The draft Finance Bill published recently was the UK government’s next step in plans to introduce a point of consumption (POCR) regime to licence, regulate and tax all remote gambling firms operating in the UK market. The proposals, which the government says are intended to protect consumers and provide a fairer basis for competition, are not only poorly considered, they are in fact likely to harm consumers, undermine the competitiveness of responsible regulated operators and, at the same time this will reduce the hoped for receipts by treasury.
The POCR proposals suggest UK regulations apply to all operators who will now be directly licensed by the UK gambling Commission and that tax be levied against operators based outside the UK transacting with UK customers – all in a stated bid to create a more level playing field in the industry. However, and without some modification, the current proposals will instead create a chain of confused regulatory supervision and market disruption that will ultimately benefit operators based outside of the British jurisdiction and its overseas territories.
We are concerned that the UK government and the Gambling Commission cannot oversee remote operators effectively if they do not have local oversight of a UK nexus or mutual recognition with effective local regulators in the territory where the operator is based. Such operators may be based anywhere in the world including in places having no legal and cultural fit with the UK and where UK consumers and the UK Gambling Commission will have no effective rights of redress and enforcement.
Betting is extremely popular in the UK with more than half of the British public gambling on occasion – this rises to nearly three quarters (70%) if you include The National Lottery. With these figures in mind, the focus for the UK government and the gambling industry should be to ensure that consumers enjoy gambling in a safe, fair and regulated environment. However, the POCR proposals could result in just the opposite and will be counter-productive to the objective.
The POCR will result in an increase in remote regulatory supervision, with foreign operators obtaining a UK licence to transact with UK consumers but without the UK having any real ability to properly supervise those operators. In addition, we also believe the proposals will also result in a large number of UK licensed but entirely unregulated and untaxed foreign operators buying a British licence merely as a ‘flag of convenience’. Such operators will use their UK brand in order to supply consumers outside of the UK with gambling services without any UK supervision or taxation.
During the last two decades Gibraltar has developed a world-leading internationally recognised centre of excellence in online gambling, where operators provide customers with a safe and secure environment in which to bet. The UK punter has considerable trust in Gibraltar licensed operators and have voted with their feet. The POCR proposals would undermine the local licensing regime here and it abandons the recognition of licences and local supervision by suitable jurisdictions such as Gibraltar.
In the online gambling world, price and promotions are key and with limited brand loyalty and almost unlimited choice of suppliers based around the world punters will follow the best value. Therefore there is a real danger that consumers will be captured by black market affiliates and operators, who are able to offer better value as they will not play the UK’s POC licensing and taxation regime.
This is far from idle speculation and has been clearly supported in a report by Deloitte, which found that even with a point of consumption tax at a rate of 10 per cent, 27 per cent of consumers would drift into the black market. The evidence that a POCR with a high tax rate will put the consumer at real risk is overwhelming. For example, in Italy there is point of consumption licensing and tax and the Italian regulator estimates that up to 50 per cent of the market is unregulated (and therefore also untaxed). In France, the situation is even worse and it has been estimated that 70 per cent of sports betting takes place with unlicensed regulators. These views are not just those of the operators who would be negatively affected. Indeed the UK government’s own analysis proceeds on the basis that approximately 20 per cent of the UK market will be unregulated and would not pay UK gaming duties under its own taxation proposals.
UK consumers will not be winners under the current proposals. The UK government’s stated public policy aims and its wider policy objectives could be much better met with a more carefully constructed POCR that took account of the existing online gambling eco-system and sought to ensure it was not seriously undermined in any transition.
The potential effect of these proposals on the territory of Gibraltar itself should also not be under-estimated. Currently only a small number of gambling firms have been allowed to obtain a licence here and yet we have an estimated 60 per cent of all bets placed by UK consumers through these operators. The online gambling industry is a significant contributor to Gibraltar’s economy, comprising more than 20 per cent of total GDP and 11 per cent of its total workforce. The damage to Gibraltar of the proposed POCR, both in terms of economic output and total employment, could be very significant.
In addition, whilst the UK has consistently stated that Gibraltar has an excellent regulatory regime, we should also be mindful of the potential for the POCR to be purposefully misused as mistaken as a disavowal by the UK of Gibraltar’s status and its outstanding regulatory reputation.
The GBGA has started a constructive dialogue with the UK government to ensure that we do not lose an opportunity to create legislation that actually helps the gambling industry, the government and, most importantly, the consumer. Given the regulatory experience and expertise that exists on The Rock, we are well placed and willing to help the UK make the move to a world leading regulatory environment for online gambling.
As recent match-fixing issues have highlighted, effective supervision of the online gambling sector requires greater cross-border regulatory cooperation, recognition and oversight, not less.