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Digital economy: credit card ban presents tougher environment for gambling companies

Simon Fuller, IBA Managing EditorTuesday 3 March 2020

The Gambling Commission – which regulates gambling in Great Britain – announced in January that gambling businesses will be banned from allowing British consumers to gamble using credit cards from mid-April. The move follows a public consultation and is representative of the increasingly hostile environment for gambling companies in the UK.

Announcing the ban, Neil McArthur, Chief Executive of the Gambling Commission, said the move ‘should minimise the risks of harm to consumers from gambling with money they do not have.’ The Gambling Commission pointed to research indicating that 22 per cent of online gamblers using credit cards for gambling are classed as ‘problem gamblers’.

The ban follows interventions such as that of Claire Murdoch, NHS England’s National Mental Health Director, who wrote to major gambling companies in mid-January, urging them to restrict bets placed using credit cards even before the ban takes effect.

The ban comes with the risk that some problem gamblers will find more expensive ways to fund their gambling, such as payday loans and cash withdrawals from credit cards

Andy Danson
Head of the International Gambling Group at Bird & Bird

Andy Danson, Head of the International Gambling Group at Bird & Bird, says that ‘for the minority of problem gamblers who use credit cards to fund their gambling, the ban is likely to be very welcome, and for that reason it has been widely supported.’

He notes however that ‘it comes with the risk that some problem gamblers will find more expensive ways to fund their gambling, such as payday loans and cash withdrawals from credit cards.’ Such means are ‘far harder for gambling operators to monitor and identify as “markers of harm” triggering their consumer protection measures.’

McArthur acknowledged the necessity of monitoring any unintended consequences of the ban and that the measure must be accompanied by other efforts to tackle gambling harm.

Carl Rohsler, Head of Commercial, IP and Technology at Memery Crystal, has no doubt that the last five years has seen a significant ‘crackdown’ on the British gambling industry. ‘The regulatory environment has become more difficult, the press is hostile, and politicians of all colours have been scoring easy points against the private gambling industry – whilst at the same time essentially ignoring the National Lottery,’ he says. He notes several operators have left the business-to-consumer market altogether.

Critics of the gambling industry are seeking further action, however. While welcoming the credit card ban, Carolyn Harris MP, Chair of the UK’s Gambling Related Harm All Party Parliamentary Group (the ‘APPG’), told Global Insight that the APPG is calling for work to begin urgently on new legislation to replace the current Gambling Act 2005 (the ‘Act’), to ‘ensure we have a legislative framework that is fit for the digital age.’

The Conservative Party Manifesto for the UK General Election in December 2019 referred to the Act as ‘increasingly becoming an analogue law in a digital age’ and the Conservative-majority government has since confirmed a review of the Act.

Danson argues however that the Act is ‘well future-proofed’. He suggests that ‘just about every potential reform which has been proposed by campaigners could be achieved via [the] mechanisms under the current Act.’

Changes are afoot beyond the UK. Diane Mullenex is Chair of the IBA Electronic Entertainment and Online Gaming Subcommittee and a partner at Pinsent Masons. She explains that ‘enforcement action and large fines against operators have increased dramatically over recent years.’

In France, for instance, a new regulation on gambling entered force on 1 January and provides the country’s new regulatory authority with greater powers to sanction gambling companies. It allows fines of up to five per cent of a company’s turnover.

Paul Foster, a director of the Gibraltar Betting and Gaming Association (GBGA) – a trade body representing numerous online gambling companies based in Gibraltar – acknowledges the increase in regulation across the industry. He highlights though that ‘in many cases this has been a clarification of regulatory intent and highlights the growing regulatory maturity within countries.’ Foster believes ‘the speed of this change has taken many operators by surprise.’

In 2014 Great Britain brought in a point of consumption (PoC) tax, which forces companies to pay tax on revenue made where a gambling game is played. Other jurisdictions are doing the same. In Sweden for example, new gambling legislation entered force in January 2019, fully regulating the market for the first time. It introduced a PoC tax as well as a licensing system for gambling companies, which replaced Sweden’s monopoly regime.

A major driver of regulatory change in the United States, meanwhile, was created in May 2018, when the US Supreme Court struck down the Professional and Amateur Sports Protection Act 1992. The decision has allowed individual states to bring in legislation permitting sports betting – and over 20 have so far. ‘This decision has removed sports wagering from the realm of illegal bookmakers and offshore websites, allowing for consumers to wager safely and legally, and providing millions of dollars in tax revenue to states that were early movers,’ says Jeff Ifrah, Founding Member of Ifrah Law.

For those jurisdictions – such as Alderney, Gibraltar and Malta – that since the late 1990s have offered their services as locations in which companies can base their international gambling operations, the shifting regulatory environment poses challenges. Mullenex says that an ‘increasing number of jurisdictions… require local licences for businesses to operate in those markets.’ In other words, gambling companies in the 2020s cannot rely as readily on the licences issued by the likes of Gibraltar and Malta, once known as the ‘white-list’ territories. ‘As the requirement for national licensing on an “end-user basis” steadily increases, the importance of these territories will inevitably diminish,’ Rohsler believes.

Despite the direction of travel of national regulation, these former white-list jurisdictions remain important for the industry. Foster highlights that for challenging times, a mature regulator and mature licensees are needed: two things he says Gibraltar has and works to maintain. ‘The fact that these jurisdictions have developed good technical infrastructure, are home to an experienced gambling sector workforce, and have low rates of local tax, mean that they will likely continue to have an important role,’ adds Danson.