A Brexit Update – Addressing the Impact on iGaming

Posted by Harry Kane on Thursday, October 8, 2020

We’ve written extensively about the impact of Brexit on the iGaming industry in Europe and the UK, with one of our most recent posts focusing on the potential effects of a no-deal exit from the EU.

Interestingly, this outcome has inched increasingly closer of late, with the EU’s chief negotiator Michel Barnier recently reaffirming that that the UK will have to shift its position if it wants a post-Brexit trade at the end of 2020.

This has followed months of stalemate, with neither side really willing to offer any viable concessions and this status quo unlikely to change in the next three months.

So, let’s look again at the likely impact of a no-deal Brexit and what this means particularly for the UK market.

To Regulate or Deregulate – The Quandary Facing the UK

Ultimately, a no-deal Brexit would mean that all laws established by the EU will no longer apply in the UK, negating the need to introduce a complex and potentially time-consuming repeal bill.

While this won’t impact on most iGaming legislation in the UK (as there’s no single set of gambling laws in Europe and the overwhelming majority of rules have been formulated in Westminster),

However, one piece of legislation that will come under the microscope is ‘Know Your Customer’ (KYC), which outlines the precise requirements for casinos when verifying the identity (and age) of their customers.

Established in the EU, this legislation has been adopted within the UK, requiring all British-based operators to fully verify the identity of all new players before they become eligible to credit their account, place wagers and complete withdrawals.

The primary purpose of this law is to safeguard particularly vulnerable or underage players, as customers who can’t have their identity verified automatically will have to provide copies of their passport or driver’s license, proof of address and evidence of their preferred payment option before being accepted by the operator.

Not only does this prevent underage gambling, but it also minimises the risk of money-laundering amongst big-spending and high-rolling players who are wagering for nefarious means.

The question that remains, of course, is how the UK will proceed once they’re no longer under the auspices of the EU? More specifically, will they choose to loosen KYC rules as a way of creating a more competitive and deregulated market space, maintain the status quo or implement more stringent measures in line with the UKGC’s core strategic objectives through 2021?

Although the former option may be appealing in a post-Brexit landscape (particularly from the perspective of market competitiveness and future tax revenues), it completely contradicts the recent approach taken by the UK government and the regulator since 2018.

With this in mind, a no-deal Brexit is unlikely to prevent the introduction of new regulatory and legislative measures aimed at curbing excess and safeguarding gamblers in the UK, with a £2 betting cap, a maximum £100 monthly spend and an enforcement of KYC laws all potential outcomes post-2020.

Will UK Brands Relocate in the Event of a No-deal Brexit?

Interestingly, the introduction of more stringent iGaming laws (combined with the future restrictions placed on iGaming in the UK in relation to market size), could well encourage a large number of operators to relocate to the EU.

More specifically, operators could well follow the example of Betfred and 118Bet, who have already moved parts of their operation out of the UK and Gibraltar and into Malta (which is considered to be the iGaming capital of the single market).

Make no mistake; Malta already employs around 10,000 iGaming employees, with this number set to increase exponentially in the near-term. After all, not only does this jurisdiction boast inherently low rates of corporation tax, but relocating here will also enable operators to retain free access to the single market.

Similar jurisdictions are also springing up throughout Europe, with the semi-autonomous enclave of Ceuta in Spain offering a relevant case in point.

This enclave has been empowered to offer reduced levels of corporation tax and similar levies for iGaming brands that relocate here, while operators will also be able to benefit from Spain’s reduced online gambling levy of 20% (which significantly, is now 1% lower than that of the UK).

This combination of factors is bad news for the UK market, particularly when you consider that they may have already played a role in convincing a host of operators to exit Britain over the course of the last 18 months or so.

Take ComeOn, for example, which is already based in Malta but chose to exit the UK market completely in 2019. Following its takeover by Swedish brand Cherry AB back in 2017, the firm revised its global operating strategy and chose to refocus its efforts on emerging and relatively deregulated markets such as Sweden, Germany, Poland and Denmark.

The decision also applies to ComeOn’s sister brand Mobilebet and the online casino platform GetLucky, which are now both completely inaccessible to players in the UK.

With other parent companies and operators choosing to follow suit, it’s clear that a mini-exodus from the UK market is well underway. The question that remains is to what extent the spectre of Brexit is responsible for this, as the primary factor seems to be the increasingly stringent regulatory climate in the UK and the growing maturity of this market.

Similarly, the lure of high-growth markets in Sweden, Denmark and other pockets of Euro is continuing to tempt operators to leave the UK, while growth on the other side of the Atlantic is also providing a target for ambitious brands.

The potential impact of Brexit is undoubtedly influencing the decision making of the best UK operators, however, particularly as a disorganised exit without a deal is now firmly on the horizon.

In this respect, a no-deal Brexit could prove to be a catalyst for a wider exodus of the UK market, with the other aforementioned factors creating something of a perfect storm that could ultimately ravish the region’s iGaming space.

Of course, there’s still time for the UK government to avoid a no-deal Brexit, but there’s no doubt that the iGaming market remains precariously placed as we approach the final quarter of 2020.