Gambling Jurisdictions and Licensing
Global Gaming Jurisdictions
In this article we’d like to introduce you to the various gaming jurisdictions. The last decade or so has sparked a significant increase in online gambling operators across the globe, hence the reason most countries decided to regulate and tax it.
Governments must impose the necessary regulatory framework to police the licensing and operations of all gaming sites that fall within their jurisdiction.
In the event a casino wants to operate within a specific jurisdiction it must first apply for a license from the regulatory body in whose jurisdiction it wishes to operate. Today reputable jurisdictions carry out detailed spot checks before granting a casino a license. Sadly, there are others that don’t follow these criteria. The following jurisdictions are considered white-listed: Alderney, Gibraltar, The Isle of Man and Malta. These jurisdictions fall within the ambit of the British Gambling Commission and European Gambling Commission.
It’s imperative that players understand where the various gaming jurisdictions are situated and should wager only at sites licensed in these jurisdictions. In the event a player wagers at an operator that is not from a trustworthy jurisdiction, there’s always the added risk of being duped because of fraudulent software or because the casino refuses to pay the player’s winnings.
Online gambling was prohibited in the USA in 1999 and in Australia in 2000. However, many US states are busy legalizing some forms of online gambling. But according to the Federal Wire Act all remote gambling and betting activities are still illegal.
The main markets for online gambling is still the European Union (EU). In the EU there are differences from member to member but generally offering online gambling within the Union is legal under specific conditions. It’s the same in some regions in Canada and certain Caribbean countries. I’m not going to discuss the license fees jurisdictions charge operators since I’ve already covered it in this article.
Criteria Jurisdictions Impose Before Issuing a License
There are three areas reputable gaming jurisdictions investigate first before issuing the applicant with a license. Who the promoters are, are the casino games certified by a RGN (Random Number Generator) as well as the intention and means to pay winners. Nowadays many online gambling operators must provide the necessary information outlining their past and present dealings plus the organizations or persons they work with, in conjunction with financial statements and references.
In general professional agencies like PricewaterhouseCoopers conduct monthly audits of the casino’s average payout percentage for all its casino games by subjecting it to risk analysis before licensing and the proper reporting of the house edges or payout percentages.
To ensure that the winners are paid it’s imperative to first gauge the financial strength of the applicant and to ensure that its payout system is automatic and transparent. Most gaming jurisdictions encourage players to report any discrepancy of an internet casino that’s been issued with a license in their jurisdiction.
European Union Directives
In the section we will introduce you to the EU green paper on online gambling. Figures available for 2008 indicate that online gambling services accounted for annual revenues in excess of $8 billion dollars, representing 7.5% of the overall EU gambling market. It is the fastest growing segment of the gambling market and in 2008 was expected to double in size by 2013.
The channels used to offer online gambling services are the Internet, mobile applications and Internet Protocol Television (IPTV). National levels of demand for these services vary across the EU, however, this also depends on a number of factors. The UK, for example, is presently the largest market given that its e-commerce market is twice the size as the EU average. Germany is the second largest market. Interestingly, some of the largest markets in 2008 were Member States characterised by the restrictive regulatory model, i.e. France, Germany, Italy and Sweden.
As of 2008 the largest markets in the EU were: The United Kingdom, Germany, Italy, France and Sweden. As online technology continues to develop through diverse channels like the Internet, mobile phone technology or digital TV. The different forms of gambling services can operate outside the control of ‘Member States’ competent authorities.
Online gambling in the EU is characterised by a diversity of regulatory frameworks. Some Member States have monopolistic regimes run either by a public or private operator on the basis of an exclusive right. Whilst other have established licensing systems for more than one operator.
The Responsibility of the European Commission
If already discussed this in my previous article (see link above) but will give a brief overview again.
- The operator must comply with the national regulatory frameworks with EU law.
- Enhance administrative cooperation and proper enforcement.
- Protect consumers, the young and vulnerable groups
- Prevent fraud and money laundering
The EU Green Paper
What exactly is the purpose of the Green Paper? It seeks to canvass views from all interested parties to get a better understanding of the issues arising from internet gambling directed at consumers within the EU.
Strictly speaking, there are two models of national regulatory framework applied in the field of gambling: 1. Pertains to licensed operators that provide services within a strictly regulated framework. 2. Operators that operate within a strictly controlled monopoly. In other words state owned or otherwise. These two models co-existed within the internal market with relatively limited possibilities of selling gambling services across borders in the past.
Since the online gambling market is the fastest growing market. Member states with monopolistic regimes opted for an opening of their online gambling and betting market. It is important to note that sports betting in contrast to other forms of gambling in certain national regulatory regimes are subject to lighter licensing regimes.
Governments in Europe face many challenges, they must raise the need for enhanced administrative co-operation between competent national authorities. Furthermore, out of the 14,000 odd active gambling sites in Europe more than 85% operated without a license. The unauthorised cross border market remains accessible to consumers, due either to the de facto tolerance or lack of effective enforcement.
The Green Paper also encourages the European Commission to study, in close cooperation with national governments, the economic and non-economic effects of cross border gambling. Under EU law, as confirmed by the CJEU, gambling services fall under Article 56 TFEU. The rules of the provision state that a Member State may provide services to consumers in other Member States. Having said that, Member States’ overall policy vis-a-vis online gambling must be applied in a consistent and systematic manner. Many stakeholders such as citizens, operators, media, intermediaries, sport events organizers, clubs and other beneficiaries are affected by the online gambling market.
With regard to citizens, the market for gambling be it online or offline is one the 50 markets covered in the annual Consumer Market Monitoring Survey. The market is rated 29th out of 50 included market. The consumer ranking for ”comparability” is high, the rating for ”trust” is average and the rating for ”experienced problems” is way lower than the average. The overall rating for whether the product lived up to consumer expectations is relatively low.
The European Commission states that the majority of players do not suffer from problem gambling. However, those that do must be fully accounted for given the associated social costs for the player, his or her family and society as a whole. All gamblers need protection against fraudulent services. For this reason regulators seek to ensure that all games offered are controlled, fair (i.e. random number generators are in conformance with technical standards) and free from crime. As always transparency is key.
How does one define problem gambling? It’s often described as an urge to gamble despite harmful or negative consequences or a need to stop. To gauge the extent of problem gambling in the population or a country, comprehensive surveys, prevalent studies must be carried out. The two most widely used screening instruments used to identify problem gamblers are DSM-IV  and SOGS.
Depending on the responses to a list of questions, the player is defined as a problem gambler (SOGS), a pathological gambler (DSM-IV) or a probable pathological gambler (SOGS and DSM-IV), also referred to as a gambling addict. The Commission is aware of the nationwide prevalence studies for problem gambling in eight Member States. The level of problem gambling in the eight Member States varies nationwide from 0.5% of the entire population in the UK to 6.5% in Estonia.
Studies suggest that the main factors that influence problem gambling are the following:
- Event frequency. The briefer the time between the game taking place and the opportunity to place a stake the greater the risk.
- Payout interval. The time between placing of the stake and the result. The shorter it is, the greater the risk.
- Accessibility and social environment.
- Chasing losses or being close to winning. The greater the payout and probability of winning, the greater the delusion that lost stakes can be won back. This is also increases excitement or ”dream effect”.
- So-called skills and involvement. The possibility of getting involved in the event being gambled on and using one’s own skills to assess the chances of winning borders on the ‘near- miss’ psychology. This strengthens the feeling that one is in control of the game, thereby increasing the risk.
- Commercial communications that could trigger vulnerable groups. Different types of games or bets might pose a certain risk to the player. For example, fast payout slot machines, scratch cards and casino games are considered to be the most problematic in this respect. Lottery games that run on a weekly basis poses the less risk.
Online gambling provides operators with more sophisticated possibilities to track the transactions of each player compared to offline gambling formats. In contrast to prevalence studies, online gambling data allow for studies of the player’s real behaviour carried out by the Division on Addiction.
Based on long term analysis of individual gaming activity of a random sample of nearly 50,000 online casino players from 80 countries and online sports betting participants. The study revealed that 99% of the respondents of online sports betting did not display any unusual gaming behaviour compared to 95% in the case of online casino players. Addiction can be linked to the introduction of more ”attractive” types of games, whether online or offline.
A French report on Cyber crime and Gambling, estimates that a thousand gambling websites are directly operated by criminal groups. They offer non-authorised online games and also guilty of tax evasion.
Online Gambling and the Role of Jurisdictions
Activities of gambling authorities may cover a wide range of issues, including the issuing, suspending and the revoking of licenses. Jurisdictions must properly police and enforce administrative or financial controls, on-site inspections, technical inspections (equipment and software) and online monitoring activities. Unlicensed and fraudulent operators must be blacklisted and their owners exposed. There is a tendency in the online gaming community that once an operator is blacklisted, the owners simply close shop and open up a new site without being prosecuted.
Jurisdictions must also ensure that their licensed operators must implement Domain Name System (DNS) filtering. A DNS filtering mechanism ensures that potential customers are prevented to gamble on unauthorised pre-listed sites or are redirected to a licensed operator within a reputable jurisdiction.