Presentation by David Clifton (Director, Clifton Davies Consultancy - - PDF document

1 Presentation by David Clifton (Director, Clifton Davies Consultancy Limited) at the Westminster eForum Keynote Seminar “The UK gambling sector: market developments, regulation and the impact of Brexit” held on 14 March 2017 at The Royal Society, 6-9 Carlton House Terrace, London SW1Y 5AG Examining key policy and regulatory priorities: Brexit, tax and forthcoming legislation I imagine that at the time this conference was being planned, it was anticipated that by the time it took place, we would have a very clear idea of the type of Brexit we would all be facing. Unfortunately, despite expectations that Article 50 will be triggered any day now following last night’s Parliamentary vote – unless any of you know a lot more than I do – apart from “Brexit means Brexit” and “a vote to leave is a vote to leave” we are still in the dark insofar as the detail is concerned. Never mind, to continue the vernacular: “it is what it is” and “we are where we are”. As a result, much of what I say about key gambling policy and regulatory priorities arising from the UK’s exit from the EU is going to be based on conjecture and surmise. To be fair, that may have been the case anyway. Triggering Article 50 will not of itself provide a basis for negotiating a new trading arrangement. Instead it will oblige the EU to try to negotiate a ‘withdrawal agreement’ with a leaving state, which is likely to be limited to practical issues arising out of the decision to leave. Obvious examples are those already hitting the headlines:

• the settling up of balances in relation to budgetary contributions and
• the relocation of nationals, including whether European citizens already here

in the UK are going to be allowed to stay, with most recently:

• the British Hospitality Association warning that many hotels and

restaurants will go bust unless the Government allows EU migrants to continue to work in low-skilled jobs after the UK leaves the EU and

• the heads of 35 Oxford colleges writing to The Times warning that the

University and its research work will suffer enormous damage if its European lecturers, researchers and support staff lose their right to work in this country. There remains a spectrum of potential models with, at one end of the scale, Britain taking up membership of EFTA and becoming a part of the EEA and, at the other, simply relying upon the principles set out in WTA Agreements. So – that’s the starting point: all of this uncertainty means that any forward projections are necessarily left dangling in that same realm of conjecture and surmise, but I think some principles are clear, certainly insofar as the remote gambling industry is concerned.

• 1. European Court of Justice (“CJEU”) caselaw has restricted the EU’s influence

in the gambling sphere – restrictions can be imposed if they are justifiable and necessary to protect legitimate public interest objectives and are applied consistently to local operators and to those in other EU Member States. As a result, gambling regulation is primarily dealt with across Europe on the basis

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• f national rather than EU legislation, including since 2014 – and despite the

GBGA judicial review challenge – the remote gambling regime in Great Britain, as a result of which operators targeting British custom will still need to

• btain an operating licence from the Gambling Commission post-Brexit.
• 2. We await the CJEU’s judgment in relation to the GBGA’s challenge to the

UK’s point of consumption taxation of overseas gambling operators, but signs are not looking good for them based on the Advocate General’s Opinion, published in January, that the UK and Gibraltar are a single Member State. After that, it will be a matter for the High Court in the UK to dispose of the case in accordance with the CJEU’s interpretation, but I’m afraid my money is

• n a second failed JR.
• 3. Technically, following Brexit, the UK would no longer be required to apply its

rules consistently with EU legal principles, meaning that it could, for example, impose additional licensing hurdles for EU operators or charge them higher fees or higher taxes, However, as other commentators have noted, it does not presently do so for other non-EU operators, so it’s probably unlikely that there will be any significant change post-Brexit.

• 4. Where change is likely to occur, however, is in relation to the ability of British
• perators to target players in EU Member States, for example:
• in Italy where licences are presently available only to those who have
• perated in another EEA state throughout the previous two financial

years, and

• in Germany where British operators presently rely on the argument that

penalties cannot be applied to operators from other EU Member States targeting German nationals, because of the uncertainty surrounding the legality of that country’s licensing regime. That argument would no longer be available to British operators post-Brexit who could find themselves on the receiving end of financial penalties from the German authorities without any recourse to the CJEU.

• 5. Some have suggested that British operators might not be permitted to pool

liquidity with operators in other EU jurisdictions post-Brexit. That would be dependent on the stance of individual regulators, but a good relationship exists between the Gambling Commission and other European regulators, so speaking personally I doubt whether that is likely to happen.

• 6. Insofar as operators licensed offshore are concerned:
• Gibraltar: if the CJEU confirms the Advocate-General’s Opinion that the

UK and Gibraltar are a single Member State, the same considerations will apply to Gibraltar when the UK leaves the EU, but that will bring very considerable uncertainty for Gibraltar based gambling businesses and the 4,000 or so employees of those businesses who presently travel to and from across the Spanish border in reliance on the EU’s freedom of movement principle.

• The Isle of Man and Alderney: both of these jurisdictions are already

located outside the EU, so putting it simply, Brexit will have little effect on them.

• 7. What about the consequence on the Gambling Commission? In my view,

Brexit is very unlikely to have any material effect on the very constructive manner in which the Commission presently works with regulators in other EU

3 jurisdictions to exchange information and to enter into Memoranda of

• Understanding. There may be some doubt about its ongoing position under

the Co-operation Arrangement entered into by Gambling Regulatory Authorities of EEA Member States in November 2015, that is designed to enhance administrative co-operation. However, it is probably unlikely that

• bjection would be raised to Great Britain continuing to be part of that

arrangement, as long as the British gambling regulatory regime provides equivalent protections to those currently in force; and there’s certainly no relaxation on the horizon in that respect. Brexit would have no effect on the Commission’s continuation as a member of GREF (the Gaming Regulators European Forum) or the International Association of Gaming Regulators, each of which are organisations in which it has always played a prominent and respected role.

• 8. The 4th EU Money Laundering Directive must be incorporated into British law

by 26 June this year. However, 4MLD stems not from the EU itself but instead from the recommendations of the Financial Action Task Force (FATF), an inter-governmental body that develops and promotes policies to combat money laundering and terrorist financing. The UK, like 14 other EU member states and the EU Commission itself, is a member of the FATF and therefore bound, and will remain bound, by its AML rules. So the UK will still need to abide by the FATF’s requirements post-Brexit.

• 9. It is possible that post-Brexit the UK and Europe could develop quite different

strategies for sanctions and PEP controls, for example exclusion of domestic PEPs from money laundering enhanced due diligence checks, notwithstanding that 4MLD requires a more comprehensive definition of 'prominent public person'. However, there is no evidence that the UK and the EU will adopt drastically different approaches and much of the policy on sanctions comes from UN resolutions that would still bind the UK, regardless

• f its European status.
• 10. Therein lies a prime example of one dilemma for the British Government. If it

creates its own laws in relation to matters as fundamental as AML in a way that amounts to a lessening of the standards of equivalent EU legislation, it is likely to find itself unable to participate in trading arrangements with the remaining EU member states. As a consequence, Britain will have little alternative but to adopt and maintain legislation that is to all intents and purposes on a par with that of the EU.

• 11. Another example of this is data protection. The General Data Protection

Regulation will come into force in the UK on 25 May 2018, quite regardless of this country’s decision to leave the EU. It will have a significant effect on gambling operators trading in the EU including increased fines (up to 4% of global revenue) and stricter rules regarding obtaining consent. Post-Brexit, GDPR will no longer apply in relation to operators’ activities in GB but is it really likely that there will be a data protection regime here that is materially different from that in place across the EU? I don’t think so.

• 12. So, overall, in my view Brexit will have relatively little impact from a gambling

law and gambling regulatory perspective or on such essential issues as AML controls and data protection, and gambling operators are likely to face greater challenges in other respects, including VAT and other taxation matters, intellectual property, employment and travel rights of employees, as a result

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• f which a good deal of corporate restructuring could well become the order
• f the day.

What I do think is certain is that the remote gambling industry will show the same resilience to dramatic change that it has shown since the mid-1990s. It will adapt, it will cope, it will survive and, one way or another, it will continue to thrive. But what of the land-based gambling industry here in Great Britain? It’s not been having an easy ride of late, for example:

• very well-publicised investigations of gaming and betting operators’ money

laundering controls and social responsibility failings,

• continuing uncertainty over the future of FOBTs in licensed betting shops,
• an ongoing Competition and Markets Authority investigation into whether

gambling operators are treating customers fairly with free bets and terms and conditions under the focus of the regulatory spotlight,

• a potential crackdown on gambling advertising and
• the Gambling Commission pulling on its studded boots in the shape of its

new tougher enforcement strategy, “to put consumer interest first” in the words of the Commission’s Chief Executive, Sarah Harrison. Recognising that other ground will be covered by the next following speakers, I am going to focus my remaining time on land-based casinos, described by a Parliamentary Select Committee in 2012 as the “most highly regulated sector and therefore the most appropriate venue for hard, high stake forms of gambling”. I attended the National Casino Forum’s Playing Safe Reception yesterday evening. Playing Safe is its enhanced responsible gambling programme launched in September 2013, followed two years later by SENSE, the first national self-exclusion scheme of its type within this country, which is implemented by all casinos nationwide. We were given an update on ground-breaking research, which the NCF is partnering, to develop tools to aid operators to effectively identify and intervene when players exhibit early signs of potential problem gambling behaviour. Sarah Harrison was there; she complimented chief executives in the casino sector for showing leadership in raising standards – the very title of a Gambling Commission conference held last November asking gambling operators to “accelerate the pace of change”. I think that is highly relevant in the context of the NCF’s submission to DCMS in its recent response to its “Call for evidence: Review of Gaming Machines and Social Responsibility Measures”, calling for changes to the machine regime to address the disparity between machine entitlements of the 1968 Gaming Act “converted casinos” and the 2005 Gambling Act small and large casinos, only seven of which have actually ever opened, largely due to a combination of:

• commercially impractical statutory ratios of machines to tables and
• geographically and economically inappropriate designated locations for the

proposed 16 new 2005 Act licences. The changes requested are to:

• allow Small 2005 Act casinos to move from a 2:1 machine to table ratio to a

3:1 ratio, capped at 80 machines.

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• allow converted casinos (presently limited to a maximum of 20 machines) the

same ratio of 3:1 for machines, capped at 80 machines.

• increase the machine numbers cap for Large 2005 Act casinos in accordance

with the existing 5:1 machine to table ratio up to 500 from 150. NCF has asked that the issue of higher stake and prize machines for high-end Mayfair casinos is also considered. It says that such changes will allow the casino sector to respond to customer demand (and it’s not unknown for casino customers to queue for over an hour for a machine to become available), boost tourism, match global competition and keep up with technological advances whilst remaining at the vanguard of socially responsible

• gambling. It has cited findings in an EY report that these proposals would:
• boost jobs in the sector by 1,000 (more than 75% of which would be outside

London),

• contribute to economic growth (an additional £100 million of Gross Added

Value to the UK economy, rising to £150 million when indirect factors are included) and

• lead to an extra £65 million tax revenue for HM Treasury

Against a backdrop of:

• highly researched and carefully considered safeguards to protect the

consumer,

• a situation where there are presently fewer gaming machines across all 150
• r so casinos presently operating in Great Britain than one will find in a single

casino in Las Vegas, and

• a recent Gambling Commission gambling participation report showing no

material change in problem gambling statistics, this appears to represent a well-argued and consistent set of proposals. It has been advanced by a unified gambling sector that sits at the peak of the regulatory pyramid, backed up by a report produced by a world-renowned professional services company. If agreed by DCMS, and implemented as sought, the changes would make a valuable contribution to Government coffers and place the British casino sector in a much more competitive position to face the post-Brexit world.