Dr Kyle Scerri and Jan Wright discuss how Maltese operators can navigate an increasingly challenging iGaming regulatory landscape, as well as proposing a new way of thinking for EU jurisdictions.
To start off with, it would be great to get an introduction into what you guys do at CSB Group and what the day-to-day involves for yourselves.
We are Kyle Scerri and Jan Wright, we’re lawyers by profession and spearhead the gaming team and practice at CSB. I’ve (Kyle) been with CSB for almost two years; Jan joined us a few months ago. We are the main two points of contact in gaming – our roles involve everything that falls under the remit of a lawyer. We obviously help with new licence applications; we assist with the ongoing compliance obligations of existing operators; we provide legal assistance where it has to do with issuing legal opinions for new projects or ideas, or assisting with enforcement actions. As a group overall, we have accounting services, tax compliance services and more. So I would say any operator, but particularly any remote gambling operator, can come to us for a one-stop shop, which can even include offering office space, offering recruitment services and more.
Could you give us an overview of how operators navigate the iGaming regulatory landscape at the moment, with no two jurisdictions ever having the same regulation?
Europe – this extends globally but applies particularly to Europe as a main example – has started to suddenly regulate iGaming. It has happened in a very short period of a few years and what this means is essentially Malta as a gaming hub, especially for B2C casino and sportsbook operators, these operators have suddenly been faced with the challenge that their available markets have become more and more restricted. These are not restricted from an access point of view, but to operate you need licences from these jurisdictions. So we are seeing a struggle from a cost perspective, having compliance teams, a global presence etc etc. But it’s also a massive challenge to keep up with six, seven regulatory regimes at once – compliance, legal, dealing with regulators.
It becomes a little bit of a nightmare. With this nightmare, we would say it’s a nightmare for smaller operators – those who are not the big guns – your start-ups essentially who have an idea, and want to roll out their games and make a living out of this. For them, it’s a big challenge. For bigger operators, there is perhaps an opportunity – a lot of B2Cs, while still keeping the Malta licence, are very willing to sell it or give it up altogether. So we are seeing a shift in the market – Malta is becoming more attractive for B2Bs.
On that basis – with firms selling the licence – has Malta as a jurisdiction, or offshore hub, declined in popularity?
One thing we must say in answer to that question is that Malta is not an offshore hub. Maybe this is a misconception which helped in the past, because people thought it was an easy place to come. And, being honest, it was easier than other jurisdictions – but it was never offshore. The way Malta’s law has presented itself makes it very clear it’s not an offshore jurisdiction. In terms of popularity, what has changed is there is now more strict and stringent enforcement, which is testament to the regulators.
We’re essentially now cleansing our list before actually making it to the list, which is a dream from a compliance perspective. In terms of popularity being less, we wouldn’t say so – but we are receiving interest from different types of operators. Malta has positioned itself as the platinum standard of licence regimes. We’ve been in the industry for 20+ years, we’ve seen the market dip, revitalise itself, change – so as a regulator and as a jurisdiction, there is a knowhow when it comes to dealing with operators and the business reality behind mobile gambling. That is, of course, coupled with all the social aspects – responsible gambling, addictions problems. Even compliance education within Malta is at a very high standard, Malta has very well-equipped legislation in place and has done so for over 20 years.
Being one of the first jurisdictions globally that decided to regulate iGaming back in 2004, we have a portfolio of companies on the island that is quite impressive. Operator, supplier or affiliate – you being here makes this a hub where you can connect with other entities relatively easily. That is a selling point for persons like ourselves, who promote Malta as a jurisdiction of choice. Needless to say, we can walk around on the Sliema beachfront and see gaming offices everywhere. Even in the workforce, the expertise in Malta and the recruitment that goes on is impressive for gaming – we don’t think there’s another country that offers as much. For B2C operators, a MGA licence is not enough in some jurisdictions – but we would say most B2C operators don’t have any active brand in Malta but still operate from Malta as the physical presence is very strong – and getting stronger. We are more about quality than quantity now.
That’s interesting – I was debating even using the word ‘offshore’ but I’m glad I did as you were able to make that clarification. It is a bit of a common misconception?
It’s a popular misconception: firstly, we’re an island and being so little compared to mainland Europe perhaps gives the perception of offshore. But do keep in mind Malta’s a full member of the European Union, so I would say anybody challenging the claim that Malta is not offshore – there’s not much reason to say so; if Malta is ‘offshore,’ you could say the same about any European jurisdiction.
From a Maltese operator’s perspective, you mentioned it’s tougher for the smaller operators. What would the plan of action be for a smaller brand; is it simply a case of incurring more costs? What is the best
route to take?
The first step would be to understand where your business has potential. If a specific state regulates, the question is whether it would make sense for me to spend X, Y and Z to sustain that licence. That’s step number one – which may seem very obvious, but given that licensing in iGaming is a relatively new widespread concept, this is often something that isn’t considered. That’s especially when it comes to the maintenance of a licence – are you capable of maintaining it is the big question?
Assuming it does – the second step is to be well informed. What do you need to do and what do you need to do on an ongoing basis? Here is where we think ongoing counsel is critical. We acknowledge operators have big in-house legal and compliance teams here – and they are very, very talented. But the reality here is that you need specified knowledge. You need to understand the real impact this can have on your business, not just financially but operationally.
If you are licensed in Germany but are going to use the same company that’s based in Malta, what do you need to know about this process? There’s a little bit of an analysis to ensure you can comply with all of your regulations. The reality is many jurisdictions have a lower standard of regulations on paper than Malta. Ultimately, how you manage your obligations is your issue, which might mean you need to restructure.
From your answer there, can I infer that operator knowledge is not quite where it needs to be?
Not necessarily not as high as it should be, but the iGaming industry is a unique animal in itself – marketing is king. That extends to different operators as well. If I, for example, apply for a licence in Ontario – then there is a huge marketing emphasis in Ontario; you will then see there is a trend for many operators to enter that market. Everybody starts to gain an Ontario licence – how valuable is that licence? That really depends on your business – have you done your homework. Just because you have that licence, it doesn’t mean it’s the right fit for you. We may be stating the obvious; however, for companies without a cashflow problem, issues like this are not considered. When push comes to shove, though, lack of compliance has a huge financial cost – but this isn’t always a first thought.
As you say, it might sound obvious but it’s easier said than done... the message is don’t necessarily follow trends, and think more long-term strategy?
Yes, for example you’re seeing potential today in having a business licensed in Curacao. Do be aware that in March rules and regulations will tighten in Curaçao. So does it make sense to move to Curaçao if in five months you just face the same problem you already face today? The heightened compliance enforcement and rules obviously means the ongoing monitoring, and day-to-day reports for each licence – which isn’t always a thought for new markets.
If it’s not a first thought, inevitably it’s just an afterthought?
Exactly. One of the policy objectives of the Malta Gaming Authority (MGA) is to promote Malta as the jurisdiction of choice. Coupled with other events that took place in Malta, there has been increased enforcement – and we can only laud the MGA for this because, ultimately, that is the way to go. Local law is very strict and when you have to compare Malta to other regimes, most of the time Malta is the tougher one. So that only means you have to really give this consideration.
Going in a slightly different direction, though, an important point to consider is: are we over-regulated as an industry? Have we overdone it? Have we oversaturated the market to a point where it’s impossible for a business to operate? Is it time for Europe to become more harmonised, and make it easier for our operators to operate within the EU?
In the core principles, every jurisdiction always covers the same points: AML, KYC, responsible gambling, and it could be a very good idea to incorporate all these principles and make something more streamline. Maybe some people in the industry would call us crazy because this would lose Malta its competitive advantage. But the reality is the experience and the longstanding foothold Malta has had in the industry, we think could work wonders. So we shouldn’t be afraid of potentially having to compete with other jurisdiction – thereby attracting worthy operators. For us, start-ups are just as worthy as your big guns. Currently, it’s almost impossible for a group of young guys to have an idea, open a business and be able to operate on the island. The cost of compliance is not something you can really incentivise.
So you’re proposing a little bit of a regulatory revolution, overall?
Yeah, regulators need to sit down and think about whether it’s time to start harmonising the space, having a common standard for operators. What is the impact of regulators having different strategies, albeit with the core principles being the same? I think it’s something operators frown upon – they don’t see it as a good thing, having all these licences and the complexities associated with them. So maybe rethinking how the EU approaches this is on the cards.
It would be interesting to see what a room full of regulators would think if you pitched that to them. Thank you for your time and answers, today!
This article was originally published by www.gamblinginsider.com on the 27th of October 2022.
