On September 13, 2021, the Alcohol and Gaming Commission of Ontario (AGCO) opened its online portal for prospective operators and gaming-related suppliers that are interested in participating in the province’s online gaming market. The AGCO has also released application guides for both prospective internet gaming operators and internet gaming suppliers in advance of the market launch, the date of which has yet to be announced.
The AGCO has opened up the registration application site early in recognition of the fact that applicants will need time to prepare, collect and submit the required information and supporting documentation. The AGCO encourages applicants to provide as complete an application as possible to ensure timely processing. Complete applications will generally receive priority treatment. The registration process is discussed in more detail below.
Key facts about Ontario’s new internet gaming (or “iGaming”) market include the following:
- The market is expected to commence soon – potentially before the end of 2021 – and is designed to enable registered operators and suppliers to participate in a competitive and regulated industry;
- New participants will compete with the Ontario Lottery and Gaming Corporation (OLG), which currently operates the only legal Internet-based gaming platform in Ontario (focusing on interactive casino-style games including slots, as well as blackjack and other table games);
- Single-event betting is also expected to be part of the market, thanks to the new Safe and Regulated Sports Betting Act (Bill C-218). That federal legislation, which took effect in August 2021, amended the Criminal Code to remove longstanding prohibitions on this type of wagering.
Legislative and Regulatory Structure
Legislation, regulation and standards
The legislative and regulatory framework for Ontario iGaming operations includes:
- Part VII of the Criminal Code (Canada);
- The Gaming Control Act, 1992 (Ontario) and its associated Regulations;
- Ontario Regulation 517/21 under the Alcohol, Cannabis and Gaming Regulation and Public Protection Act, 1996 (establishing iGaming Ontario); and
- The Registrar’s Standards for Internet Gaming (“Registrar’s Standards”), which are expected to take effect when the market is launched.
The Internet gaming market will be regulated by the AGCO and by iGaming Ontario, a newly established subsidiary of the AGCO. In an effort to seek to ensure technical compliance with certain restrictions that remain in the Criminal Code, iGaming Ontario will have responsibility for “conducting and managing iGaming when provided through private operators”. This will be reflected in “commercial agreements” that iGaming Ontario will sign with Operators. iGaming Ontario will not be involved in the gaming operations of OLG.
iGaming Ontario’s role
The AGCO states on its website that iGaming Ontario will:
- develop, execute and oversee commercial agreements with private iGaming operators, as well as the required policies, programs and procedures that balance key government objectives such as consumer protection, reduction of red tape and revenue generation;
- execute commercial agreements with private iGaming operators, once they have been registered by the AGCO, and oversee contractual obligations for provision of their services in Ontario’s regulated iGaming scheme;
- implement and oversee reconciliation of iGaming revenues on behalf of the province;
- provide market insights and facilitate operator integration into the regulated market;
- implement responsible gambling requirements for operators;
- develop and oversee iGaming Ontario’s anti-money laundering program and policies; and
- establish a dispute resolution process to respond to customer concerns.
iGaming Ontario will also pay prizes and winnings to players (O.Reg. 517/21).
In contrast to iGaming Ontario, the AGCO will:
- administer the Gaming Control Act, 1992 (GCA) and its associated Regulations;
- establish and uphold standards and requirements (the Registrar’s Standards) applicable to OLG with respect to its internet gaming site, to iGaming Ontario with respect to its activities, and to all registered iGaming operators and suppliers;
- develop regulatory standards (the Registrar’s Standards);
- determine eligibility and register iGaming operators and gaming-related suppliers to ensure the integrity of sector participants;
- register independent testing labs (ITLs) that test and certify that iGaming technology meets the required Registrar’s Standards;
- monitor iGaming operators, suppliers and digital game offerings for compliance with regulatory obligations, including the Registrar’s Standards;
- where compliance concerns are identified, bring operators and suppliers back into compliance through the use of progressive sanctions, including warnings, suspensions, monetary penalties, and in the most serious of cases, revocations;
- work with iGaming operators and suppliers to increase their understanding of regulatory obligations and to improve overall compliance; and
- address regulatory complaints and inquiries, including those related to game integrity and fairness, misuse of private information, responsible gambling violations, and money laundering.
Internet gaming operators and internet gaming suppliers will be required to be registered with the AGCO. As noted above, applications for registration can now be completed and submitted to the online registration site.
For prospective operators
For operators, a separate application will be required for each distinct online gaming site. Guidance as to what constitutes a “distinct” site has been provided. Factors include whether uniform account credentials and/or common e-wallets will apply, branding, and whether the same or different operators are involved.
Note that an Internet gaming operator may engage in the same activities as an Internet gaming supplier. Anyone that is planning to be both an operator and a supplier need only apply as operator (with one application and one initial fee payment). In contrast, anyone registered only as an Internet gaming supplier is not permitted to operate a gaming site.
The operator application will involve both entity-level disclosure (including articles or partnership agreements, financial statements, ownership details, tax returns, a criminal background check for non-Canadian resident individuals, a list of suppliers, a diagram of the gaming site, and a “gap analysis” with respect to the Registrar’s Standards) and disclosure regarding key individuals (including partners, directors, officers, so-called “principal employees” and 5%-plus shareholders). Principal employees are employees who negotiate or set prices, have signing authority or who have ultimate day-to-day decision-making authority.
Processes and controls
As well, an independently audited assessment – referred to by the AGCO as a Control Activity Matrix – of the processes and controls put in place by the operator to meet the Registrar’s Standards will be required, either before or shortly after launch depending on the AGCO’s risk assessment.
A prospective operator will need to pay a non-refundable C$100,000 regulatory fee with the application, and, if successful, annually thereafter. A one- or two-year initial term can be selected. Prior to paying the non-refundable regulatory fee, a prospective operator may request a draft copy of the commercial agreement through the iAGCO online portal or via [email protected]. Prior to receiving a copy of the draft commercial agreement, a prospective operator will be required to agree to keep it confidential.
In addition to the non-refundable regulatory fee, any applicant may be required to pay the reasonable costs of an investigation prior to having its application processed and is advised to expect to pay additional payments to cover the AGCO’s costs of regulating internet gaming. The specific amount of these additional payments has yet to be determined, however, the AGCO notes that the amount could be significantly greater than the non-refundable C$100,000 regulatory fee.
For prospective suppliers
Unless otherwise subject to terms and conditions, registered suppliers will be able to provide gaming-related goods and services to the entire regulated gaming industry – not just to the iGaming sector.
Suppliers currently holding a gaming-related supplier registration and wishing to expand their supplier operations into the iGaming sector should discuss with the AGCO any additional requirements that may need to be satisfied first.
General criteria for registration
According to the Internet Gaming Suppliers Application Guide, those suppliers that do any of the following will need to register:
- provide, install, test, maintain or repair gaming equipment; or
- provide consulting or similar services directly related to operation of a gaming site.
Those who manufacture gaming equipment, in addition to any of the above, will be required to register specifically as manufacturers (a categorization that affects the fees payable, as discussed below).
Business types that may be required to register
While each case will be judged on its own merits, the AGCO provides the following list of business categories that will generally be required to register:
- platform providers;
- suppliers that manufacture, develop, provide and/or run games and game systems;
- customer electronic wallet providers;
- odds makers;
- sports integrity monitoring organizations; and
- independent test labs.
Business types that may fall outside the registration requirement
“Non-gaming related suppliers”, as that term is defined in the Gaming Control Act, 1992, are not required to register as suppliers for iGaming purposes. A non-gaming related supplier includes
…a person that provides only goods or services that, in the opinion of the Registrar, are not directly related to the playing of a lottery scheme or the operation of a gaming site. [emphasis added]
As with the business categories discussed above, “non-gaming related supplier” status will be determined by the ACGO on a case-by-case basis. As a general guide, however, the AGCO suggests that the following are likely to be exempt from registration on this basis (provided, of course, that they do not also carry on other supplier activities that are registrable):
- companies or individuals that provide technology components or services (e.g., ISPs, commercially off-the-shelf hardware, cabling or installation services, cloud server services, payment processing that does not include a customer wallet function, and geo-location providers);
- companies or individuals that provide business consulting or other services that may not be directly related to the playing of a lottery schedule or the operation of a gaming site, such as advisory services related to finances, organizational development, and customer service; and
- certain businesses or individuals that might sometimes be called “marketing affiliates” (i.e. websites that send traffic to iGaming operator websites in exchange for a commission or other form of payment).
The supplier application will involve both entity-level disclosure (including articles or partnership agreements, financial statements, ownership details, tax returns, a criminal background check for non-Canadian resident individuals, a list of suppliers, and a description of quality assurance processes) and disclosure regarding key individuals (including partners, directors, officers, so-called “principal employees” and 5%-plus shareholders). Principal employees are employees who negotiate or set prices, have signing authority or who have ultimate day-to-day decision-making authority.
A prospective supplier will need to submit a non-refundable regulatory fee of C$3,000 or (for manufacturers) C$15,000 with the application. If successful, annual fees will apply (a one- or two-year initial term can be selected).
Enforcement Against the Unregulated Market
The AGCO has developed a regulatory framework designed to
- protect consumers;
- safeguard the integrity of iGaming in Ontario;
- facilitate a business-like transition from unregulated to regulated schemes that is fair for registrants.
As part of this transition, the AGCO states that it is committed to taking strong action to address any remaining unregulated Ontario scheme activity in partnership with other law enforcement organizations.
The AGCO has provided the following guidance about its intentions with respect to enforcement during the transition phase:
- Applicants that apply before the launch of the new regime, whether operators or suppliers, must, on being issued a registration by the AGCO:
- cease any unregulated market operations within Ontario;
- terminate any association they may have with another company that operates in the unregulated scheme in Ontario; and
- Applicants that have not applied for registration by the new regime’s launch date and continue to operate in the unregulated market in Ontario or maintain an association with other entities that continue to do so, risk having their registration applications rejected.
The AGCO notes that it intends to ensure a smooth transition to the regulated regime. Consistently with its mandate, it will be practical, fair and pragmatic when engaging with applicants.