Economic Development
Regulatory Services
Gambling (Remote Gambling Disaster Recovery) (Amendment) (Jersey) Regulations 201-
REPORT
The purpose of these amendments is to make lawful by licence the continuous operation of e-gambling in Jersey.
Background
Although the modernisation of gambling legislation and regulation has attracted a broad level of support in the States, some Members requested the re-examination of the case for gambling reform and internet-based e-gaming in particular. As a consequence, in a statement to the Assembly on 1st December 2009, the Minister for Economic Development agreed to ask the States to re-affirm its commitment to reform and modernisation. On 21st April 2010 the States Assembly debated and conclusively approved[1] P28/2010: the Establishment of a regulatory and licensing regime for e-gaming for Jersey. The accompanying report demonstrated that the Economic Development Department (EDD) had fully considered all relevant social, moral and economic consequences in making its recommendation to continue with the implementation of e-gaming licensing in Jersey as an integral part of the overall modernisation of gambling legislation and as a prime example of beneficial economic diversification.
As the States decided they were of opinion that the Minister for Economic Development should make provision for the regulation of e-gaming, the Department requested amendments to current e-gaming legislation, namely the Gambling (Remote Gambling Disaster Recovery) (Jersey) Regulations 2008. These Regulations already allow for the limited operation of e-gaming from Jersey as part of an overseas operator’s business continuity provision, but restrict full operation to the circumstances of a verified disaster in the home jurisdiction.
Moreover, the Remote Gambling Disaster Recovery (DR) Regulations currently make reference under Regulation 1, Interpretation, to a “Jersey remote gambling licence” and this licence has been adapted to provide a mechanism to authorise persons to conduct remote gambling from Jersey. The terms of the Interpretation make clear that this licence may be activated under the DR Regulations or enabled by amendment to other allied Jersey gambling legislation. Amending the DR Regulation presented the most effective and sensible route to implement the decision of the Assembly. As these Regulations presently detail robust requirements for licensing limited operational e-gaming in Jersey, they have been further enhanced to reflect the framework of a new regulatory and licensing regime in line with the guiding principles of the Jersey Gambling Commission.
The Effect of the Regulations
Importantly, the definition of e-gaming has been revised to clearly relate to the provision of gambling services and rather than creating separate and specific licences for gaming and betting, activities ‘gambling’ is used to capture both activities. The definition makes it clear that we refer to those organising the gambling or providing gambling by way of business, and importantly regarding this status removes any doubt of providing normal internet access, hardware or software or other services to people who then independently use them to gamble remotely as a leisure pursuit. Licensing, therefore, is predicate on an electronic device physically based in Jersey which controls or conducts the gambling or the remote gambling site. In reaching this definition the Department was conscious not to capture current permitted terrestrial gambling activity such as credit betting, more widely understood to be a telephone account.
The amendment makes a clear distinction between two e-gaming licences: the limited operation which we have now in the form of a disaster recovery provision and the proposed fully operational licence. In order to reflect the permission of a full egaming regime in the Island, the Regulations should be renamed as the Gambling (Remote Gambling) (Jersey) Regulations 2008.
Currently, under the 2008 Regulations an e-gaming operator can be licensed if they meet the fit and proper criteria and require a business continuity provision in the Island. This approval provides the right to activate and operate e-gaming from Jersey in cases of a verified disaster in their home jurisdiction. Certain limitations are placed on this form of business continuity licence; the operator must be licensed and therefore regulated in another jurisdiction to make sense of placing a ‘back up’ provision elsewhere, but their invocation of gaming activity in Jersey is monitored by the Jersey Gambling Commission (JGC). The amendment charges the JGC to investigate each invocation and should a pattern appear suggestive of a mishandling of the disaster recovery permission, the authority may suspend or revoke the licence or recommend the operator revisits its business need in Jersey and apply for a general gaming licence. While this amendment does make some minor changes to the governance and requirements of this form of limited Disaster Recovery e-gaming, the Regulations retain the licence as a viable business continuity opportunity.
The second (new) e-gaming licence allows for the establishment of fully operational businesses in Jersey. The amendment does not apply the requirement of licensing by another jurisdiction, as in the case of business continuity licences, as a prime qualification of a licence application. However, this does not stop a business wishing to relocate to the Island, but to obtain a licence to operate from Jersey a firm must incorporate here and not be a subsidiary of the foreign operation. The amendment adopts the use of a “Jersey person” (in common with more recent legislation) with the meaning of a natural person, partnership or body corporate with dedicated and specified links with Jersey.
While not prohibiting home grown enterprise, applicants for an ongoing e-gaming licence must, at a minimum, prove competence, liquidity and be fit and proper persons to facilitate gambling to the public. While each licence will attract mandatory conditions, supplementary conditions will also apply and these are defined further on in this report. The mandatory conditions are drafted primarily with regard to consumer protection:
Applicants must be able to prove the adequacy of all systems (including equipment and software) employed in relation to e-gaming; establishing this proof requires testing of all systems by an independent testing house accredited by the JGC.
Adequacy includes proof that those systems ensure that the gambling is conducted fairly and securely and in accordance with the guiding principles and in compliance with any relevant code of practice, including:
- Separation of each customer’s funds;
- Winnings are paid out accurately and promptly;
- Accurate recording and retention of deposits and wagers;
- Data provided by customers is protected in line with the Data Protection (Jersey) Law 2005;
- Self exclusion or limitations on play requested by customers must be made available;
- Any funds held on behalf of a customer must not be used by the operator to pay any creditors of the operator or any holding company or subsidiary and must be refundable to the customer on request;
- Demonstrable measures must be taken to prevent money laundering, drug trafficking or terrorist financing.
The JGC will undertake due diligence on all applicants and the cost for doing so mirrors the charges already prescribed in the Regulation: namely an initial fee of £5000 which may be increased by further tranches of £5000 depending on the extent and complexity of the applicant business. The amendment provides the JGC with the right to publish application forms rather than retaining them set within schedules as the regulator has always used the right to require further information to expand the scope of these prescribed forms. To meet the fit and proper test applicants for a licence must complete:
Primary Application From;
Personal Declaration Form (principals, controllers, beneficiaries and other key personnel);
Personal Waiver ;
Police Check;
Corporate Waiver.
If the applicant is found to be fit and proper the Jersey Gambling Commission will award a licence and apply those standard licence conditions consistent with the guiding principles set out under the Gambling Commission (Jersey) Law 2010, namely that any gambling services provided:
- should be conducted responsibly and with safeguards necessary to protect children and vulnerable people;
- should be regulated in accordance with generally accepted international standards to prevent fraud and money laundering, and should not be permitted to be a source of crime; and
- should be verifiably fair to consumers of those services.
It becomes a duty of the JGC to produce Codes of Practice, Guidance, and Standard Operating Procedures and ensure that all games are verified as fair by an independent testing laboratory approved by the Commission.
Further supplementary conditions may be added to a general operator’s licence as well as disaster recovery licences; the amendment itemises examples of supplementary conditions but does prescribed an exhaustive list. The conditions may concern:
- the equipment, including software, that may be used in connection with the remote gambling, that is equipment capable of affecting the outcome of remote gambling under the licence;
- whether that gambling will be conducted in accordance with the guiding principles and in compliance with any relevant code of practice;
- the requirements as to testing and notification before any changes may be made to that equipment;
- the use of each gambling site specified in the licence, and of each electronic device by means of which remote gambling may be conducted under the licence;
- whether any connection is permitted between a site or device mentioned and a gambling site, or electronic device, operated by another person for the purpose of conducting remote gambling;
- the checks to be carried out on the age and vulnerability of persons gambling remotely with the licence holder;
- the systems to be used to ensure that persons employed by the licence holder in particular capacities are suitable, including the checks to be carried out on the suitability of those persons;
- the maintenance of the adequacy of systems;
- compliance with any relevant provisions of any codes of practice;
- the charges or stakes payable for engaging in the remote gambling and the manner in which they are paid;
- the cash, prize, winnings or article, benefit or advantage other than cash to be won, and the manner in which it is delivered;
- the display of statements intended to ensure that users of the remote gambling are not misled as to available prizes, chances of winning or other aspects of its operation relevant to the fairness of the remote gambling, and the form, location, manner and occasions of the display;
- the making and retaining of records and accounts, the providing of verification of those records and accounts, and the sending of an annual statement to the Commission;
- the persons who may supply, install or maintain equipment, including software, that may be used in connection with the remote gambling;
- the training of staff in respect of the requirements of the guiding principles, good practice and these Regulations;
- the provision and maintenance of a current address.
The adoption of conditions linked to Codes of Practice is modelled on the equivalent regime in both the Gambling Commission (Jersey) Law 2010 and the recently amended Gaming and Lotteries Regulations. A breach of a Code is not a criminal offence but depending on the seriousness of the infraction, the JGC can apply regulatory sanctions such as adding or altering conditions on a particular licence. If a person breaches a condition which just requires compliance with a code, then they will not be prosecuted, but the JGC can suspend or revoke the licence (Reg 32(2)(b) and 33(2)(d)) for that breach of condition. A breach of any condition or relevant code can also be taken into account by the JGC as a reason for exercising many of its more general discretionary powers. So the JGC might use the breach (where serious enough) as a reason to serve a compliance direction or to refuse a later application by that operator for a new licence (renewal or completely new) or for alteration of a condition. Regulation 31(4) just ensures that the only sanction that does not apply in these cases is criminal prosecution.
However, it is anticipated that the modernisation of the primary gambling law will make provisions for civil penalties or administrative fines for such breaches and these would be remitted to the Treasury. But the driving motive in respect of non-compliance is to arm the Commission with a route other than recommended or referred prosecution and seek compliance by a regulatory toolkit containing: suspension/revocation of licence, service of compliance notice, refusal of application for new licence or for alteration of condition, plus any other existing discretionary power to which the breach of Code could be relevant.
Cost and Duration of Licences
Licences will be valid for three years, but subject to an annual licence fee. However, the original Facilities (Hosting) Providers Licence is subject to the closing transitional provisions and will take two forms, primarily to protect the rights of current licence holders:
Hosting of Egaming Operators – hosting DR/business continuity only attracts the initial application fee and due diligence costs.
Hosting of Fully Operational Egaming Operators - valid for three years and £5000 annual licence fee; new applicants will of course be subject to the same application and due diligence fees as those only wishing to host DR contingencies.
The three year life span also applies to e-gaming operators requiring either DR or full (general) operational licences; this duration was calculated to safely coincide with the introduction of further legislation in the broader modernisation package of the outdated 1960s Jersey gambling legislation.
E-gaming Operators solely requiring a DR licence will still be required to pay a fee of £5000 per annum and should disaster strike the home jurisdiction and activation commences from Jersey, the fee will remain at the prescribed £250 per day. The fee for a full or general operators licence requires a different methodology which is based on net profit tariffs. However, all successful applicants will pay an initial licence fee of £35,000 regardless of the size of operation. The net profits of this first year of operation in Jersey will form the calculation of the following year or ‘second year of effect’ licence fee as well as the third year of trading:
Licence Fee of £35,000, if there was no remote gambling yield in the relevant period, or if that yield was less than £1,000,000;
Licence Fee of £70,000, if the remote gambling yield in the relevant period equalled or exceeded £1,000,000 but was less than £6,500,000;
Licence Fee of £140,000, if the remote gambling yield in the relevant period equalled or exceeded £6,500,000.
These three bands based upon remote gaming yield or (net/gross) profit, were considered in relation to other comparable jurisdictions and the licence tariffs levied by regulators. While not wishing to embroil Jersey in an under-cutting exercise, the published figures are deemed broad enough to cater for both the smaller reputable firms and the larger Plc sector of the e-gaming industry.
As referred to above, the fee is determined by reviewing the previous years gaming yield under the licence (including any licence held in the year before a new or replacement licence is issued). Thus if the 3 year term expires and a new licence is requested, the licence fee will not drop back to the initial £35,000 if the yield during the previous year of operation exceeded £1000000. The mechanism for establishing the yield is based upon the amount brought in from customers by the gambling after deduction of the amounts paid out to them e.g. stakes less winnings. In cases of reluctance to provide accounts to JGC or a suspicion arises that a tactic has been used to artificially lower the yield, the regulator has the power to estimate the yield and to charge the appropriate fee. An onus is placed on the JGC to notify the licence holder of the amount of the fee at least 14 days before payment is due. The penalty for failing to pay an annual fee is automatic revocation of the licence and, given the retrospective nature of calculating yield, the JGC can still enforce payment of the fee as well. The regulation also equips the operator with the right to appeal the JGC’s fee determination.
The original Disaster Recovery Regulation contained a robust set of due diligence criteria involving various tests, proofs and disclosures necessary to satisfy the grant of a licence, the amendment bolsters the current regime. The amendment not only requires financial checks on the prospective licence holder or the foreign corporation behind a disaster recovery application, it further adds a duty to take account of whether there are any other persons who should be subject to financial or fitness checks. The Department considers this widening of the due diligence net proportionate because of the possible influence on the licence holder not just from directors, the holding or subsidiary companies in the corporate family tree, but from others including employees, business partners or relatives.
Therefore having enhanced due diligence, the question arises whether it is proportionate to undertake the same level of intrusive due diligence on a operator wishing to apply for a new licence because the one they hold is reaching the end of its 3 year life span. The JGC is armed to consider launching a fresh due diligence investigation on a case by case basis and not demand a full reapplication as an automatic pre-grant requirement. The Gambling Commission (Jersey) Law binds the regulator to guard against ‘unnecessary burdens’ and the Department questioned the validity of launching a full investigation into a known firm and charging the pertinent fees when the actual operator has reported any changes in corporate structure over the life of the licence or no significant changes had taken place in structure or ownership since the initial application. In applying an arbitrary approach to what in effect is re-licensing a Jersey firm, especially if noted for compliance with codes and conditions, would work against business, equally add burden to the regulator and the industry, while diminishing the potential attractiveness of Jersey for this industry sector.
Conclusion
The set of amendments creates a licence regime both considerate of social responsibility, fairness, and consumer protection while ensuring operators are fit and proper persons to hold a Jersey e-gaming licence. As outlined in the report accompanying P28/10, the potential economic benefit to the Island’s business and broadband infrastructure should not be overlooked in relation to an established e-gaming industry. E-gaming represents the most viable opportunity to develop the Island’s e-commerce industry and deliver the genuine economic diversification demanded by the States Strategic Plan.
The Jersey Gambling Commission with its primary emphasis on effective regulation and social responsibility will ensure that the e-gaming industry in Jersey will develop in a controlled manner. It is clear from the success of other jurisdictions that there is significant additional economic benefit to be afforded by the development of e-gaming through investment and upgrading of the Island’s communications infrastructure. Moreover, encouraging the industry to move to Jersey will:
- diversify the economy and reduce concentration risk in the employment and tax base;
- increase States licensing and tax revenues;
- encourage the development of other businesses that support e-gaming or can benefit from greatly increased broadband connectivity;
- offer new and diverse employment opportunities.
Encouraged by the support given by the Assembly to the in principle Proposition P28/10, the Minister for Economic Development recommends the adoption of the following amendments which reflect modern, international best practice in the licensing of e-gaming by regulation.
Financial/Manpower implications
There will be no additional costs to the States; the staff of the Jersey Gambling Commission will undertake the function of due diligence and regulation of this new and enhanced licensing regime.
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