to address the shortcomings which have become apparent since the 2005 Act came into force.  It proposes to amend the 2005 Act so that all operators currently advertising to or transacting with UK consumers would need to be licensed by the Gambling Commission.  They would also have to pay a compulsory point of consumption gambling tax, effectively taxing online operators on the basis of the location of their customers regardless of where the operator is based.  The white list would be phased out.  In summary, the Bill seeks to amend the Gambling Act 2005 such that:

  • An operator of gambling facilities will require a licence from the Gambling Commission (even if no equipment is located in Great Britain) if their facilities are used or are likely to be used in Great Britain.
  • The white list will be abolished.
  • All unlawful gambling can no longer be advertised.
  • A new offence of advertising unlicensed remote gambling applicable in Northern Ireland will be created.  Northern Ireland does not currently regulate remote gambling or the advertising of remote gambling, so this will bring Northern Ireland into line with the rest of the UK for advertising remote gambling.

The Bill still needs to proceed to Royal Assent, with a current proposed implementation date of December 2014.

Commentary:

The documents accompanying the Bill justify the changes it introduces as the need to give greater protection to UK consumers, arguing that the current system is flawed.  However, several of the entities opposing the Bill argue that there is no clear evidence that UK consumers are being harmed by the current system of regulation and, as such, the Bill is incompatible with the Single Market.

Should the Bill become law, the Government’s plan is for there to be light touch regulation by the Gambling Commission relying, for example, on work done by regulators in other territories so as to avoid duplication of effort.  This does, however, pose the question why additional regulation is needed at all if only a light touch regulation is required.

It is anticipated that the best course of action for remote gambling operators should the Bill come into force is, rather than deregistering from their offshore locations (which will still benefit from favourable tax conditions for businesses outside the UK), they should establish UK subsidiaries providing services exclusively to UK consumers.