Are Regulators in the UK and Europe too Tough on Operators?

Posted by Harry Kane on Saturday, October 17, 2020

You don’t need to be a student of the industry to know that iGaming remains an incredibly lucrative and high-growth entity in Europe, with markets in Italy, Spain and particularly the UK dominating the global scene.

However, Europe has also seen regulators take an increasingly stringent approach in recent times, with the UK Gambling Commission (UKGC) having made the safeguarding of vulnerable players one of its core strategic objectives through 2021.

The European Gambling Commission has also continued to implement strict and changeable rules over time, creating a challenging landscape for operators to establish profitable ventures.

In this post, we’ll ask whether regulators and commissions have gone too far in their attempts to clampdown on market activity, and if this could ultimately have negative connotations for the industry in the long-term?

A Look at the Regulatory Landscape in Europe and the UK

Before we answer this question, it’s important to look at the regulatory climate in Europe and consider the values that underpin individual measures.

As we’ve already touched on, the UKGC announced a new focus and a number of long-term strategic objectives back in 2018. The two main elements of this included a desire to safeguard vulnerable and underage players, while simultaneously enhancing the reputation of the iGaming sector and individual operators.

While the European Gambling Commission has made no such commitment overtly (and appears to remain a step behind the regulator in the UK), it continues to recommend changes with a view to protecting players and clamping down on questionable withdrawal processes.

In this respect, customer protection remains the primary motivation for the regulatory bodies in Europe and the UK, with an increased focus being placed on vulnerable (or potential ‘problem’) gamblers and underage individuals who may have been exposed to wagering activity.

Make no mistake; this shared vision is the driving force behind the vast majority of iGaming laws and regulations, while it also informs a number of specific guidelines that have been introduced at different points during the previous decade.

Identification and Player Verification

One of the essential shared steps in Europe and the UK is referred to as ‘Know Your Customer’ (KYC), which requires operators to verify each individual player’s identity before they’re able to register for a new account, deposit funds and withdraw cash.

Part of a wider financial services process, KYC laws require businesses of various different types to proactively verify the identity, suitability and associated risks in relation to each individual customer.

In practical terms, this means that operators must use the personal data that you supply while registering for an account to verify your ID, including (most pertinently) your name, physical address, age and telephone number.

In both jurisdictions, these checks will be undertaken manually, and so long as the information is entered honestly and accurately, operators should be able to confirm your identity without requiring you to provide documentation to support this.

If there are any issues with this process, the operator will contact the player and ask them to provide such documentation.

This usually takes the form of a photographic copy of your passport or driver’s license, proof of address dated within the last three months (or 12 if you supply a mortgage statement) and snapshots of your preferred payment method.

Operators should confirm the ID of players within 72 hours, while the revised legislation in the UK now means that customers are unable to wager until their identity has been fully verified.

Anti-Money Laundering Laws

If you look at some of the biggest fines administered by the UKGC since it unveiled its new objectives in 2018, many of these have been administered at least in part due to a breach of money-laundering laws.

Betvictor were hit with a huge £11.6 million fine in March, for example, after it was found that seven of the operator’s high-rolling VIP players had wagered through the site using stolen cash.

This broke the record for the highest financial sanction by the UK regulator, which was initially set in 2017 when 888 was fined £7.8 million for a host of similar transgressions.

In both instances, the operators broke the anti-money laundering laws established in the UK and Europe, which dictate that brands must complete a risk-based assessment on all gamblers to ensure that they’re not wagering with stolen or misappropriated funds.

These laws also impact on withdrawing funds from your cash balance, as you can only transfer cash from your iGaming account through a payment method that has been previously used to process a deposit.

This is another way of countering common money laundering processes, and these associated laws are central to the safe and successful operation of iGaming brands in the modern age.

Age and Wagering Limits

Both the UK and Europe adopt a stringent and unflinching age limit when it comes to gambling, with players unable to register for an online account or wager cash if they’re under the age of 18.

Clearly, nobody under this age is legally permitted to gamble online in these jurisdictions, and operators who fail to verify the age of their customers as part of the KYC process will face tough financial sanctions.

Of course, safeguarding underage players has become increasingly difficult of late, with the advent of casino-inspired social gaming having encouraged youngsters to seek out real-money gambling in some instances.

Remember, players can open an account on social sites such as Facebook from the age of 13, and the proliferation of this platform has undoubtedly coincided with a spike in the number of kids aged between 11 and 16 who are classed as problem gamblers.

This number peaked at a worrying 55,000 by the end of 2018, while a staggering 450,000 children within this age range are thought to bet regularly in the UK alone.

These are examples of universal iGaming laws that exist in Europe’s various nations and the UK, although it should be noted that there’s no common rulebook on the continent or in the single bloc.

This means that legislation can vary from one nation to another in Europe, which is why some adopt noticeable harsh iGaming legislation and wagering caps that are imposed on each individual player.

The Creep of Legislation and an Increasingly Harsh Regulatory Climate

These variations aside, it cannot be denied that the regulatory climate in Europe and the UK has become increasingly harsh of late, in line with changing objectives and an innate desire to safeguard players ahead of profitability.

In the UK in particular, this has also translated into the creep of legislation, as the government continues to clampdown on iGaming activity and impose far greater restrictions on both players and operators alike.

As we referenced earlier, the UK is a little ahead of its European counterparts when it comes to imposing regulatory measures and entertaining legislation, and some may argue that this remains the fundamental reason why the former is now growing at a slower rate than less mature markets such as Sweden, Denmark, Bulgaria and the Czech Republic.

One of the most recent UK measures involved the banning of credit cards as a viable payment when fund online gambling.

The UKGC rolled out this total and comprehensive ban on April 14th 2020, after consulting with various research groups and the government department for Digital, Culture, Media and Sport (DCMS).

This followed the revelation that an estimated 20% of all iGaming deposits made online were processed using credit cards (and effectively borrowed funds), while approximately 800,000 regular gamblers wagered using this method in 2018.

While there’s clearly a sound and well-reasoned rationale behind this decision, of course, it also represents the slow creep of enforcement and the increasingly stringent approach being taken by regulators. Make no mistake; banning certain types of payment options represents a far greater level of interference by the regulator, and it’s something that may be indicative of things to come in the future.

In many ways, a precedent has already been set in the offline gambling industry, following the implementation of the £2 FOBT cap in April 2019.

This followed widespread consultation between the UKGC and the government, with the introduction of a maximum £2 betting limit (down from £100) slashing a £1.7 billion revenue stream for operators. At the time, this accounted for an estimated 56% of all bookmaker revenues, with the cap decimating the offline industry, costing up to £12,000 jobs and diminishing tax revenues significantly.

Interestingly, this prompted operators to focus their efforts both overseas and online, only to find that iGaming has quickly come under similar scrutiny in the UK (and indeed, in parts of Europe).

Currently, a raft of proposals have been made for iGaming in the UK, and it’s reasonable to believe that many of these will bleed into Europe over the course of the coming months and years.

Proposed by a combination of think tanks, responsible gambling lobbyists and the All-Party Parliamentary Group (APPG) for gambling-related harm, some of these measures would have a similar impact to the FOBT cap and reshape the iGaming landscape beyond all recognition.

These include a potential £2 online betting cap, or a monthly maximum spend of £100 per individual gambler. Another recommendation involves the cessation of all forms of advertising by online gambling brands, including sponsored messages that are shared through digital means.

Sure, many of the leading operators agreed to a voluntary TV advertising ban during pre-watershed live broadcasts in 2018, but the figures suggest that iGaming brands now commit up to 80% of the marketing through digital means.

In this respect, the new measures are designed to protect players against the dangers of an open and fast-evolving market, and this contributes to a changeable and uncertain future for brands across the continent.

The Last Word – Are Regulators Approaching the Point of no Return?

Ultimately, attempting to regulate the iGaming markets in Europe and the UK is a challenging entity, and one that requires a balanced and forward-thinking approach.

For example, a lack of regulation places vulnerable players at risk and enables operators to focus solely on increasing their profitability, and this is arguably something that has caught up with progressive European markets in recent times.

Conversely, and overly-regulated and inflexible market causes growth to stagnate and sends operators overseas, slashing subsequent tax revenues and increasing the risk of illegal and illicit gambling.

Clearly, regulators and governments have to tread this path carefully, especially as the consequences of an over-regulated market are often worse than those associated with progressive and deregulated spaces.

An example of this can be found with the recent decision to ban rather than curb or regulate credit card payments, as while this makes sense on many levels it may also encourage players to borrow cash directly as a way of funding their activity.

Funds that are borrowed from a short-term and high interest loan can then be used to wager through a bank account, arguably creating a more significant issue that’s been caused by direct government and regulator intervention.

The over-regulation of sites can also create a market for illegal gambling sites to exploit, by offering a more diverse range of features and payment methods. This subsequently strips players of any protections, either for their data, cash holdings or issues surrounding compulsive behaviour.

The question that remains, of course, is whether the UK or European iGaming markets are currently over-regulated?

For now, the short-term answer has to be no, particularly as more stringent regulations are actually required to curb the questionable practices of some operators and safeguard players in a growing and constantly evolving market.

However, the UK is definitely blazing a trail in terms of introducing more stringent regulations, with the potential introduction of an online betting cap and a complete advertising ban being compounded by a creeping tax burden on operators.

This is definitely pushing the UK market in particular to a potential point of no return, where top-rated operators may see their ventures become unprofitable and encourage them to target more lucrative and friendly sectors elsewhere in the world.

This trend could also take hold in Europe in the near-term, so regulators and governments must work hard to strike the right balance and protect the interests of all parties involved.