23rd and 24th April 2015

KPMG eSummit Gibraltar Introduction

For over twenty years, Gibraltar’s fascinating discussion of the countless industry’s latest focus: omni-channel simple eGaming philosophy of potential applications of the Blockchain presence. Providing the final assuring robust, sensible and 2.0 in today’s digital environment presentation of the summit were proportionate regulation and after which MasterCard’s Andrew Martina King and David Excell of a real bricks and mortar presence Johnstone followed as moderator Featurespace, whose captivating from quality operators has resulted to a distinguished panel of payment presentation narrated the company’s in its becoming amongst the most specialists who together tackled development from a Cambridge Kindly sponsored by trusted and envied jurisdictions emerging payments in their form, University laboratory experiment in the world. application and function. Following to a critical provider of big data lunch, Peter Howitt of the GBGA analytics, analysing its deployment Today, Gibraltar is home to over 3,000 moderated an exciting and frank and huge potential within eGaming gaming sector employees, over 34 panel discussion on the role of social and ebusiness. licensees and a complementary responsibility in gaming where cluster of ancillary service providers, esteemed panellists, including This year’s summit represented creating a community of excellence in representatives of the Senet Group, an evolution of the traditional ebusiness as well as a fast paced and shared their thoughts on stakeholder format to also include four additional exciting, world-reaching economy. responsibility, the role of the media break-out sessions in parallel to the Indeed, as the Gibraltar Government, and politicians, and as a closing note, main programme. The International the GBGA and a host of public and the importance of public industry Masters of Gaming Law (IMGL) private sector stakeholders together collaboration on the matter. returned to provide two Masterclass embark upon a review of Gibraltar’s break-out sessions both of which gaming legislation and regulation; Tim Stocks of Taylor Wessing took over left standing room only as delegates Gibraltar’s future as a leader in with a highly informative presentation rushed to find out more about the technological advancement and entitled “Red Carnations and Slaying M&A environment for eGaming consumer protection which is at Dragons” in which the public markets and the European legal viewpoint. the forefront of any regulatory specialist provided his audience with The Gibraltar Betting and Gaming regime in the world, is assured. an evaluation and forecast of M&A Association (GBGA) meanwhile ran and overall market activity within the the first of its responsible gambling On the 24th and 25th April, 2015, global eGaming sector. Mr Stocks seminars, a key topic of the day, over 240 delegates boarded the was followed by Paul Lasok, QC while later in Day 1 a blockchain, Sunborn Gibraltar to join KPMG for whose coffee and conferencing cryptocurrency and FinTech the fifth in a series of eSummits in presentation allowed unparalleled commercial workshop set the tone Gibraltar and a two day programme of insight into the implications of Fiscal for an afternoon’s insight into the 40 world class presenters. Together, Neutrality and VAT in the European future for ebusiness transactions. they discussed not just the future of Union from an individual well placed the eGaming industry, but also its to discuss the issue. A final panel This report seeks to provide an A word from the Sponsor leading role as part of a global session, moderated by Peter insight into the event’s findings digital economy. Montegriffo of Hassans, closed as well as capture the enthusiasm Day 1 with a discussion on the generated over a summit characterised The Hon. Albert Isola, the Gibraltar evolution of gambling from the by a sense of cooperation and social Government’s Minister for Financial particular perspective of the responsibility at this important A secure, transparent and constantly This year’s Summit was testament to Services and Gaming kindly opened operator at a ‘point of reflection’ juncture for the gaming and, more evolving centre of excellence for the agility and resolve, as well as the proceedings by expressing Gibraltar’s for the industry. broadly, ebusiness economies. KPMG ebusiness, Gibraltar is home vast potential of Gibraltar’s ebusiness firm and total commitment to would like to thank the summit’s to some of the most reputable community today. Continent 8 is proud transparency and exchange of Day 2 saw delegates return to the sponsors, speakers and attendees brands in eGaming today and to sponsor this year’s KPMG eSummit information, whilst celebrating its Sunborn to be welcomed by KPMG’s and welcome you all to the KPMG one of ten hosting centres in report and we look forward to seeing success in remaining a compliant, Head of eBusiness, Archie Watt, eSummit series in 2016. Continent 8’s global network. you again next year at the KPMG cooperative, business friendly and following the previous evening’s gala eSummit Gibraltar, 2016. consumer focused jurisdiction. dinner hosted by the Government of KPMG employs a number of eGaming Since beginning operations in Gibraltar Gambling Commissioner Phill Brear Gibraltar at St Michael’s Cave. The industry specialists both in Gibraltar in 2012, Continent 8 has enjoyed Richard Ebbutt then took to the stage with an evolution of gambling, this time from and globally and is committed to unprecedented demand for our hosting Continent 8 Technologies introductory overview of Gibraltar’s the regulator’s perspective, was the cutting through the complexity of and networking services. From our gaming economy before moderating first topic of discussion as the panel of this constantly evolving industry. unique datacentre, which is located a comprehensive panel review of regulators Phill Brear, Hakan Hallstedt 500 metres within the Rock of gambling regulation in Gibraltar with and Jenny Williams, moderated by Gibraltar, we continue to invest in particular emphasis upon the process IMGL President Joerg Hofmann, Gibraltar’s eGaming and eBusiness of updating Gibraltar’s Gambling Act debated the importance of regulator communities and remain committed 2005 and licensing arrangements personality, accessibility and to providing a level of excellence to create an enabling legal and independence. Conference regular as standard. regulatory framework. Paul Leyland then took over to deliver the penultimate presentation entitled Eris Industries’s Preston Byrne took ‘The Multi-channel Value Equation’ in over for the summit’s first coffee which Mr Leyland contemplated the and conferencing session with a benefits and disbenefits of the 1 2 Conference “Gibraltar is totally committed to transparency Opening and exchange of information. There isn’t one accord, one The Hon. Albert Isola agreement, one convention, in relation to these areas that Minister Gibraltar Government we’re not fully subscribed to.”

The Hon Albert Isola

A third generation member of the as well as all appropriate directives. despite the many challenges we’ve The strength of its regulation and, “Responsible gaming has been a family-owned law firm Isolas, which He emphasised the importance of faced over the years; PoC tax, indeed, regulatory team remains priority from our very beginning. “It is very much has been doing business in Gibraltar being a part of Europe and of the jurisdictions introducing their own absolutely fundamental to Gibraltar’s Gilbert Licudi is driving the Gibraltar since 1892, the Hon. Albert Isola was importance of remaining proactive in regulatory regimes and, of course, the eGaming proposition and it was with University, which opens its doors a total consensus admitted to the Bar in England and the international regulatory debate. world economic crisis. Today, we are delight that Minister Isola confirmed in September 2015, and we have Gibraltar in 1985 and was appointed “Being a part of Europe is important 100% bigger than we were five years that Phill Brear will remain Gambling identified gaming as an industry in approach. My door as the Gibraltar Government’s to us, and of course it’s also important ago. That’s staggering considering the Commissioner for a further two years. which the university has a role to play. Minister for Finance and Gaming in to us that we comply. There isn’t a challenges you’ve all faced. And, of During this period, Mr Brear will We want to bring together gaming and is always open July 2013. Since then, Mr Isola has single EU directive which we’re course, for us as a jurisdiction the implement a full succession plan students and see how, together with overseen the continued expansion required to transpose which we icing on the cake is that the main to ensure that licensees continue the many companies here today, and you have of Gibraltar’s eGaming community haven’t. Those are obligations which operators in the sector are all here to enjoy the benefit of his advice we can work to put Gibraltar at the to now accommodate over 3,000 we take seriously and you should and represented in Gibraltar.” and expertise. “A formal handover forefront of responsible gaming.” the Gibraltar employees as well as 28 licensees, know that when you come to Gibraltar will also be created”, Minister Isola and has been instrumental in you are coming to a totally EU “So I think it’s an example of how confirmed, because we recognise “Finally, a total review of our gaming Government’s securing the jurisdiction’s reputation compliant onshore jurisdiction.” government and the gaming sector, that consistency in our regulatory legislation. It has worked, but it has as a global centre for eGaming. and more broadly the private sector, environment is crucial to all of worked in different sorts of ways. full support.” “As many of you will know, for over can work together to battle through your businesses.” What we are doing now, and have “I think I’d like to start by saying one twenty years we’ve had a very simple tough times, to meet challenges and done thus far, has been to instruct thing about Gibraltar PLC and its philosophy: quality operators, robust to face them together. Consider what “A second area is virtual currencies. what I consider to be the four leading outlook in terms of business”, Minister and sensible and proportionate we now have - a collection of skills, For the past six to eight months, lights in the gaming community to Isola introduced KPMG’s fifth eSummit regulation, and a real presence. nationalities, languages, experience, the Gibraltar Government has been work in the interests of Gibraltar PLC in Gibraltar. “And I think I’d like to Those principles have guided us expertise, in a very exclusive sector – engaged with a working group and and improve the way in which we stress how important it is to us that successfully for many years to where and all within two square miles. But, of consulting widely, across all sectors, regulate gaming in Gibraltar. I don’t the journey we’ve embarked on is a we are today. Of course, it’s also course, that really isn’t the end of the to see whether or not we should be think there’s a better jurisdictional total commitment to compliance. designed to protect, preserve and story; if we want to keep that, and introducing the virtual currency space reflection of excellence than this group Gibraltar is totally committed to indeed enhance our reputation as grow that, and if we want to get better into Gibraltar and, if so, how we of individuals and their bid to ensure transparency and exchange of what we consider to be the online at what we do, it’s important that we should regulate it and impose the that Gibraltar’s legislation is fit for information. There isn’t one accord, gaming jurisdiction in the world.” continue to focus, we continue to look safeguards that we require in any purpose, proportionate and robust. one agreement, one convention, forward and we continue to work business. We are at the stage today With our recommendations in place, in relation to these areas that we’re Minister Isola confirmed that together to find the solutions that will where the working group has I hope to be able to consult with you not fully subscribed to, so when we Gibraltar’s eGaming sector currently put us in a better place in five, ten, completed its work, has provided collectively and individually. I do intend talk about FATCA, and the Common constitutes over 3,000 employees fifteen years’ time. What we’re talking its report to government and I am to communicate with you all to make Reporting Standard, Gibraltar was and 34 licensees; an increase of 8 about really is a centre of excellence: working on a cabinet paper to lead sure you understand what we’re one of the early adopters and totally licensees since the 2014 KPMG Gibraltar as a centre of excellence for to a final determination on where doing, why we’re doing it and what committed to that area of compliance.” eGaming Summit. He reminded the gaming community. That’s where we will go. I expect that will lead to your thoughts are. It is very much a the audience that a large number of we as a government will focus our further opportunities if it goes the total consensus approach. My door Minister Isola continued by these licensees, 8 or 9, were involved energies in looking at the gaming way I think it will, but always against is always open and you have the emphasising his pleasure in confirming in acts of consolidation, meaning these sector. Above all else, it’s our intention the context of the need to ensure Gibraltar Government’s full support. that Gibraltar is subscribed to 130 licence numbers may not remain, but to do it holding your hands and doing that whatever we do protects the Thank you, and enjoy the rest of 3 exchange of information agreements, company presence will. “And this, it together every step of the way.” jurisdiction from adverse risk.” the day.” 4 Panellists Peter Howitt, Founder and Director, Ramparts Sir Peter Caruana, KCMG, QC Peter Montegriffo QC, Partner, Hassans, Moderator: Phill Brear Panel Session: Steven Caetano, Partner, Isolas Gibraltar Government “Successive governments The Review of Gambling have supported, but more importantly, understood Regulation in Gibraltar Update this industry.”

Phill Brear was appointed as Head of “We have here the founders of the How did we arrive at this point, have been granted presence in Gibraltar, development of this jurisdiction as one is currently a single form of remote Gambling Regulation for Gibraltar in remote gaming industry in Gibraltar”, and what are the drivers for change becoming stakeholders alongside of the foremost for online gaming.” gambling licence.” October 2007 following two years as Mr Brear introduced an overview of in Gibraltar? the government and the rest of the Director of Operations with the British the initiation of Gibraltar’s review of its domestic industry, all of which fosters Mr Brear agreed, adding that there is a Mr Montegriffo elaborated, adding that Gambling Commission. In July 2011, gambling legislation, and licensing and Sir Peter Caruana: “The story of a common vision. common understanding that the many other ‘hub’ jurisdictions utilise a he was appointed as Gibraltar’s regulatory model. “There isn’t an online Gibraltar’s involvement in this exciting infrastructure of the industry is changing range of licences which might include Gambling Commissioner in addition operator in Europe and, possibly, the industry is, I think, relatively well known This selective approach to licensing, with its growth and multiplication, “so B2B, disaster recovery, and other to his existing responsibilities. Having world who doesn’t know of these by most”, Sir Peter began. “Its success Sir Peter continued, allowed for a lighter the entry points into licensing need to peripheral activities which are then played a leading part in the roll-out of individuals and hasn’t used their can be attributed in the first instance to regulatory touch coupled with a sense be revised. This control and definition of connected to the mainstream gaming the UK Gambling Act and gained resources to navigate the complex just a few words: a commitment from of self regulation, which was deemed who should and may be licensed is a activities which are regulated. “These experience across the breadth of the world of online gaming in the past. the very outset, and from successive affordable in terms of safety because launch pad of the regulatory model.” jurisdictions have sought to create space British gambling industry, the switch It’s an amazing team we have here.” governments of Gibraltar, to excellence. Gibraltar had been selective and Turning to Peter Montegriffo, who is more specifically for the different to Gibraltar, ‘home to the world’s We did not want to be all things to all restrictive in the first instance. Indeed, credited with coordinating Gibraltar’s elements of the gaming industry as it leading online gambling operators’, Mr Brear continued in clarifying men, and we knew that protecting our this policy became attractive to large historical approach and modernising its diversifies and becomes more complex. brought a new set of challenges, with Gibraltar’s goals as it embarks upon a reputation meant limiting the people operators who identified Gibraltar as a regulatory regime, Mr Brear then asked: In revising our frameworks, we’re Gibraltar’s adoption of its new review of its gambling licensing and we let in as operators to those who jurisdiction whose vision and regulatory could you elaborate on any interested in accommodating that same Gambling Act. Since his appointment regulatory regime. He emphasised that shared the same concern for their objectives they shared. developments? reality and enabling ourselves to police Phill has steered through a series of whilst there is a collective drive to move corporate reputations as we do for the perimeter; that is to say police those changes to the regulatory regime forward with revisions, continuity and our jurisdictional reputation.” “So there was a constant assessment Peter Montegriffo: The 2005 Gambling companies outside of Gibraltar but which whilst working closely with operators the future-proofing of Gibraltar’s of the balance between a sufficient Act, which currently regulates gaming in nevertheless seek to establish some and their representatives on a proposition remain of paramount Sir Peter explained that this approach measure of regulation to protect the Gibraltar, was conceived at a time when sort of link to the jurisdiction, potentially wide range of operational and concern. “This is not about starting quickly led to a policy decision for jurisdiction and consumers, and at the internet gaming was very different, Mr raising reputational issues. So what organisational issues. Phill is also again, it’s about building upon what what has become known as ‘selective same time having an equal degree of Montegriffo pointed out. “Back in 2005 we’re looking at is how to redefine the responsible for liaising with bodies works”, Mr Brear maintained, “and if licensing’, whereby Gibraltar eschews sensitivity for the needs of an industry the EU debate on a cross-border, boundaries of our licensing, so that we as challenging as US regulators something is broken, we will fix it.” volume in favour of quality. Of the which we knew was nascent and which liberalised market was very alive, the may better police those that lie outside and the European Commission. He then turned to Sir Peter in asking hundreds of licensing applications was and still is in a constant state of technology was very different in terms of the boundaries.” the first of the day’s panel questions. submitted, only a handful of applicants evolution”, Sir Peter recalled. “It was of delivery and the controls required. important that we weren’t too rigid in our The role of hubs like Gibraltar was also Mr Montegriffo then reiterated the fact policies. Whilst we had certain core very different. The 2005 Act was struck that Gibraltar’s basic approach and its elements that were designed to make correctly at the time both because it very selective requirements for entrance sure that Gibraltar was a brick and reflected that environment and it was – the need for substance, accountability mortar, and not a brass plate jurisdiction, designed to provide latitude and and presence in Gibraltar – are unlikely and that we had sufficient oversight and flexibility for this industry as we to change. He stated that the review handle on our operators; we couldn’t be knew it would evolve.” is therefore very much one of so rigid that we prevented companies “modernising, revamping, empowering from developing. We coupled this with “This now needs to be looked at and making more relevant the business an emphasis on quality of life: issues because the world and the landscape that we have here, and building a such as safety, education, travel, an open have moved considerably. Of course, platform for its continued expansion.” labour market, and a very supportive Gibraltar has adapted to the new community. These issues may not seem businesses within the parameters of How might we define what lies so but they are also crucial to our the Act successfully, but it has had to beyond the boundary of Gibraltar’s proposition.” stretch some of the concepts. For regulatory reach? example, we license B2B operations “So, to summarise; successive in Gibraltar though our legislation was Steven Caetano: “We looked at the governments have supported, but more more properly conceived for B2Cs. So, commercial rationale for potentially importantly, understood this industry. there’s a need to look at the criteria for regulating the unregulated or non- Peter Howitt Sir Peter Caruana Peter Montegriffo Steven Caetano As a result they have been able to make licensing in terms of what triggers the traditional gambling products which are administrative, encourage regulatory, and requirement for a licence, such as a out there, and we looked at the existing also made legislative decisions which piece of remote gambling equipment in legal regime here, and we saw that the have been propitious for the safe Gibraltar, and we need to evaluate what legislative framework is wide and robust 5 6 enough as it is”, said Mr Caetano, who breath as financial services. It’s also an broader base. Could we discuss this? kindly stood in for the programme’s opportunity to gain some of the benefits “Ours is a very human led original speaker Peter Isola. “We could enjoyed by financial services such as Sir Peter: Sir Peter confirmed that there regulate something like social gaming, doing business across borders.” is consensus that Gibraltar will adhere to form of regulation, and we for example, with small extensions to the its model of restrictive, as opposed to existing framework. Then we looked at Looking at the current legislative open, numbers based licensing. He don’t want to lose sight of the arguments for and against regulating framework in Gibraltar, Mr Howitt reiterated Mr Montegriffo’s earlier point, something like social gaming. We found explained that the jurisdiction has the however, that the threats and challenges that in this review” an equality of arguments and that, 2005 Act, bi-lateral private contacts come not only from the difficulties in ultimately, it was the practicalities of between the government, operators and regulating effectively those high numbers enforcing regulation that would inform licensing authority, and codes of practice. of operators, but also from the difficulties our decision to regulate and whether He emphasised that commercially and involved in regulating the now greater that’s more appropriate matter for reputationally Gibraltar has enjoyed great number of licensees that are not consumer regulation. What we’ve success, but that the current process of themselves operators, but which provide done is set out the new potential appraisal allows Gibraltar to look at how services to operators which blur the lines developments in the industry that best to showcase these strengths and in the minds of the consumer. “In terms protecting regulatory objectives. This Peter Howitt: “The 2005 Act was proved successful in Gibraltar, but which currently lie outside of Gibraltar’s demonstrate how it meets its objectives. of the regulatory objective, which is discussion is about the second of those enabling legislation, and the switch will allow greater visibility as to how regulatory boundaries, the advent of “The focus for me in the process of this consumer protection and the protection two, but will always take place against now is to create an enabling regulatory that model works. Effectively, we would cryptocurrency for example, and we review is to make sure we really highlight of the jurisdiction’s reputation, these are the context of a balancing act. The 2005 framework”, explained Mr Howitt. “We envisage in due course that licensees will monitor these developments in what Gibraltar is very good at and use capable of causing as much damage as Act, read together with and implemented need to put more of the heavy lifting would move away from the detailed order to be the first to embrace it as a chance to make explicit what if there was a problem with a gaming side by side with the licence with the legislation, but in a more agreements that currently exist because and regulate accordingly if we deem Gibraltar does well every day. One of the operator. We must ask to what extent agreements, have to some standards transparent way so that the world can the requirements for those agreements it appropriate.” things I personally like in terms of the international public opinion is going to provided a light touch, but nevertheless see how Gibraltar does business, and would be contained in codes or in way Gibraltar does business and distinguish between Gibraltar’s link to have also provided a completely effective how it looks after stakeholders and guidelines that would effectively apply Is there a synergy or not between regulates gambling is that ours is a very an operator, Gibraltar’s link to an affiliate form of regulation in the context of the consumers.” Mr Howitt explained the across the board. So it’s just a codifying e-commerce, e-currencies and human led form of regulation, and we or marketer, and Gibraltar’s link to a limited numbers that we were intention is to make explicit the of the existing practice and the existing eGaming? don’t want to lose sight of that in this registration processor, for example.” admitting.” regulating authority’s role in achieving contractual arrangements that all review. In some jurisdictions there are certain goals, whilst also making explicit, licensees sign up to on a pretty Peter Howitt: Notable for his expertise copious amounts of documentation, but Sir Peter noted that the review “But the world is changing”, Sir Peter on a principles basis, the corresponding regular and standard basis.” on the convergence of and overlaps limited interaction with operators and it’s committee was considering the continued. “The industry is becoming role of the licensee, thereby creating a between eGaming and financial services, difficult to see that as the best form of establishment of a licence separate much more multi-jurisdictional, multi- dovetailed, collaborative relationship Question from the floor: Will this be Mr Howitt explained that one of his areas regulation. In this review, we have to to an operator’s licence which would licence. In a sense, there are more of common objectives. a very expensive exercise? of activity as part of Gibraltar’s review make sure that we look at the structure license a whole series of support regulators, licensing authorities and was looking at the potential to ‘borrow’ of the Act and the licence agreements services activities to gambling operators foreign authorities looking at each-other Could we reflect on the efficacy of the Sir Peter: “We and the government principles based financial services and move to a more principles based which themselves might challenge the and expecting to find something in consultation process? are acutely aware of that issue”, Sir Peter regulation for application within approach where the regulating authority regulatory objective. companies’ interactions with their own assured the floor. “Part of the exercise eGaming. “From a wider perspective, sets out their stall, identifies their territories. That view, really, is the driver Steven Caetano: “We must ensure we’re undertaking when we mention our however, it is interesting to first look objectives and what their role is as a Peter Montegriffo: Mr Montegriffo for the review of regulatory enforcement that our door remains open if we’re to desire to ensure we remain relevant as a at the history of gambling, particularly stakeholder. It then needs to give the agreed, adding that this situation also and regulator powers aspects of this respond to an unpredictable and ever- jurisdiction must include that we remain outside of the UK and on the Continent”, operators conditions for licensing which represents an opportunity in as much exercise. The 2005 Act and our licensing changing industry. We’re trying to create competitive. Of course, good things he noted. “Gambling is coming from a make it clear that there are certain as Gibraltar’s reputation has attracted agreements gave us the first mover as future-proof a piece of regulation as do come at a price and the Gibraltar place quite different from banking and things that they must do which aren’t to Gibraltar’s shores a large number of advantage. We’re determined that in the we can. With a principles based approach, proposition has always been that there other financial services but it does seem necessarily specified in particular parts highly skilled individuals, many of whom regulatory space, too, we will keep that there’s leeway which enables us to adapt is a deliverable, but we expect we’re moving in the same direction in of legislation, but which are fundamental then find it attractive to do business prominent position and not allow it to be as the industry moves forward.” accountability, regulatory footprint, we terms of concepts relating to the to the proper functioning of a gambling beyond the gaming space. Some, degraded by the view that our current need people on the ground, there are protection of consumers, treatment of market that protects consumers and however, have found in the past that regulation has no longer kept pace with Mr Caetano confirmed that, in terms issues of technology, costs and duties funds, treating customers fairly, etcetera. protects stakeholders. We want to make Gibraltar’s current licensing and the changes happening in the world at of timing, the paper will be presented as part of the review – that is all in It is also clear that there are shared areas changes that really put Gibraltar at the regulatory environment is not conducive large. A lot of the changes we’re thinking to the government before its summer the melting pot that we’re sure the of sensitivity relating to operators and forefront of any regulatory regime in to these activities. This review, therefore, of are there to make the system fairer, recess. The government will then consult government will be discussing with the management of public policy issues. the world.” represents an opportunity to embrace more balanced and more transparent for with the industry, a measure deemed the wider industry.” It is interesting that online gambling is these ideas and allow individuals to do the benefit of the operator with a more absolutely imperative, with the results starting to be seen in the same way as Phill Brear: “There are, basically, two business as they wish in a licensed incremental range of options for of the consultation ready by the end Peter Howitt: Mr Howitt added his financial services, and that presents models of licensing out there. One and well regulated manner. regulatory intervention. This will enable of 2015. opinion that the review is unlikely to opportunities and some risks.” model is high entry point, limited the regulator to access information and have any significant cost implication for numbers, which we see a number How do we intend to bring the assess financial status, thereby better Peter Montegriffo: Mr Montegriffo licensees. “Really, what we’re doing here One such example, Mr Howitt went on, of jurisdictions effectively adopting. regulatory toolbox up to date? How arming him to identify in advance and agreed, and expressed his desire to is trying to make sure that the jurisdiction was the forthcoming 4th European Then there’s a different model of large and when might those tools be used? avoid problems, and allow for more make absolutely clear that part of the and our operators continue to be seen as Money Laundering Directive (4MLD) numbers, possibly low entry point. measured, proportionate and effective exercise is also to codify what the the best in the world. We’re trying to give which, although previously identified as a Here, it’s quite clear that there is a Sir Peter: “This refers, again, to balance”, terms of intervention.” regulating authority already does. “This a framework that shows that to the threat, may also present an opportunity commitment to continue on the same Sir Peter confirmed. “The theme of our is not just new thinking. When we talk world without unnecessary box ticking. for eGaming. “The 4MLD represents a path of a small number of locally work has always been an attempt to What is the right mechanism to move about principles led regulation and so on, We’re all saying it, we can believe it, coming of age for online gambling which licensed, locally established and locally achieve equilibrium between the us to where we need to be with regard what we’re talking about is codifying a and the financial figures and economic 7 can now be talked about in the same regulated operators, even with a commercial needs of the industry and to regulatory powers? way of doing things which has already impact speaks for itself.” 8 “This isn’t cryptocurrency; Blockchain 2.0 it’s software development”

Eris Industries is a blockchain technology start-up approach is that if it’s a repeatable every action a user takes is and secures the process of changing Preston Byrne piece of data infrastructure that’s controlled from somewhere else and updating that transaction history. headquartered in London. The company has launched very cheap, you can start putting data and on a machine. A user inputs Any write permissions to that Co-founder & COO, the first, and to date only, open-source smart contract to work for you, instead of you having information on a web browser while database, say spending a Bitcoin, on Eris Industries to work to manage it”, he added. everything else is produced by a far any other database, say a blockchain developer platform to market. Preston is also a fellow away server cluster. By logging into based social network, are secured by of the Adam Smith Institute, where he advises on “And we’ve made it commercially Facebook in Europe, a user is ‘talking’ the use of public key cryptography.” the intersection of law, economics and technology. relevant. The problem with Bitcoin to servers in Ireland. Even a message is it’s uncontrollable; all of your users sent to a friend is done so via those “This means that if you know the Preston's work for the ASI encompasses a wide range are unidentifiable, the value of the servers. At no point are two users rules – if you download the blockchain of subjects including law, security policy, and capital tokens itself, which is really just data, communicating directly, or peer- – you can know them and you can is extremely volatile. This is not to-peer.” know everyone who uses it, and you markets. Before founding Eris he was a securitisation something you get when you work can know everyone’s public keys. lawyer with Norton Rose Fulbright LLP in London. within a normal database and in a “In a peer-to-peer framework, by But, if you don’t have the right key, corporate, or any other kind of context contrast, the machine in the middle you can’t interact with this database you need absolute control over what is taken out and everybody starts in a way that you’re not allowed to. “Bitcoin is confusing The "blockchain" database used by “We did this because if you look that system is going to do.” communicating with each other”, In addition to that, you can’t change Bitcoin is a technological marvel, at Bitcoin not as a currency, not as Mr Byrne continued. “The benefit the database even if you’re in a concept that but a commercial nightmare: a commodity and not as a value “So, what we’ve done is said ‘right; of that is that if you’re using peer-to- possession of it. This is phenomenal. unregulated, uncontrollable, and storage mechanism, but as a piece what are the things that corporate, peer computing we now have more It’s like saying, ‘here’s a copy of the really isn’t that extremely punishing of mistakes. of software; it becomes simply a developers and governments need?’. processing power and hard-drive space Companies Act but you can’t change In this talk, Preston explains how distributed clearing and settlements First they need accountability; they than we know what to do with. Most it just because you scratch out a bit confusing at all, it’s improvements in blockchain tech system. If you submit a transaction need someone in charge in case of us have more processing power in on your copy’. So, it’s a very resilient now allow enterprise to cherry- into that clearing and settlements something goes wrong. They need our pocket than the entire world had framework for data-driven transactions just software.” pick the best parts for their own system there is no clearing, it settles controllability; they need to be able to in 1990. So, we try to come up with instead of cryptocurrency.” purposes while leaving the in between five seconds and six step in, tailor that system and tell it to frameworks where people actually rest behind. minutes and is also confirmed within do anything. They need repeatability; use that instead of lying fallow for “So, what are the primary rules that time. This is because of the they need to be able to repeat a most of the time.” we have to keep in mind when we “By way of introduction; my name is cryptographic architecture that is process with absolutely no additional consider what the blockchain is going Preston Byrne and I am the co-founder utilised. We looked at that and realised infrastructure. And they need Mr Byrne described blockchains as to do in the future? There are three and COO of Eris Industries. What we that this was 99.98%, roughly two reversibility; not in the sense of going “a pretty interesting peer-to-peer of them, and you may have heard do is take the blockchain and we make orders of magnitude, faster as against back and pulling things out of the infrastructure”. A blockchain is two these before: 1. Tell ‘em what you’re it usable in enterprise and other the T+3 cash settlements system blockchain – which you can’t do, that’s things, he explained, a database, or gonna say. 2. Say it. 3. Tell ‘em what contexts”, Mr Byrne began one of [T+3 translates to ‘trade date plus the first law of the blockchain – but the transaction history of a group of you said.” the eSummit’s most intriguing coffee three days’; the deadline for securities telling all the users of that system that, users using that particular blockchain. break presentations. “Today, we’re certificates to be issued to settle a if a particular transaction is fraudulent In addition, a blockchain is also a Mr Byrne explained that the first rule, going to be talking about exactly securities transaction]. What this or needs to be reversed, they need protocol, or a series of rules which ‘tell ‘em what you’re gonna say’, is what it is and what it means, means is the blockchain is a process to ignore it. That’s what we did.” govern how that database functions. known as the transaction protocol. whilst hopefully clearing up some automisation, or process efficiency, Another type of protocol, HTTP or Effectively, these are the rules that ambiguities. This is because Bitcoin tool which everybody has confused “What this means is the blockchain Hyper-text Transfer Protocol, governs apply to the user. They dictate the is confusing a concept that really for a monetary transfer system.” isn’t magical and it isn’t a money use of the World Wide Web, “but we purpose of the blockchain, what isn’t that confusing at all.” machine. It is a database, it is just don’t put all of our data for all of our people do when communicating, Mr Byrne explained that most people software. As a result, it will do exactly websites on one server. Instead, we who can broadcast transactions, “One thing I ask you all to keep view the blockchain as a monolith; what you tell it to do; no more, no spread it out and agree the rules by their permissions when they do in mind for the duration of this a big, globally distributed, resilient, less and with a very high degree of which those databases are built to so and how they do so. presentation is ‘it’s just software’. highly powerful and indelible system exactitude. So, as a consequence, interact with one another. A blockchain I ask this because a lot of people which serves a single purpose: “and it’s now possible to use blockchains is very much the same.” Rule two, ‘say it’, describes have been talking for years about we’re all supposed to bow down and in very specific contexts to realise the networking protocol, which the blockchain and its use for pretend it’s the best thing since sliced process efficiencies in organisations “Bitcoin is a database and a protocol. determines how users communicate things like land registration, key bread”. Eris Industries, however, acts without needing a cryptocurrency in On the client side, there is an with one another. It dictates what can management, identity records, this on the view that the blockchain is in order to do so.” implementation to that protocol; a be said, to whom it can be said and and that. But, everybody is only fact an open source means of creating programme which reads that protocol in addition, how a user interprets actually using one blockchain, which countless variables on the blockchain “To understand what this means, it’s and displays it on the user’s machine what other people say to her. “What is Bitcoin – the unregulated transfer database model, each of which is able worth understanding, quickly, the way through the programme. A better way the blockchain does is ensure that mechanism. Eris Industries thought to serve a different function and can in which the Internet currently works of looking at it is a blockchain is a every transaction, every node, ‘why don’t we build something that be repeated in context. “Very much against the distributed Internet”, distributed rulebook which has a every computer using the system people can actually use?’, so that’s like an assembly line; the difference Mr Byrne explained. “At the moment, transaction history and which tracks processes every transaction sent on what we did.” between our approach and the current 99 10 Panellists Kriya Patel, Managing Director, The Bancorp Tony Craddock, Director General, Emerging Payments Association Tom Cregan, Chief Executive, Emerchants “The blockchain is a process Miles Paschini, Group President, Wave Crest Group automisation, or process efficiency, tool which everybody has confused for a monetary transfer system.” Panel Session: Emerging Payments the system. Everyone agrees the state This means you can cherry pick the that are automatic anyway, a payments of all of the data in the entire world on things you like about Bitcoin while system for example, then the answer an ongoing basis. With Bitcoin this is leaving behind the things you don’t. is, again, no. I get a lot of flak for this Moderated by: every six minutes and if someone if That mostly means assuming control opinion, but I don’t think the blockchain Andrew Johnstone, Japan sends some Bitcoin to someone over the database, allowing for a new is good for payments. Payments Andrew Johnstone in South Africa, I can see that from the attack vector (in from the top), but it systems are very low latency, very Director Prepaid Business Development, MasterCard United States. But, knowing that does also means that you don’t have to high volume, and they’re almost not allow me to interfere with it.” supervise what your users are doing entirely automatic. Charge backs are with it and you don’t have to manage one piece of the equation, but seven “Finally, there’s ‘tell ‘em what you the data quite so much.” transactions per second means it’s not Andrew Johnstone has been with MasterCard for 7-years and is currently Director, said’ which in my view is the most very good as a global payments or important principle. We call this the “The question is, of course, why do settlements system. You can, however, Prepaid Relationship Management and Business Development in the UK & Ireland, consensus protocol. This confirms you care? Well, for a lot of things you drop in a blockchain to confirm the working across the value chain with distributors, programme managers, processors, what has been said, who said it, and probably don’t, to be brutally honest. transactions are accurate.” whether the record is correct. The Anything a blockchain can do, a server issuers and consultants. latter is most important because the can do. If you’re perfectly happy with “So, we know how a cryptocurrency thing about Bitcoin is what happens in the things your servers do, then keep works, what about any other kind of the past determines what can happen on doing it. If, however, you have some blockchain? Well, we can change that Andrew started his career at HFC Bank in 1995 and held a number of sales, in the future. If I’ve spent all my coordination or security problems as well, just by going back and marketing & database marketing management roles. Andrew then took responsibility Bitcoins I can’t do it again. If I try to do which you think a blockchain might be swapping the rules. If you have a it again, the system will reject it. For a able to solve, then that’s something corporate chain, you might say it must for European consumer finance marketing in HSBC’s European operations, corporate this is interesting because you might want to consider. So, if be controllable in every respect. All developing marketing strategy and leading teams in 5 emerging markets, covering you don’t need to supervise the you’re coordinating multiple software write permissions must be accessible system. You know that when a user stacks, acquiring other organisations through public private key encryption 6 business channels as well as providing consumer finance consultancy in other finally disperses all of their funds from and translating data into a uniform and cannot be open to the public and global markets. After HSBC, Andrew spent a year at a venture-capital funded start-up an account they’re not going to be able framework for global reporting, you you can have an administrator key to to double spend. So, you’re putting the might want to use the blockchain. change permissions on command. lending company, supporting and developing the UK network roll-out, marketing transaction history to work for you by If you want to simplify multiple You also want to distribute the logic so strategy and communications. Andrew has over 20-years’ financial services creating a predictable framework processes into a single process, or that the system can’t be flooded with where the data is actually regulating want to get human beings out of the packets, attacked or destroyed. Finally, experience and a geography degree from Royal Holloway, University of London. itself. You take all these rules, put them equation, this is something you want you might want to change any aspect into a rulebook and translate that a blockchain for. If timely verification of the system on command, but the rulebook into something we can is paramount, a blockchain can be way you do it must be very transparent “With the new SEPA [Single Tony Craddock : “The difficulty with us. It is absolutely an area where understand, like a Bitcoin wallet.” programmed to verify very, very because you can’t take data out of Euro Payments Area: an initiative this term ‘emerging payments’ is emerging payments are being quickly as against a human verified the past or change it. This meets all promoted by the European that, to some extent, it is boundless. deployed brilliantly. It could also be “The reason people think Bitcoin process. And if you want to reduce commercial standards of data security Payments Council to create a single Essentially, however, I think it has four transit; for example Uber is not a taxi and the others are so special, if we your supervision or oversight costs and certainty. Finally, no mining. common cross-border payments angles to it. There’s the angle of firm, it’s a mobile payment firm with look at it in this three rule framework, it’s also very useful.” Mining is an incentivisation model system] regulations coming into technology; such as the digital and a little geo-location tech on top of it. is that it’s first open to all and evades or feature of the database, it is no play, Gibraltar and the UK’s issuers virtual execution of payments. Then Emerging payments have applications government controls. Secondly, “But, what are the things that longer necessary.” are increasingly operating across there’s channels, such as mobile, anywhere. A seed of an idea can grow it is resilient to interference and blockchains are bad at? Well, if it Europe with the result that the two online, peer-to-peer and possibly in- to become a flower or a redwood tree. destruction because it’s spread requires speed – if the speed of light “Once you’ve designed your system, jurisdictions are quickly becoming store or face-to-face in terms of value I think it’s considered to be ‘emerged’ around the world and, thirdly, it relies is your enemy, like in high frequency you come to Eris Industries, write regarded as centres of excellence exchange. The third angle, meanwhile, rather than ‘emerging’ when it on competitive mining, which means trading – the answer is a very firm your rulebook, roll out the chain and for prepaid and emerging is emerging processes, or emerging becomes boring.” you have to throw a lot of computer no. This is not something to get deploy your decentralised app. Once payments”, Mr Johnstone began. ways of doing things. One of the power in order to get a new block of information out quickly; it’s to try to get you’ve done that, you do it again, “What we have here are things our trade body, the Emerging Would you say pre-paid is transactions in the chain – but you it out verifiably. If it requires very heavy and again and again, because this representatives from the cutting Payments Association, does, for ‘emerging’ still? don’t have to.” computation then no; blockchains are isn’t cryptocurrency; it’s software edge of emerging payments and example, is it looks at the way in which passive, they are permissions and development. Blockchains are not of some of the fastest growing the infrastructure of payments is Tony Craddock: Mr Craddock “Bitcoin doesn’t solve any particular authentications databases. They money machines; they’re just and most innovative organisations enabling us to do things efficiently and explained that pre-paid gift vouchers problem very well. However, if you control what people do and the databases which can do some really in the market. But first, I must ask: well. The fourth and final is emerging could rightly be considered emerged, look at the blockchain as a data relationships between people; they are interesting stuff. Now you can create markets, which isn’t necessarily whereas a number of pre-paid structure that can do anything you tell not designed to pipe information out to as many as you want and you don’t In your view, what is an emerging restricted to geographical terms but eWallets are still in the process of it to do; you can engineer very specific them. They constrain them, and in a have to pay anyone a penny to do so.” payment and when is it considered also entails verticals. This is why establishing themselves in the market. solutions to very specific problems. very transparent way. And for things emerged?” gaming is such an important area for “So prepaid is still firmly in the 11 12 “The idea of moving money around the world in milliseconds exists, the technology is there.”

Kriya Patel

emerging payments area. It has illegitimate it seems. Crypto-currencies big companies it’s difficult, but that’s part in the education piece, and we as Miles Paschini: Mr Paschini added “Uber is not a taxi been so, to some extent, for the are facing the same thing today, but not to say they can’t contribute like an industry have to be a part of that.” that, from the perspective of Wave past 20 years.” over time it will become legitimate. MasterCard and The Bancorp.” Crest Group, the greatest hindrance is firm, it’s a mobile So, I think a payment system becomes Tony Craddock: “Absolutely”, varying regulation in different parts of Kriya Patel: “To put that into context”, emerged when the customer on the Miles Paschini: Mr Paschini added his Mr Craddock agreed. “The regulator is the world. “We look at opportunities payment firm.” Mr Patel added, “as part of the wider street understands what it is. When opinion that there are two barriers to always happy to promote responsible almost every day which are truly cross group, The Bancorp issued over 70 there’s no legitimacy gap, you can innovation that companies need to innovation, although this is one of the border. If we work in a regulated million cards last year in the US alone, consider it to have emerged.” embrace. The first, he explained, is things that varies a lot according to environment in the US and one in the majority of which were prepaid, that many companies are unaware of where you are in the world. The Europe, I can assure you they’re not with some debit. That doesn’t What do you think is stopping the options available to them today regulator for payment systems in harmonised. This is a big barrier. The necessarily mean, however, that traditional players embracing and which could improve their the UK is, I think, highly enlightened world is globalising; the idea of moving prepaid is emerged. Just because emerging payments? business. Brand and reputation also and progressive, and what they’re money around the world in something is established, doesn’t play a critical role. Drawing upon promoting is innovation. If that’s the milliseconds exists, the technology is mean you cannot evolve that system Tom Cregan: “I think there’s a whole Bitcoin as an example, Mr Paschini case, we then come along to there. The idea of a harmonious anti- to work in different ways. There’s raft of factors affecting their decision”, submitted that many understand educate them.” money laundering, anti-fraud, know always a need to find new ways of Mr Cregan offered, “traditional its benefits but that a lack of your customer environment does not. doing things, but utilising tried and thinking, risk aversion, established understanding of risk and perception What do you think is slowing the For us, this is a big barrier. You have to tested infrastructures.” business models. I also think they’re means they’re reluctant to engage emergence of new payment types? look at opportunities that only fit within not by nature innovative companies. with the technology. What can be done to remove the the multiple regulatory environments Miles Paschini: “I take a slightly The companies that invented prepaid, barriers? that we work in.” different view of it. I think prepaid is for example, were not banks; they Kriya Patel: “There are banks, just an extension of credit and debit, were entrepreneurial outfits risking building societies and other financial Tom Cregan: “Part of it is on the Tony Craddock: “Unfortunately, I think and if you look at the volume of their own capital. Only when they had institutions that could take this step, product level. I would love to claim that’s a given”, Mr Craddock added. prepaid in dollar volume around the built great businesses did the banks but I think where they struggle, this as original thought, but I recently “The Emerging Payments Association world it certainly, in my view, has enter the space and work with them.” historically, is in education and the learned that over the past 10-years looked at what it would take to emerged. I think the exciting thing in fact that they will take so much longer the US has been home to over 400 harmonise regulation, thinking that prepaid at the moment is application. Tony Craddock: Mr Craddock agreed, to make those decisions,” Mr Patel emerging payment companies that surely there is ‘best practice’ Certainly in the early days prepaid adding his opinion that the situation added. “As a result, we as an industry have gone broke. They failed because regulation out there. But there is a meant a gift card but we’re now is a little difficult. “An elephant is have taken ownership of innovation. unless these companies can become vested interest amongst the legislative seeing applications that people don’t an elephant, it has no choice. The We facilitate solutions for people who demonstrably superior, people won’t and regulatory industry in maintaining even realise.” Mr Paschini used the smart elephants are the ones who are innovating and finding new ways change their habits because payments the status quo. Just imagine if, rather example of airline ticket purchasing on understand that rather than trying to manage payments. We have the is a largely inert business and people than the 295 different jurisdictions, one an aggregator website, explaining that to innovate themselves, it’s better opportunity to be responsive, more will continue to do the same thing. for each country, we had one effective the aggregator is likely using prepaid to support other, more agile agile. But the focus is still the same, They’re not after incremental gain; regulatory jurisdiction. How many systems as a means of settling organisations. MasterCard, for we’re a risk based organisation; we they’re looking for systemic gain. Once lawyers would we need then? My payments with the airline. “These example, supports the Emerging balance the opportunity against the a company has created a demonstrably point is, we have to work with this are emerging uses for an emerged Payments Association’s incubator for risk associated with taking something superior technology, however, the legal complexity. We do want to see technology.” early stage payments companies in new to market, whether that’s ones that are successful are those something more harmonious across London. This incubator works as a reputational risk or financial. But for who then ask ‘can it be scaled?’ and boundaries.” Tom Cregan: “We have a term in catalyst, so that’s what we’ve called a proof of concept to be a success, marry it to a company which already our company which we call a it –the Catalyst. MasterCard acts as it needs somebody to support it.” has scale. A lot of emerging Do you think that commercial ‘legitimacy gap’ when we look at a Benefactor of the Catalyst and companies die because they don’t partners and their users actually different emerging payment types”, supports companies trying to innovate .” He continued: “Often, the companies have the right strategy.” trust emerging payments? Mr Cregan added. “In the US pre-paid that come up with the greatest ideas is now commonplace, but in Australia “In fact, I’m delighted to announce that, for utilising traditional infrastructure Tony Craddock: “I also think a little Kriya Patel: Mr Patel believed so, we’re talking to customers who really as of today, The Bancorp is also going based payments are really pushing bit of fear stops innovation. It’s not a adding that ultimately the question have had very little exposure to it to be a benefactor of the Catalyst. It’s the boundaries, but where they lack of creativity and there’s no lack goes back to why innovation exists and therefore see it as somewhat important to take inspiration from the need support is from the guys who of technological solutions out there. within the space to begin with. illegitimate. It takes time and energy, entrepreneurial, smaller companies understand the regulation, the It’s really about the companies going “Innovation is driven by change; and a lot of hard work, to propagate which are more risk friendly, maybe compliance, understand how to deal out to the different verticals and whether that’s consumers looking programmes in the market. The more are in touch with the vertical they’re with payment network rules. That’s the saying ‘we have some great for convenience, or companies for programmes, the more people working in and want to get access to important part that we play. Industry solutions to solve your problems security. As Tony touched on earlier, become familiar with it, the less the best of breed in payments. For the bodies play an incredibly important for you’.” everybody makes payments every day; 13 14 “That’s one of the things we love about the industry, it’s never short of innovation.”

you don’t think about it, you just do it. Tom Cregan: Mr Cregan explained talk to the businesses that have That piece is the most important thing that from his company’s own these customers. If you educate for businesses and partners; helping experiences in Australia of late, the businesses, they can take that them to understand the efficiencies the problems that the gambling downstream with their budgets. they can gain, the solutions we can industry has been trying to solve are But it has to solve a problem.” support and helping them to more related to revenue than cost. understand that it’s within a stable He explained that working with “We’ve seen particular success stories infrastructure and is compliant. Often companies with scale – those that through distribution in Europe and a single solution can involve six or are highly profitable, well run and the US”, he continued. “In Europe, seven different products, but from a widely recognised – ensures that we ran an incentive programme for consumer point of view, it’s one. That’s the consumer adoption curve of an Bridgestone Tires over 20 countries. why emerging payments are going to emerging payment option is rapid. Some of those countries were new continue to grow and are ultimately Mr Cregan added, however, that this to prepaid cards, but we thought ‘OK, driven by consumer demand. I’ve must be within the context of a wider we have a really trusted, international seen so many payments innovations product promotion and that a payment brand here with physical locations, in the past ten years driven by tool is, by itself, unlikely to generate so the accessibility’s there. They’re gaming alone.” widespread consumer interest. Only also giving something back to the by sharing space with product focused consumer and they’re gaining Do emerging payments matter? promotions is a payment tool likely experience with a payment product to see increased and effective they’ve never had access to before’. Miles Paschini: “We’re solving consumer adoption. That was interesting to me because problems for businesses and Bridgestone had the distribution, they governments”, Mr Paschini affirmed. Miles Paschini: “I think a lot of it is were prepared to put their marketing “I think there’s a definite need in knowing your audience”, Mr Paschini dollars behind that, and they were corporations to increase efficiencies, added, “because the small, innovative giving me the ability to get in to a lower costs, automate processes and payments companies cannot compete market, educate and help users to emerging payments can certainly be with Google and Apple – they have adopt the product, then expand that applied to these areas. Really it’s about budgets beyond imagination. To give by reaching businesses we know solving problems. The buyers that we an example, Tom and I compete in the would benefit from solutions we see today are people who are looking taxi driver payments space, and they can provide.” to do things better. If you’re used to have a problem. The fleet operator effecting a payment over three of four has a problem about how frequently What are the next big opportunity days, and I can use a method to effect they pay their drivers, who are often markets? the same in three seconds, that’s under-banked migrant workers. In this a big improvement.” case, it is they who will come to us, Tony Craddock: “My understanding and we will respond with a solution is that Asia is really exciting and Africa Tony Craddock: “I think it does to their problem. We earn the trust of is really exciting. I don’t think much matter, and I believe so because the end consumer because we take creativity and innovation in application if you get to the point where you’re the time to work with them and fix is coming from the developed world. delivering all the right technologies, their business’ payments infrastructure I think a lot of the most useful ideas through the right channels, in the right with a niche product. We’ll both can be transposed from the developing market places then ultimately you’re solve a real problem for them by world to the developed.” reducing cost and taking time out, listening to them.” and adding in opportunity for both Tom Cregan: “In those markets that commerce and revenue. In a world Are the distributors putting the lack financial infrastructure, mobile with 7 billion people in it, of which a appropriate budget behind these payments have really taken on a massive bulk are unbanked and under- products? different dynamic. MasterCard, for banked but do have access to these example, is running identity cards technologies, then the more efficient Kriya Patel: “That’s part of the with payment capabilities for up to we can be the more likely we are to decision making when we look at 40 million people, which is landscape go out and touch these people, and partnerships”, said Mr Patel. “This is changing. We’re also seeing a lot of improve lives everywhere. And the an investment – you can’t do things innovation in Asia. Some we know ability of emerging payments to for free. We’re all in this as a business are never going to launch – like an improve lives everywhere is why to make money, so the business RFID chip you can wear on your shirt. emerging payments matters.” plans have got to stack up, and that But nonetheless, that’s one of the investment can be made in many things we love about the industry, How can we make the end different ways. To market a new it’s never short of innovation.” customer more aware of the product to a consumer is incredibly potential benefits? expensive – so what we try to do is 15 16 Panel Session: “It’s not just for us as politicians to set the Social Responsibility agenda for social responsibility. It’s the in Gaming industry itself that often takes the lead.” Moderated by: Peter Howitt, Founder/Director, Ramparts

Peter has worked for over 10 years in the e-commerce and financial services sectors as a lawyer and corporate advisor in England & Gibraltar, and he is dual-qualified in England & Gibraltar. Peter also has personal experience of establishing an online Peter Howitt social network for artists. He is currently the CEO of the Gibraltar gaming industry association the Gibraltar Betting and Gaming Association (www.gbga.gi) and Secretary of the Gibraltar E-money Association (www.gema.gi). and suddenly one hundred million shareholders. Your stakeholders are governments like the UK’s, and people know about it.” your customers, your staff, the that’s dangerous.” Panellists: community you work in.” Wanda Goldwag, Chair and Independent Standards Commissioner, Senet Group Ms Goldwag continued in explaining Wanda Goldwag: “It’s not just to that as well as being the right thing to “You have politicians out there who do with the letter of the law and how Stephen Donoughue, Gambling Consultant, www.gamblingconsultant.co.uk Limited do, corporate social responsibility is know very little about your industry. that influences perception. These are Martina King, CEO, Featurespace today also a commercial imperative. But what they do is put you in the the same principles applied to any “When we trade, when we act, when category of good or bad, very easily. At industry”, Ms Goldwag added. “If Gilbert Licudi QC, Minister for Education, Justice and International Exchange of Information, we do deals, we do so in a way that’s the moment, the gambling industry is someone says to you ‘what’s best Gibraltar Government completely transparent. We’ve moved very definitely in the bad guy category. practice in the music industry? What’s from a world where people didn’t By becoming good guys, you get best practice in the aviation industry?’, know about disasters and irregularities thought of as such by politicians and I can tell you the answer to that. If “There are different definitions and Minister Licudi began. “But being in which set those standards, Gibraltar’s to a world in which everybody knows they give you a fair hearing. What I say someone in financial services asks applications of the concept of social business is much more than that. I Gambling Act was enacted and, really quickly. We’re not in a Watergate to people is look at Wonga. They’ve ‘what do you think about the Wonga responsibility”, Mr Howitt introduced think everybody realises it’s not just subsequently, its regulator Phill Brear world now; we don’t need journalists just published losses of £135 million. model?’ – the answer would be one of the eSummit’s most anticipated about looking at the bottom line. And appointed. “I think we’ve moved on to investigate. We’re in a Twitter world They basically got slapped by the ‘bloody hell, they’re insane!’. presentations. “I’ve read that it’s everybody recognises that there is an precisely because of that recognition where a disgruntled employee can go government because the government really about corporate citizenship, element of social responsibility. It’s not that we’re all on the same boat, we on social media and say ‘this company said they’re bad guys. They’re bad guys Ms Goldwag continued: “One of the which is certainly not a bad place just for us as politicians to set the all want the same thing for Gibraltar. is terrible, do not deal with them’ and because, as Wanda said, there was a problems in our industry is we reward to start and leads to an interesting agenda for social responsibility. It’s the We want Gibraltar to be held in high hundreds of thousands will respond. whole social media campaign, which our staff for a great marketing idea, dynamic in a capitalist environment. industry itself that often takes the lead.” esteem and we want Gibraltar to be So, it’s morally right, but also a was led by MP Stella Creasy, and the thinking ‘this is going to make us a lot In an economy with companies recognised as a jurisdiction that financial necessity.” public view went against them. When of money’. What they don’t seem to largely structured for the benefit Minister Licudi referred to the early people want to come to and engage the public view is against you, it’s very ask is ‘what will be the consequences of shareholders, where citizenship days of Gibraltar’s gaming industry, with. That’s good for business and Do you think online industries have easy for politicians to slap you. This is of that? What will other people think is not usually part of a gambling which was unregulated at the time. the jurisdiction.” a particular problem because of what social responsibility means for about that?’. One of the things about company’s constitution, it’s not As operators began to move to the their remote nature? your industry. It not only makes you social responsibility is it’s not about normally part of their legal require- jurisdiction, he explained, the move Wanda Goldwag: “Companies should decent people, it also means you out there; it’s also about what your ments to shareholders, and it’s often for regulation to ensure that certain care because we don’t live in isolation; Steve Donoughue: “My view is won’t get damaged, and there are a own business does. When an idea not what they’ve been set up for; standards of social responsibility we don’t live in a world where I can the online industry suffers politically great many things out there that pops up there ought to be a moment were enacted which maintained take money from you and perhaps from the view that you’re all ‘evil governments can do to damage you.” when someone who was not involved Why should companies care about Gibraltar’s high reputation came from people who are quite vulnerable scumbags’”, Mr Donoughue warned. in that process says ‘yes, that will social responsibility?” the industry. “It wasn’t initiated by without being held to account – that’s “They see you as not paying any tax “You are very fortunate here in generate some short term profits, but government, it wasn’t initiated by why social responsibility matters”, said and that you’re picking the pockets Gibraltar. I’ve been very surprised in the long term our company will be Gilbert Licudi QC: “It is true that politicians, it was the industry that Ms Goldwag. “It doesn’t matter if it’s of your customers. What social today at the amount of government closed down’. companies can look at this in isolation; recognised that this was something the gambling industry or financial responsibility is about is whether support, the degree of engagement purely from the point of view of the that needed to happen.” services, or clothing retail, we all these you’re a good guy or a bad guy. Social with the ministers and the ministers’ Steve Donoughue: Mr Donoughue company, purely in terms of what you days are in a world in which something responsibility is looking after your pledges to consult with the industry. referred to the example of Paddy offer the customers or making profits”, Following a push from the industry we do can be commented on Twitter, stakeholders, not just your But that simply does not exist in Power’s now infamous campaign 17 18 “Social responsibility is looking after your stakeholders, not just your shareholders. Your stakeholders are your customers, your staff, the community “Before you press the button, just think you work in.” about how this will play in terms of social responsibility and how this will affect the industry as a whole.” which allowed the public to bet on your business?’. The search engines shouting ‘free bets! Free bets!’, the results of the Oscar Pistorius trial ultimately had to go and proactively and the consumer who wasn’t used to under the title ‘money back if he sort that problem out, because it was seeing this suddenly thought gambling walks’: “What that did was send a the right thing to do for the consumer was all over the place, and a problem. ripple right through to Westminster”, and the business.” It’s something that people aren’t used he remarked. “Most of the people to and isn’t completely socially who had never even heard of Paddy Gilbert Licudi: Picking up on the topic acceptable. Those ads are also highly Power now think they’re bad guys. of reputation, Minister Licudi added targeted around sports – football, There were questions in the House [of that the issue is particularly pertinent cricket, boxing and so on – so it’s Commons] and it was all just for the to a jurisdiction such as Gibraltar. even more concentrated and want of a couple of extra quid through “We’re a small jurisdiction. In a large perceived as such.” a marketing campaign. Their reputation jurisdiction, a large scandal will clearly has slumped, but it’s not just Paddy cause some ripples. It will cause some She continued in remarking upon the Power’s because these politicians problems for that company, but it’s difficulty of regulating advertising don’t know Paddy Power from William very difficult to see that the whole content itself. In a commercial world, Hill; it’s the whole industry. It’s that jurisdiction will be affected in a truly she explained, companies need to short term goal which sometimes devastating way. The position in market to customers. However, TV ruins reputations.” Gibraltar is very different. If we had advertising is only one tool of many, a very big scandal with a domestic but one which companies have been Martina King: “It’s important to company, that would be very bad for so enthused about they have express that internal voice”, Ms King the jurisdiction as a whole. That’s why neglected other media. Moreover, at added, drawing from her experience it’s so important that we do things the the same time as gambling advertising as Managing Director for Europe way we do here. Mr Donoughue grew, so too did pay-day loan at Yahoo!. “Corporations and expressed his surprise about the way advertising, “the put your hand up and organisations can get on a roll and we consult the industry and operate get £5,000 advertising”. As a result of forget to stop and review. For example, here, but it has to be like that, it’s this exposure to aggressive advertising the laws of pornography are very always been like that. It’s true of all our for two industries with negative different in California compared to the industries where we develop these connotations, consumers are drawing UK, making advertised content very social partnerships. The emphasis has connections between the two and difficult to filter. The pressure groups to be on maintaining standards and with damaging results. attacked the internet and search a high reputation and we do that engines as a whole, which of course by becoming home to the best Steve Donoughue: “Look at every didn’t even know what sort of content companies in the world, which adhere speech where politicians mentioned they were hosting. As soon as that to the best standards in the world.” gambling in the same sentence whole Pandora ’s Box opened the as payday loan companies”, internet did exactly the same as the Has the industry done a good job in Mr Donoughue advised. “These are gaming industry and worked to dealing with sensitivities around the people who are categorising. If address it. The consumer was quite advertising? you look at the history of gambling, right, there was some distressing every time it becomes too prominent – content being advertised out there, but Wanda Goldwag: “The short answer in the 1920s it was football pools, the response was the search engines is no they haven’t. As soon as in the 1960s it was bingo, it was were only hosting it and didn’t publish companies were allowed to advertise machines in the 1980s – action the content itself. As soon as they they were like kids at Christmas. is taken.” got into that semantic argument it Marketing ideas need to have some got confused. The consumer saw one longevity and I think what happened “I deal with a lot of politicians. Some thing, while the companies whose was a whole series of companies who of them are from the nineteenth brands were being associated with this hadn’t been able to advertise on TV century and most of them still think advertised content put forward the and didn’t have experience were television is a modern piece of commercial argument. They asked the suddenly able to. The result, it has to equipment. This is something they pick question: ‘if your source of revenue be said, was that some of the adverts up on, and it’s not positive. But quite comes from advertisers, and your were unbelievably crude, unbelievably frankly this is just about content and advertisers are publishing questionable basic and without context. The the way you do your advertising, which content, what impact is that having on problem was the ads were all is something you can change.” 19 20 Martina King

“I’ve never seen an How well do you think the gambling types of gambling have been because that’s where the customers operators, foster this ethos. We Martina King: “People love betting, industry manages perception? sensitised and become of concern. I’m are. But you are dealing with decision will be offering post-graduate courses and I’d bet they’re going to continue industry come willing to guarantee that if something makers who are white, upper middle on the causes and effects of problem betting. Most people who are betting Martina King: “The difference happens around FOBTs in the United class, who have never been in a gambling, leading to a PHD. This will are happy and for those who aren’t, together and share between perception and reality is Kingdom, for example, politicians and betting shop and who have probably give us the data and the expertise. you have started to ask the questions important here. In my working career, pressure groups will then simply move never gambled. It’s never bothered We will also offer a series of short and address the problem. There is no data as well as you I’ve never seen an industry come on to the next thing. That’s why the them because they’ve not had to care courses aimed at all industry easy answer to problem gambling so together and share data as well as gambling industry as a whole has to about it. Now it’s coming into view, employees and developed with keep asking those difficult questions have in order to you have in order to proactively try be responsible. At the moment the and from their perspective it’s about the industry and its regulatory and keep working on the answers. to solve a problem such as problem entire gambling industry is being helping people. I know we’re anti- authorities. So there are a number Most importantly, do it together. If proactively try to solve gambling – and you really do need represented by those machines. politician, but they’re mostly very nice of things we are doing as a we keep working together, we will to be applauded for that. The recent If those machines ceased to exist people who want to serve and help government, in partnership with find the answers.” a problem such as concern over the banning of fixed tomorrow morning, the entire others. For them, rather than look at the industry, to promote responsible odds betting terminals (FOBTs), for gambling industry would be the facts and the evidence, it’s a lot gambling and make sure Gibraltar problem gambling.” example, is something to worry about represented by something else. easier just to ban it or tax it. If I was is seen in that light.” and taking control, giving a different It’s very easy for us as socially Ed Miliband, looking at how to deal story to educate the government and responsible people inside the industry with FOBTs, I couldn’t ban them Wanda Goldwag: “Though I’m “There are a number the pressure groups, is definitely the to say ‘solve this little practical outright because that’s £1.7 billion in inclined to say join the Senet Group, right thing to do. More work like that problem with this specific type of tax gone. But I’ve got this online thing if I was to be absolutely neutral I of things we are doing is exactly what will start to gambling and it will go away’. But with a new licensing regime. I know would say to the senior managers swing opinions.” the public and politicians don’t see at some point there’s going to be a ‘when someone comes to you with as a government, in it like that.” scandal – so the easiest thing again, a wonderful marketing idea that is Gilbert Licudi: Minister Licudi posed is to just raise all your taxes. Why? going to bring you millions; before partnership with the what he termed the relevant question Steve Donoughue: “I’m going to Because that’s simple and no one you press the button, just think about of why this negative perception exists give you some socio-cultural history, cares. No one cares if you guys go how this will play in terms of social industry, to promote in the first place, to which he proposed because I know that’s what you’ve out of work.” responsibility and how this will affect the answer: “people think you just been waiting for. Basically ,we’ve been the industry as a whole’. If the answer responsible gambling don’t care. This brings in the issue of through a financial crash which was “So, to fight back, how about some is it’ll make you a quick buck for the responsible gambling. If it is shown caused by bankers and we’re all adverts from you guys showing you next couple of quarters but afterwards and make sure that this is an industry that does suffering because of these evil, nasty training for social responsibility? How be disastrous for the industry as a recognise when problems arise, that people. As a result, there are a lot of about a few adverts showing what whole, don’t do it.” Gibraltar is seen does put in place systems and training people who are rejecting a certain you do in your community? Take the to identify the causes of irresponsible set of cultural values held in previous message that you’re providing a good Steve Donoughue: “I would like to in that light.” gambling, the effect that has on years. This is the way history is; we service and give it to the people. see every CEO of every gambling people’s lives and on gambling itself, go through a period and then we People want to gamble: show that company personally take £200,000 then progress will be made. We then reject it. What we had in the 90s was you’re providing well regulated, out of their pocket, put it in a big pile need to show that these mechanisms a modified form of the 80s – free fun gambling.” and spend it on a home for puppies. are being put to use; that identification market values, not a lot of morals. Or something similar. You’re here and is progressing, that self-exclusion We’ve now gone through that and What should we be doing together? you’re trying to be there. It’s no good programmes are available and that are about morals in markets. And doing it incrementally because of ongoing support is offered. All of those so, what you have is gambling being Gilbert Licudi: Providing a specific regulatory creep working in the things are clearly being done. A lot of considered a raw, immoral market example of something the Gibraltar opposite direction. Each new regulator, effort and a lot of money goes into the by a lot of people.” Government will be doing as of each new jurisdiction, each new problem, but it needs to be seen by September 2015, Minister Licudi academic, just makes the argument those outside of the industry. We need “What you also have is a class clash”, offered Gibraltar’s first university, The tougher and more obscure. What you to be perceived as being responsible he continued; “because gambling University of Gibraltar, as an exciting need to do is make a massive leap. Wanda Goldwag and acting properly when a problem traditionally has been a working class and pragmatic response to the needs We have some very rich people in is identified.” activity. Online is different, I know, of the gambling industry, amongst this business. They should be on film, but land-based is traditionally working others. “There are a number of things handing over money and saying ‘let’s Wanda Goldwag: “I do think we class. That’s why is has been easy to we will be doing specifically in do good with this’. The change that need to be careful about different attack FOBTs for being in areas of response to responsible gambling would make in perception, and in types of gambling being demonised. poverty etc. The fact is, betting shops because it’s important that Gibraltar the lives of some puppies, would At different points in history, different have always been in poorer areas as a jurisdiction, rather than just its be massive.”

21 22 Red Carnations and Slaying Dragons Tim Stocks

Tim Stocks Tim is a lawyer specialising in corporate finance and however year-on-year growth is average, investments in marketing “What this also does, and I find this securities work. He was a partner and Head of Corporate expected to increase again to 10.5% constitute more than one-fourth of to be very interesting, is as soon as Chairman of James Stocks & Co in 2015 (E), 10.7% in 2016 (E), 10.7% online gambling operators’ revenue you have a legitimate territory in hand Finance and Securities group at international law firm, in 2017 (E) and 10.5% in 2018 (E). base and marketing expenditure and your revenues and profits are and Partner, Taylor Wessing LLP Taylor Wessing LLP where he was "highly regarded" by “Nobody is saying that this is a sector contributed close to one third of online legitimate, you will attract proper that is going backwards or slowing gambling operators’ cost base. Against institutional capital. That becomes the Legal Directories and recognised as an expert in this down. Future growth is going to be an average industry spend of 25% of quite important.” area of the law. He was nominated for the "FT Innovative driven, in my view, by more markets total operating costs, Bwin.party spent opening up, the double edged sword an average of 36%, followed by 888 “Take the situation in Germany and Lawyer of the Year" in 2013 and the team was nominated of regulation and as more capital Holdings at 35%, 32Red at 33%, the recent European Court of Justice for "Corporate Team of the Year" 2013 for a transaction he opens up with increased regulation.” Betfair at 29%, betsson at 28%, decision involving the Digibet Albers developed and executed. Unibet at 24%, William Hill at 13% vs Westdeutsche Lotterie. This trial Looking at the European position, and Paddy Power at 10%. “As we can involved a local state in Germany, which concerns a more mature market see, marketing expenditure continues Schleswig Holstein, which had issued “As soon as you have In one of the day’s most value by a significant margin. WMS whose growth rates, one would to be quite high and can probably be 50 gaming licences under that state’s well received and pertinent Industries’ £896m merger with expect, to be lower; Mr Stocks again expected to increase, hopefully as liberal gaming act. This move was at a legitimate territory presentations, Mr Stocks introduced Scientific Games in October 2013 demonstrated significant growth in social responsibility becomes more odds with federal German law, which ‘Red Carnations and Slaying represented the biggest of that year, gaming. While World Bank average prevalent, and all these costs around prohibits online gaming. The CJEU in hand and your Dragons’ as an analysis of the alongside William Hill’s purchase of GDP growth across Europe between the capture of a customer are going referred the case back to the German bloomings of opportunity for Sporting Bet Australia and Sino 2009 and 2015 was found to be 1.6%, to carry on increasing. So, in terms of courts, with the recommendation that revenues and profits mergers and acquisitions Cement’s purchase of Macau Live gaming market growth in 2013 was the Deutsche Bank position, I would the licences were lawful until at least behaviour in the gaming market, Gaming. 2014, however, saw GTECH 8.7%, followed by an estimated 9.1% say, yes, marketing and taxation costs 2019. The CJEU also raised further are legitimate, you and an identification of those Holdings’ buyout of equipment in 2014 (E), 5.2% in 2015 (E), 6.0% in are increasing. Where I might disagree questions about the validity of companies which will, perhaps, manufacturer IGT for £3.591 billion, 2016 (E), dropping to 3.8% in 2017 (E) is in the opinion that this is driving Germany’s prohibitive stance based will attract proper not make the cut. the largest of the year, followed by and 5.4% in 2018 (E). “So we can see consolidation, rather than just M&A on Article 56 of the Treaty of the Scientific Games’ buyout of Bally that from the perspective of operators, activity where marginal players are Functioning of the European Union. institutional capital.” Mr Stocks then drew the attention Technologies (£3.041 billion), Amaya’s particularly in the online space, the being picked up by the bigger players.” Even with this news that the German of the audience to a statement issued surprise buyout of Rational Group situation is rosy”, he added. market may soon be in the process of by Deutsche Bank in February 2015, (£2.907 billion) and CVC Capital In terms of regulation, Mr Stocks opening up, I think we’ll soon find that which read as follows: “Our view Partners’ purchase of Sky Bet Moving on to operating margins, reminded the floor that an increasing institutional capital will come in, which remains that the European online (£702million) later that year. “So we and Deutsche Bank’s comments number of European countries’ online in turn will drive M&A activity.” gaming sector will consolidate in can see that valuations are rising and about the market being under gambling markets have become the near term as falling industry that there is a bit of a gap in activity pressure, Mr Stocks demonstrated regulated with the rest considering Moving on to the USA, which was growth rates in the UK/Europe, rising between November 2013 and March that this was, again, not the case. regulatory changes. A comparison described as the elephant in the room marketing costs, increased gaming 2014 as the industry sat back and Online players’ operating margins of 2014 over 2010 showed far more with regards to what could be possible taxes and rising competition make thought out the ramifications of the grew from an average of 17.5% in countries holding either fully regulated for future industry M&A activity, scale an increasing necessity to Point of Consumption Tax. It’s quite FY2012 to 19.3% in FY2014, while status, holding regulated monopolies Mr Stocks explained that once the compete more effectively.” He stated clear, however, that M&A activity is retail players’ grew from 14.3% in or being in the process of drafting or US market does begin the open up, his intention to analyse whether this abundant but the jury is still out on FY2012 to 15.3% in FY2014. “So, reviewing regulation. “That looks like the whole picture could change statement is likely to become true whether or not that’s truly indicative margins in the online and retail space a good thing, but it’s a double edged dramatically. “It has started albeit at in the near future, as well as to of industry consolidation on a are not necessarily threatened, but sword”, he warned. “Every time a a slow pace, having been regulated determine whether M&A activity was larger scale.” they are also not that high. The market becomes regulated, that on a state-by-state basis”, he added. truly reflective of consolidation in the question then arises; are they high creates more development costs, “If you want to find a barometer for sector or simply the ‘background Turning back to Deutsche Bank’s enough to sustain increased Point of makes it more complex to operate the likelihood of a state opening noise’ expected of any industry. statement, Mr Stocks disagreed Consumption Tax in the UK and as and, generally, costs rise. However, up I would go online and check the with the assertion that the market other jurisdictions cotton on to it? the more you have regulated, legal tax status of a given state year-on- “The first question to ask is ‘is is slowing and demonstrated that it In my view, they’re not high enough gaming and the less reliant you are on year. If tax revenue starts to drop, consolidation actually happening?’”, is in fact growing quite substantially. without increased volume and will be grey markets, the more your reviews the likelihood of a regulatory regime Mr Stocks continued. Referring to Despite the World Bank’s findings that squeezed, which is an issue.” improve in quality, the more your profit for eGaming coming into play will a ‘deal timeline’ depicting M&A average global GDP growth in 2013 source improves and the more the increase significantly.” behaviour and scale, by company, from was 2.9%, year-on-year the gaming Mr Stocks continued in depicting per moods of your directors improve as January 2013 to March 2015, he noted industry grew by 8.6% overall. In operator marketing expenditure as a they begin to travel from market to Mr Stocks alluded to a recent estimate percentage of revenue, noting that on market without fear of being arrested.” from Morgan Stanley which states that 23 that activity has increased in terms of 2014, growth rates dropped to 5.7%, 24 “Why is all of this for real? It’s that wall of PE fund money, which is increasingly attracted to the sector and which will drive deals and valuations in the future.” Fiscal Neutrality

the US online betting market could be activity and, through that drive, Caesars purchased Buffalo Studios and VAT worth £274.7 million by 2017. Though a scale of opportunities to drive LLC for £31.6 million and in January Paul Lasok QC this estimate constitutes one-third of consolidation.” 2012 IGT purchased Double Down Paul Lasok QC, Head of Monckton Chambers its initial estimate of £0.9 billion due for £326.4 million. to lower than expected domestic “So what’s the sense of travel for revenue in 2014 (actual: £93.1 million; M&A in the gaming sector? Well, Increased regulation has also led to Paul Lasok QC, Head of Monckton Chambers, estimated £454.3 million), he noted those that go looking for gold are a convergence in business to business is considered by many of his peers as a heavy- that a move towards interstate online probably going to go looking at (B2B) and business to customer (B2C) gambling being regulated at a federal territories where there is no point online gaming segments, Mr Stocks weight in EU law where his main areas of work level, which increases liquidity with a of consumption tax. We can see that explained. Many online gaming include agriculture, competition, public larger number of players, will be trend already underway with UK based software providers are diversifying looked for as a major growth catalyst, operators focusing on Australia and into the B2C segment by acquiring & administrative law, public procurement, particularly amongst potential private going through a series of acquisitions eGaming operators, as was most telecommunications, state aid, trade law equity investors. Mr Stocks reminded there. So we can see that there is a famously demonstrated with Amaya’s (anti-dumping) and VAT & Customs Duties. the floor that more than a trillion surge on to try to move acquisitions 2014 acquisition of Rational Group. pounds of cash funds is available and M&A activity to bigger areas This helps B2B firms achieve a larger with the private equity funds, a portion where there is a regulated market geographical footprint, provide greater of which can go to the increasingly and a lower cost base.” product offering and reach an lucrative online gambling sector. increased customer base of online “But there are also, of course, new as well as land-based operators. “The principle of “The principle of fiscal neutrality is Gibraltar authorities on the export Gambling focused US private equity developments in the sector which Similarly, in the affiliate market, very easy to express. It is that similar of the service, or by the German (PE) funds have raised the maximum are also of interest to operators and operators’ acquisition of affiliates fiscal neutrality is goods or services have to be taxed in authorities on the receipt of the amount over the last ten years at will be a key feature of any target enables them to increase their the same way. If the principle was that services in Germany. £63.7 billion, followed by Europe selection. Social gaming for example, customer base and expand marketing very easy to express. simple in practice, however, people focused PE funds at £56.8 billion is a favourite because there is a big opportunities. Overall, such behaviour like me would be out of business. Restrictions in this context are any and UK focused at £42.6 billion. question mark as to what the is part of an overall trend in the B2B It is that similar Fortunately, it isn’t that simple.” prohibition, or impediment, or Estimated ‘dry powder’ or cash like, regulatory status is. In the US social segment towards acquiring in order obstruction to the conduct of the capital – capital that has not been gaming is very popular though it to diversify their operations in goods or services Fiscal neutrality is the application, business in the way the operator called for investment – available to the remains unregulated, and there are a complementary sectors. in the context of VAT, of the principle wishes. This is not just the application same gambling focused PE funds is few who are saying perhaps it doesn’t have to be taxed in of equal treatment, which is a of the principle of equal treatment, equally healthy, with US PE funds need to be. Social gaming contributes “Moving towards a conclusion, it fundamental principle of the law of the but a straightforward prohibition on holding £18.9 billion, Europe focused £1.1 billion to the total £23.5b billion seems to me that, yes; M&A activity the same way.” European Union, Mr Lasok explained. restrictions on the cross-frontier PE funds holding £13.8 billion and eGaming market, and is expected to does exist within the gaming sector. Equal treatment lies at the heart of the provision of a commercial service. the UK focused holding £11.6 billion. reach £4.7 billion by 2015. This is a I’m not persuaded yet on whether various rights and freedoms derived This is because one of the This indicates that a large wall of relatively small slice but it is set to that’s a consolidatory bubble for the from the treaties setting up the EU. fundamental aspects of the EU immediately available dry powder expand as it becomes driven by the gaming sector or a general feature From the perspective of a business, is the idea that the factors of cash can quickly be channelled into connectivity of mobile devices. Global common across all industries where there are two particular aspects to the production – goods, labour, services the gambling sector should the connections between mobile devices people are toying with expansion. application of equal treatment. and capital – should be permitted to investment opportunity arise. Looking are expected to reach 8.5 billion in Technology and platform providers circulate freely throughout the EU. at the total size of PE funds available; 2017, with Asia Pacific forming more are going to be doing a lot of the M&A A gambling operator based in Gibraltar, the US holds £1.698.3 trillion, Europe than 50% of connections. And as work to try to move up the value chain to provide a first example, is entitled “Where equal treatment comes into holds £1.519.9 trillion and the UK £718 developing countries like Africa come and closer to the customer. Looking to set up a casino in, say, Germany on this cross-frontier provision of services billion, of which £495.8 billion, £427.3 into the arena of the social gaming forward, I think Europe will continue the same terms as a Germany-based is in this way”, Mr Lasok continued. billion and £183.2 billion is estimated space, suddenly you have a whole to dominate in terms of the global operator, national, or resident. This “There is an exception to the general ‘dry powder’, respectively. Indeed, plethora of new opportunity in this low industry. However, the US coming right to equal treatment is the right to prohibition of restrictions on the private equity has increased such cost, high penetration market. Indeed, onto the scene will be quite a threat be treated in exactly the same way as provision of services. Member states that total assets under management overall, mobile gaming is expected to in terms of the consolidation of somebody already based in, resident may impose some restrictions if they worldwide have increased in value reach 16.6% of the total eGaming companies away from Europe. Whilst in Germany, or who is German. are justified in the public interest. from £480 billion in 2000 to £2.538 market in 2015.” taxation will drive behaviour in terms There has to be an overriding public trillion in June 2014: a compound of international arbitrage, as point of A second aspect important to interest justification for them. But, annual growth rate of 9% despite Mr Stocks demonstrated that many consumption increases the playing business is the freedom to provide you never get into that if the way the financial crash. “So, that little online gaming operators and gaming field will become level again. Finally, services. In this situation, a gambling they operate - the restriction, the way tsunami of money won’t stay idle, software providers are trying to grab why is all of this for real? It’s that operator based in Gibraltar, for they implement the justification - is it will be deployed. The more a piece of the social gaming space wall of PE fund money, which is example, wishes to provide, say, discriminatory. They have to respect jurisdictions are regulated the through mergers and acquisitions. increasingly attracted to the sector online gambling services to a the principle of equal treatment. So if, more comfortable the private equity In June 2014, for example, Bally and which will drive deals and customer in Germany. Under EU as indeed it is accepted, it is right to investors will be in deploying funds Technologies announced its valuations in the future. law, the operator is entitled to do impose restrictions on the provision of into this sector. Therefore, there will acquisition of Dragonplay for Thank you.” so without being subject to any gambling services in order to protect be liquidity coming in to drive M&A £59.9million. In December 2012 restrictions, either imposed by the the public, then whatever the 25 26 “Fiscal neutrality is the application, in the context of VAT, of the principle of equal treatment, which is a fundamental principle of the law of the European Union.”

restriction is, it is only legal if it is non- main fiscal policy decisions that may member states. For example, if particular form of gambling, it does they are similar. They don’t have to the European Court had said in one discriminatory i.e. if the principle of justify or result in similar things being Member State A wants to leave slot not infringe the principle of fiscal be identical in every respect; the case, ‘we think that form of gambling equal treatment is respected.” treated differently for tax purposes are machines exempt and Member State neutrality. “If it does, what then question is whether or not, from the A is one that’s properly regarded as made at EU level, not by the member B wants to tax slot machines, fiscal happens is that everything defaults perspective of the typical or average entertainment', and in another case Mr Lasok noted that, even if a states. The member states implement neutrality does not help. This is back to exemption because it is customer, they are perceived to be said 'form of gambling B is a situation restriction respects the principle of the EU legislation. Fiscal neutrality because VAT is a territorially based exemption that is required by the interchangeable, even though there in which what the customer thinks equal treatment, it still has to be is therefore used as a principle to tax. VAT operates within a given EU legislation. That’s why a failure may be differences between them.” he is getting – the need that is being properly based upon the grounds of interpret EU legislation but not as fiscal jurisdiction and that is the to comply with the principle of satisfied – is the need to get some justification used to support it, and it a means of overriding fiscal policy jurisdiction of each member state. fiscal neutrality means that the tax Similarity is not determined by money', then we would have quite must be proportionate, meaning it decisions made in EU legislation. Where fiscal neutrality does apply authorities have to pay the money reference to such things as the a reasonable basis for the start of cannot go any further than is absolutely is within the state. they have collected back. This raises regulatory regime that applies. Taking a debate. But the problem is the necessary. There are now quite a few “When you turn to the national the question of how we decide gaming machines as an example, prior European Court has made this decisions from the European Court implementation of EU VAT legislation, “For example, in the case of Spain, whether one particular form of to 2005 there were different types of judgement in relation to the same on the application of these principles however, fiscal neutrality becomes a you cannot have one tax treatment in gambling is similar to another, so regulation for different types of gaming form of gambling – slot machines.” in the context of the offshore provision more powerful instrument”, he added. Catalonia and another in Castile”, Mr that we can answer the question machine. The fact that the regulation of gambling services. “Fiscal neutrality is there not simply Lasok explained. “In the UK, you can’t of whether fiscal neutrality applies is different is, however, irrelevant. Mr Lasok referred the audience to a to assist in resolving a dispute about have one tax treatment in Scotland and and negates a particular aspect of Regulation can be relevant but only case known as RAL, which involved In general, the principle of equal obscure language and legislation; it another in England, so far as VAT is the tax treatment of gambling in a if what it does is to have an effect on a supplier of slot machines in treatment is expressed as the principle can knock away at domestic legislation concerned. Scottish independence member state.” the way in which the customer’s amusement arcades in the UK. The that persons or situations that are that falls foul of the principle. Hence, would change that because Scotland needs are satisfied by the particular argument put forward by Mr Lasok, the same have to be treated in the in the Rank case, what happened was would then be able to make its own Drawing again upon the example of forms of gambling looked at. Even was that in the case of the supply same way unless there is an objective that the same game of bingo could decisions if it were a member state Rank bingo, Mr Lasok noted a huge then, it must be an effect that is of slot machines what the customer justification for treating them start off being exempt from VAT and of the EU or, if it left the EU, then the debate surrounding the application of regarded by the typical or average really wanted was the chance of differently. “So you can have situations could, during the course of the game, position becomes different again. the test of similarity. He explained that, customer as differentiating the two getting money, not entertainment. where there is some objective change into a taxed supply for VAT But at the moment devolution in the in Rank, the tax authorities maintained or more forms of gambling “The European Court said ‘you must justification lurking around, hence purposes. That was contrary to the United Kingdom does not alter the that there had to be an element of being compared. be joking, it’s all entertainment’. you might have different forms of principle of fiscal neutrality and the fact that in Scotland the tax treatment competition between the taxed and Then, in the Rank slot machines case, gambling that may require different consequence was that the taxation of in the VAT context has to be the same the exempt forms of the gambling “Some things have been held to be several years later, the European restrictions or different solutions to the bingo game became unlawful and as in England.” being compared. In the bingo case, capable of differentiating different Court looks at slot machines again, the public interest in protecting the UK tax authorities had to return because the change in tax status forms of gambling such as differences has forgotten about the RAL case, consumers from the particular the tax that had been collected.” “When we look what goes on within a occurred during the course of the in stakes and prizes, chances of and it suddenly pops up with the type of gambling in question.” particular fiscal jurisdiction, and at the game, there was no effect on winning, different formats, the degree pronouncement that in the case of The problem of discriminatory taxation power of member states to limit the competition because it was the same of interaction with the customer – gambling generally and including slot Mr Lasok elaborated, explaining that, of gambling is, however, not limited to exemption for supplies of gambling, game; “it was not a case of the people but at the moment these things are machines, what customers are after is in the context of VAT, where fiscal the United Kingdom, and is particularly the difficulty we have is that member marching up to an emporium at which merely capable of differentiating the opportunity to win – not simply neutrality is a manifestation of the acute in the context of VAT. This is states have a free hand. It’s debatable they can play bingo and choosing one different forms of gambling. The amusement or entertainment.” principle of equal treatment, that because of the fact that EU VAT whether they can take away the form of bingo that was exempt over question whether or not any of them principle is more usually stated as legislation requires all forms of exemption in its entirety. The EU one that was taxed. The tax authorities actually does so is really a question “Now, if a gambling activity is being that the supply of goods or gambling to be exempt from VAT but Commission in Brussels seems to said that was not the situation and of fact that has to be answered, again, regarded by the average or typical services that are similar or the permits member states to limit the think that member states can, therefore the principle of fiscal from the perspective of the typical or customer as a form of entertainment, same have to receive the same tax exemption. Member states have a although personally I doubt that neutrality was not infringed.” average consumer.” as many gambling activities clearly are, treatment. However, “there is no discretionary power that they can because the EU legislation permits differences in stakes and prizes or in further add-on in the form of an use to cut back on the exemption. member states to limit, not remove, “That way of looking at similarity “This causes problems, because the payout, even differences in the chance ‘unless’, which relates to the possibility The member states are not required the exemption. If you imagine the was rejected by the European Court. European Court has not answered of winning, begin to look irrelevant. of there being an objective justification to behave in exactly the same way. whole universe of gambling services, Instead, we’ve got a test which is definitively how you can wrestle with Indeed, on the evidence they may that may lead to a difference of They can make their own decisions they can cut out a corner and tax that. oriented around the objective things like different stakes and prizes, not be relevant at all. Particularly, treatment.” as to whether or not they limit the What they can’t do is tax the whole lot. characteristics of the type of gambling and so on. But there’s another differences in format might be more exemption and, if they decide to do They can nibble away at the edges, but in question. It focuses on the reaction difficulty lurking around which is that important, because one can easily see The reason for this, Mr Lasok so, which forms of gambling they something has to remain exempt.” of, or the assessment made by, the the European Court, at different times, that some formats look obviously like explained, lies in the structure of decide are going to be taxed. typical or average customer. So if, has regarded gambling either as a form entertainment whereas other types VAT legislation, which is derived from When the member state exercises from the perspective of the typical of entertainment or as a means by are a bit ambiguous.” legislation adopted by the EU. That Fiscal neutrality cannot be used to this power, fiscal neutrality comes in or average customer, two forms of which the customer gets some money. EU legislation is implemented by the target disparities which occur in tax because the member state has to be gambling are interchangeable in terms Regrettably, it has done this in relation "If you take the example of a punter member states. This means that the treatment as between different careful that, if it decides to tax some of the needs that they satisfy, then to the same thing (slot machines). If who goes into a betting shop, lays a 27 28 bet on the outcome of a horse race, “In the Rank case itself, there wasn’t evidence that shows, to provide and then hangs around and looks at all that much debate about similarity a basic and not entirely accurate “There are a lot of questions a television screen or monitor and from the perspective of the average example, that if a customer walks enjoys a horse race, what is going on? consumer because in the bingo case, into a betting shop and is faced with that member states have Is it entertainment, or something else? bingo is bingo; the change in tax status two rival things, does he dither The difficulty with the scenario I’ve just occurred during the course of the very because he’s going to have to choose described is you can look at it in more same game. In slot machines, the one or the other? If, on the other hand, to answer.” than one way. You can say that there main groups of slot machines we his reaction is ‘that one is definitely are two events or experiences going were comparing were accepted to different from that one’, and he goes on. One is the experience that the be similar in terms of their objective straight for the one he prefers, you customer has of placing the bet in the characteristics, but the debate was then have got the very strong anticipation of something. The placing about other things that were found likelihood that you’re dealing with of the bet is meeting some particular to be misconceptions by the something that isn’t similar.” need. What is that need? Another European Court.” experience he’s having is standing Mr Lasok explained that his around looking at that horse race and “The exercise that I was doing in front presentation thus far had enjoying the excitement of the race. of the UK Supreme Court, which [at encompassed the fiscal neutrality What is that? That is, in all probability, the time of writing] was the latest debate to date because many issues entertainment. His sense of interest in development in the Rank trial, was remained unresolved. This is because being entertained by the event may be about the interpretation of the UK there remains significant difference in enhanced by the fact that he’s placed a legislation enforced, in effect, from treatment, member state by member bet, so he may be more interested in 1968 to 2005. It was a pretty recondite state, concerning forms of gambling that race than the one immediately and arcane debate not least because that are either actually the same or before or after it. But, in any event, it was focused on legislation that no similar enough that the principle of his experience through watching the longer exists, but here the debate fiscal neutrality is likely to apply. screen or monitor is an entertainment touched very tangentially on the Moreover, there exists regulatory experience but is separate from that question of similarity as it arises rules which are very often associated which he had when he placed in the context of gambling.” with the tax position, whether they be the bet.” the application of VAT or a non-turnover “We don’t know what is going to tax such as a betting or excise duty. “So you can argue that the two happen or what the Supreme Court experiences are different, and you can is going to decide. Whatever it does “In many instances what the member argue that the two experiences satisfy decide will determine what will states are doing is highly questionable different needs on the part of the happen at the next stage of the Rank either as a matter of VAT law or as a average or typical customer. And if you litigation because this stage, which matter of the rather more general separate them off, you may say that may or may not happen, is going to principles of EU law which are based what is really spurring the customer on be an argument about similarity as on equal treatment but also concerned when he places the bet is not a form between FOBTs and certain types of with ensuring that there is true, of entertainment but something else; gaming machine that were around at unrestricted freedom to provide something that you don’t see in a the same time as FOBTs, and which services from one member state typical game of chance in which there were taxed at the same time as to another. So, we’re in interesting is more of a sense of the customer FOBTs were exempt. That’s going to times, we can see there are striving to win, to beat the machine get into some of the issues that have judgments coming out from the or other players. But this kind of been left unresolved by the European European Court on a number of beating is not necessarily getting Court in its decision about the Rank these points which are showing money, it’s the struggle.” case. I also ought to mention that in that there are a lot of questions that Rank, when we were looking at the member states have to answer.” “What I have just explained is where question of similarity - although as I we currently are in the application have said the arguments didn’t need to of fiscal neutrality in the context of be developed fully - we ended up with gaming. The way I’ve put this may evidence largely from people within appear to you, as people who are in the industry, from manufacturers and the industry and therefore rather better operators. This isn’t the best kind of informed than lawyers and judges are evidence to submit in many of the about what goes on in the context of member states because if you’re gaming, rather crude or simplistic. looking at the question of similarity But at the moment, in terms of from the perspective of the average the development of a kind of legal or typical customer, then you need to understanding of how you can apply have evidence more closely calibrated fiscal neutrality within the context to observable customer behaviour. of gaming, that is where we What you want in order to currently are.” demonstrate similarity is

29 30 Panel Session: “Present a united front to the people The Evolution of Gaming – who make decisions and make the Peter Montegriffo QC The Operators’ View decisions ourselves.”

Moderated by: fuzzy market. So, for me it’s about Working more closely together in the it’s sometimes not so easy to making sure we educate the regulators future can help us.” determine who’s actually placing the Peter Montegriffo QC, Partner, Hassans and the government the whole time, bets. It could be that the traditional, a constant engagement programme. How are the different factors younger male clientele wants to Peter has advised on numerous financial services, regulatory and trust related Once governments have made their affecting how you reach clients receive their bonus for the extra mind up it’s very difficult to reverse impacting who you are reaching sign-up. The verification process runs matters. He was closely involved in the IPOs of various gaming companies the process, as we found out in the and retaining? smoothly with full due diligence, so on established in Gibraltar, which have been listed on the London Stock Exchange, and PoC discussions with Treasury.” paper we’re seeing more female sign- has been closely involved in drafting numerous changes to Gibraltar’s legislation in Pat Harrison: “We have certainly ups and on paper we’re seeing more Peter Montegriffo: “Given that so seen drastic changes in the ways 60-plus users, but we cannot be sure trusts, financial services and gaming areas. His knowledge of these fields has led him much of the problem seems to be of people are accessing our products, who is actually placing the bets then.” to contribute to a large number of articles and books on Gibraltar’s legal system and perception rather than fact; how far but for me it’s more about how you financial services sector. Peter regularly speaks at international conferences relating do you get by pushing the facts?” reach that audience. What is changing, What has held back a more Mr Montegriffo asked. “Even if you for example, is how the younger determined industry consolidation to these areas of practice and his work frequently requires him to deal with multiple push the facts with the policy makers, generation views TV. Very few of and what will the next 12 to 18 jurisdictions. He is a member of the pre-eminent global gambling law networking it seems a large part of the problem a certain generation sit there and months produce? is the tone of the industry – the tone watch scheduled TV programmes; and education organisation, the International Masters of Gaming Law. Peter was of the adverts, the way the industry they choose what to watch when Pat Harrison: Mr Harrison confirmed also Gibraltar’s Minister for Trade and Industry, with responsibility for economic puts itself about. It seems to me they want to watch it, making that there are certainly more drivers development and financial services, between May 1996 and February 2000. to be a matter beyond empirical getting your product in front of for consolidation, particularly within evidence when dealing with politicians them very difficult.” the UK. He noted, however, that the Peter was appointed as Queen’s Counsel in Gibraltar in June 2014. and the public. Would you say ‘year of consolidation’ has been that’s fair?” Martin Weigold: “In certain areas we heralded for some time without being Panellists: are seeing changes in demographics. realised. He voiced his concerns that Martin Weigold: “I think that’s a fair As you would imagine, the the investment community is scared Pat Harrison, Operations Director, 32Red point, and if you’re alluding to the fact demographic split is heavily male of engaging with currently volatile that there is a lot of advertising for focused for us, at around 87%. gaming stocks, adding that one area Ralph Lichtmannegger, Head of Customer Relationship Management, digibet Ltd gambling products in the UK then I FoxyBingo, however, is skewing the of concern lies in convincing the Martin Weigold, Chief Financial Officer, bwin.party digital entertainment plc do think that could lead to further other way at 76% female. That split investment community of the regulation. Unfortunately, cutting back across the brands is relatively stable. transparency and quality of listed on advertising is not something that However, we are seeing across the gaming companies and their likely “We are at a point of reflection;”, recalibration. This is a theme that our act together, working together and will be easy for the advertisers to age groups - and about 60% of players commercial trajectory. Mr Montegriffo opened, “with the was touched on in this forum last getting almost to the point of self- mutually agree, particularly if that are in the 18 to 34 bracket – a slight UK General Election under way, with year when we were talking about regulation. We’re very good at being market is your main area of focus.” skew towards the younger players. Martin Weigold: “Let’s not overlook the PoC tax in the UK potentially challenging the UK’s then proposed innovative and creating solutions to I think that mobile and touch devices that there has been some pretty coming to a resolution in May, with regulation. One thing that Paul Leyland problems, let’s have more of the same; Is this a broader European issue are a driver of that. That move is not significant transactions in the sector the judgment to follow, all of which observed very keenly was the fact that present a united front to the people as well? overly significant however, so I don’t recently – like Amaya’s purchase of will set the pattern for what will as operators we were very disparate. who make decisions and make the want to over-emphasise it. We have Rational. I expect further consolidation happen in Europe. We have perhaps We didn’t have a uniform voice and decisions ourselves.” Ralph Lichtmannegger: “Broadly seen an increased propensity amongst will play out – we’ve said it publically. a more sanguine and balanced view didn’t represent ourselves very well to speaking yes. Digibet are not involved males to use mobile and touch screen We think there should be further of the way in which the US is likely politicians or regulators. I think that Martin Weigold: Mr Weigold agreed, in the UK market any more due to the devices, but I think that partly reflects consolidation in the sector and intend to pan-out. So, as we stand here in theme has certainly been picked up adding that Gibraltar’s campaign recent changes, and we were always the fact that the bwin brand enjoys to play an active part in the process. the context of that environment: again today. For me, that recalibration against the UK’s taxation proposals in support of what was being done by a very male biased group of players Indeed, we are in talks with other means that as operators we need to was in some respects a positive step the GBGA towards the UK authorities placing sports bets, and obviously parties at the moment.” What more should we be doing to be working together and in unison to forward in the industry’s ability to act on the matter. It is important to have mobile is very helpful for live betting.” reboot the industry after this period regulate what we do –to make sure with a unified voice. “Certainly, we can one voice; this is a core market which The argument for consolidation, of uncertainty and reflection?” that there’s one single voice – and act still do better on that front. Whatever could have a spill over effect for our Ralph Lichtmannegger: “We are Mr Weigold explained, is certainly in a way that removes that air of happens, gambling is always going to markets in Europe. I do believe that definitely seeing more female signups apparent. Operational costs are rising Pat Harrison: “For us it’s not suspicion that seems to hang over us be regarded as a sin-stock and political we as a sector have a lot in common as well as more people aged 60-plus with the move to nationally regulated and to battle against in any jurisdiction. using our services. Having said that, markets, requiring companies to 31 necessarily a reboot but more of a all the time. For me it’s about getting football; it’s never going to be a nice, 32 Peter Montegriffo QC

acquire scale in order to absorb those our offline business too. I would have for Bitcoin in online gaming, however. costs. Gaming duty, bespoke platform hoped that by now we could see some A lot of smaller operators in certain “The greater potential lies in the development and processes are light at the end of the tunnel, but I now markets – Africa, Asia – could well find similarly costly, as is competition doubt it’s going to be resolved any a use for Bitcoin, and perhaps make technology that underlines the from new-entry land-based time soon. Until I hold a licence in some additional revenue from the incumbents. “The drivers likely to my hand, I remain sceptical. We can spread on conversion. If the currency Bitcoin platform.” slow consolidation in the sector tend happily live in a grey area, and have was regulated, however, that would to be the markets where operators done so for many years, but it’s not be a very different situation.” generate revenues and profits from. enjoyable. We need a clear cut case to “Let’s get back to running our You would be quite surprised by encourage investment. Perhaps if a How do you see the industry the difference in opinion concerning limited number of licences are issued evolving over the next two, then businesses, working together the legality of operating in certain in Germany we’ll see some movement.” five years? markets and how sustainable those and looking at self regulation.” markets are.” How do you see the emerging Pat Harrison: “I’ll start with five potential of decentralised years hence, which will hopefully “Another issue can be with respect applications, cryptocurrencies be as vibrant as it is today with plenty to the valuation aspirations of large and the blockchain? of choice for the consumer. The shareholders in certain companies; challenges are that those choices will whether or not a deal can be struck Pat Harrison: “We’ve all got our be eroded because of the expense of that gives the buyer the return they’re concerns, which are once again borne operating and you’ll have two or three looking for and the vendor the exit they out of regulation – the source of big players who will dominate the want. Then another factor which funds and KYC stuff. What is different markets. Short term, I think we’ll introduces uncertainty to the process with this particular aspect is that see a period of consolidation. Not has been to what extent the VAT issue merchants, operators, all sides of the consolidation as we were talking will affect companies. This has been equation, seem to be working together about earlier, but a chance to get back anything but a straightforward exercise to try to convince regulators to take a to running our businesses after the and all companies have been looking look and see if there’s something we distractions of licence applications, at the VAT law in each jurisdiction and can regulate in the future. In terms of legal fights and so on. Let’s get back how that interacts with EU law before accepting cryptocurrencies and would to running our businesses, working deciding what approach they will take. we do it, well potentially we already together and looking at self That process is now largely behind have because you can fund your regulation.” us and I’ve been quite surprised Neteller wallet with Bitcoins. But I at the degree of unanimity in the don’t think it’s going to change the Ralph Lichtmannegger: “Our conclusion. So I think a lot of the world. I think the greater potential business is one of the present, stalling is down to the degree of lies in the technology that underlines more than the future. However, I uncertainty operators have faced. the Bitcoin platform. I don’t really would like to see the regulatory Lastly, with respect to the UK, understand it I’m afraid, I’m sure burden lifted for the industry to work operators have been waiting to see, there are people here who do, but together on that agenda. We have a when looking at smaller operators, apparently it is the next thing since few very good bodies working towards what impact the UK’s PoC will have.” sliced bread.” harmonisation, but this is still very far off and quite an idealistic viewpoint.” Ralph; what are your expectations Martin Weigold: “My view on concerning the current court Bitcoin is it sounds quite interesting Martin Weigold: “I agree, and would proceedings in Germany and for the future, but right now it’s not add that in the next two years we’ll their likely repercussions? particularly exciting for us. About one see more transition to nationally in two thousand people have a Bitcoin regulated markets with the inevitable Ralph Lichtmannegger: “I’ve been in account, and we operate in regulated squeeze on margins that will bring. We the industry for ten years now and in and taxed markets, so it’s unlikely will see as a result some consolidation Germany I’ve not known anything we’re going to get any incremental playing out and I think we will see other than uncertainty. I wish I could deposits simply by offering Bitcoin. operators focusing on fewer markets. share some facts and figures, but I’m All of our customers have a range of You can have a substantial marketing stuck with reading tea leaves. You can payment options available to them budget, but if you’re targeting 20 ask five different lawyers about the and don’t require another one. There markets, your voice in each becomes potential outcome in Germany, but I have been a number of issues with irrelevant. So with nationally regulated think your money is better spent on a accepting it and a number of markets we’ll see operators focus on fortune teller – at least then you know companies are coming up with select jurisdictions in the hope of the prediction is incorrect. Germany solutions for that, which is good. becoming a top three player in those. does not allow for mid or long term But volatility aside, it gives rise to a As we look further out, I would like planning and as one of the smaller number of issues and we’ve been told to say that the US will have opened operators we suffer: we need to see by our principal bankers that if we up a little bit more and I think there how long we can maintain operating were to accept Bitcoin it could cause will be new, unforeseen technologies in this grey area whilst at the same internal issues at the bank. Our policy coming into play. That has always time shouldering the tax burden and is very much a case of wait and see. been a big driver for the industry 33 uncertainty, and the impact that has on That’s not to say that there isn’t a role and will be in the future.” 34 Panel Session: “The way you act and really are is of The Evolution of eGaming – major importance to how your The Regulators’ View jurisdiction works.”

Moderated by: Joerg Hofmann Dr Joerg Hofmann, Melchers/ President, International Masters of Gambling Law

Dr. Joerg Hofmann is the current President of IMGL and the group leader of the you are at odds with the government Are the British and Danish a lot of measures, but they would then you would have to, as the press models so distinct that one is have to lower the bar in order to be gaming law practice group of his law firm. Joerg has practiced in gaming law since would say, ‘consider your position’.” more attractive and suitable to able to compete with the newer the mid-90s as one of Germany’s leading gaming lawyers. MELCHERS’ legal advice Sweden than the other?” licensees, which would be a tough is highly valued by global market leaders in all sectors of gaming law. Joerg has Joerg Hofmann: “I understand, of sell in the political sense. We also course, you have to execute the law. Hakan Hallstedt: “One can say that have to discuss what we’re going to been ranked as a “Leading Individual” in Gaming & Gambling by Chambers Global Sometimes regulators feel like the the current development is really do with these monopolists. In frequently since 2011. He regularly publishes articles in international experts’ provisions provided to enforce that changing the fundamentals of the Denmark, Danske Spil has been are maybe not the best practical Swedish gambling landscape,” the subject to a lot of criticism due to magazines and periodicals and serves as a member of the editorial board of solutions. The regulator may feel Swedish regulator explained. “We its maintaining quite a huge advantage. Gaming Law Review and Economics. there are restrictions which create have two state concessions at the We will have the same situation non-competitiveness, which are bad moment, Svenska Spel and ATG. Both when it comes to branding and the Panellist s: for the market and the operator. are state controlled companies, both retail system. So, there are a lot They certainly are independent, are showing little or negative growth of aspects and we’ll look at all Phill Brear, Gambling Commissioner, Gibraltar Government but to a certain extent you have and are in deep conflict with the the possibilities.” to not follow your own opinion. interests they are there to defend, Jenny Williams, Chief Executive, UK Gambling Commission namely the funding of horseracing Key to this discussion is the How do you deal with this kind and giving a lot of money to the state affordable amount of burden for Hakan Hallstedt, Director General, Swedish Gambling Authority of conflict in practice?” budget. The same goes for the good the operator in terms of taxes and causes lottery, which is fighting a fees; could you elaborate? “It goes without saying that the also products of subordinate legislation Phill Brear: “You have to be able to losing battle in retaining their “Without proper role of the regulator is important,” i.e. statutory instruments and give advice using the multitude of customers. There has been a political Jenny Williams: Ms Williams Dr Hofmann opened the morning’s regulations. A regulator who isn’t communication channels available to discussion for many years; we’ve had explained that the British and the analysis in partnership proceedings. “The quality of regulation sufficiently attuned to the principles you, which we’re able to do here – several enquiries, in order to perhaps Danish systems are in fact very and its practical implementation is of the base legislation or the priorities advice is never unwelcome. But I’m change the landscape. There is a similar, differing only in tax rates and with the regulator significantly dependent on the quality of the relevant political department speaking in the abstract: we’ve never majority of 87% in the Swedish the Danish requirement for real-time of the regulator; on her accessibility, will pretty soon find him or herself reached a point where we’ve had a Parliament who are for having a provision of data, complete with and the industry personality, willingness to continue in a tricky situation, be that around difference of opinion. There have been licensing system and the minister specific software arrangements. In dialogue with the industry and, other policy issues, possibly even situations where I’ve felt it necessary responsible went out and said we’re the UK, operators are also expected some policies of course, her knowledge and funding. Whilst these may be some to give early and very comprehensive going to start an enquiry as soon as to keep and make available to the understanding of the business. uncomfortable statements to make, advice, and I’ve had to give it more possible. This will, of course, take a operator specific records, but not real just scratch the Most, if not all, regulators like and might even be denied in some than once, but fortunately we’ve never couple of years and already there are time data provision with a specific data to describe themselves as places, I can think of very few reached that situation where the ability heaven and hell scenarios put forward safe which constitute an additional surface, often the independent, but; regulators who are not acutely to persuade has even been stretched. by everyone. We’re going to earn more cost to the operator. “I would certainly tuned in to politics.” In Gibraltar, the government’s tax revenues, but the other side is question whether that’s necessary, wrong surface.” to what degree is your regulatory objectives and my values are mainly concerned with responsible and it is certainly something the body independent and who is it “Here in Gibraltar, where it is such a very well aligned.” gambling measures.” Swedish authorities may want to independent of?” tight community, in some ways that consider. But aside from that and relationship is amplified. It’s essential Joerg Hofmann: “This week, we “When we conduct the enquiry tax rates, there really is very little Phill Brear: “This is a subject that that you are tuned in. But I would draw heard reports about an unnamed one of the issues will, of course, be to distinguish the two.” regulators occasionally find themselves a line under that and say in a place like group of Danish gaming executives tax. We have 15% in England and 20% dwelling on. Some regulators have this, if you are at odds repeatedly or who encouraged the Swedish in Denmark. The politicians will, I think, Joerg Hofmann: “Svenska Spel perhaps overplayed their independent significantly a democracy says it’s the Government to steer away from the find that if 20% works in Denmark introduced some very restrictive status for different reasons. My regulator who walks. So, I would say Danish licensing model in favour of then why bring it to 15%? They may, responsible gambling measures, starting point has always been that I’m professionally independent and if the British. However, the Danish however, not have as low level as specifically player cards and a regulators are not just creatures of we ever reached the stage where model, at least legally, has been either. Concerning responsible prohibition of bonuses and other statute, products of legislation; we’re there was a significant issue where a popular model for other jurisdictions. gambling, Svenska Spel introduced gambling offers. 35 36 What affect will these measures Do you think prohibition is justified encouraging the use of player cards in industry and those who rarely see impose. It’s an area about which, if have on the market – are they in the protection of players?” order to get better data and see what’s outside of their office. Indeed, I would we were getting close, we would helpful or harmful to the market happening to people? But there are of like to thank you all now for being have to have a very well thought out and its players?” Hakan Hallstedt: “I think it’s very course huge privacy and utility loss accessible and for taking part in this discussion. It would be a question clear that the training of politicians, issues there which are very much dialogue, because it is important for of ‘is it getting too big?’ rather than Hakan Hallstedt: “Svenska Spel had enlightening them using the benefit political decisions. It’s not for the the industry. I was very impressed ‘has it got too big?’. I don’t think it’s a lot of government encouragement of industry and regulators’ experience, regulator to decide where the cut off earlier to hear of the relationship too big now, and I’m not quite sure when it introduced these measures. is important. We have a very high level ought to be in allowing people to do between the ministers here in what too big would look like because They tackle issues of integrity and of protection, but it’s important to also harm to themselves or to ask people Gibraltar and the industry. I was of this broader economic question facilitate the KYC question. They also offer balance in order to attract the not to over-indulge from time to time also very impressed to hear that of viability.” help with AML measures because licensees. The politicians are the if they want to. So this debate about the industry today is bigger than you are certain who’s playing. These decision makers, we have to hope that introducing player cards for high-stakes it has ever been. Phill; How important is the regulator’s are advantages, but at the same they will listen when we say what will, betting is something we really need to independence and personality? time there has been a clear loss of what won’t and what might work. It’s engage in with the politicians to help Is there any point at which customers. The slot machines are going to be a tough sell and a long, them understand what the tradeoffs Gibraltar’s growth must stop?” Jenny Williams: “the point about losing customers annually, as are other tiresome journey to the end but we might be.” something like the UK Gambling forms of gambling. Sweden is looking didn’t go to the moon because it was Phill Brear: “I think this goes back to Commission as an independent at a loss of €60,000,000 on its bottom easy. It is a discussion that needs Joerg Hofmann: “All the regulators my first point about independent and regulatory body isn’t solely its Phill Brear line due to the introduction of to be had and I’m glad we’re finally commit to measures to prevent rational thought. The issue for a place ability to regulate the industry the player card.” adapting to the rest of the free world.” problem gambling, but in practice like Gibraltar is more macro-economic within government frameworks. a problem gambler can easily than regulatory. As a part of the Where the importance of “It is, of course, a goal for Sweden to What is the discussion in the circumvent even the strictest controls. infrastructure we have the support independence lies is in casework. channel as many players as possible to UK surrounding competitiveness services, the legal profession, the We are absolutely independent on the legal operator and I don’t think this and protection? Where should the line be drawn – accountants and auditors, and so on. casework; we don’t discuss with any measure will make those numbers get the government, the regulator, In Gibraltar particularly there has to be government department any details any higher. At the moment 57-58% of Jenny Williams: “There was a long or the problem gambler?” a management of the economy to about investigations and they have the online market is abroad – less than discussion about the fairness and ensure it doesn’t become either over- no influence over decisions on a half of the online market is in Sweden. openness of bonuses, and certainly Phill Brear: “This follows on from dependent economically on a particular licence holder. I think that’s a very This raises issues of protection, some people in the industry have been what was said at the beginning. function, or that one function starts to important feature of British and many particularly in the slot machines industry. irresponsible in the way they offer their Without a proper dialogue, you get hamper the ability to populate and pay other regulatory systems, and that’s Those machine players with gambling bonuses. Yes, it hasn’t done any good policy led by assumption rather than together services which may or may an important safeguard for the problems may, in the worst case, in managing perceptions of the policy led by analysis and evidence. not be ancillary to that function. The industry. In terms of personality gravitate towards unregulated online industry and we are taking steps and I see and hear too often on the world legal function here does rely to some one of the things we try to do as a sites where they may not be offered working in that area. Looking at it the stage policy decisions and statements extent upon the gaming industry, as regulator is ensure proportionality, protection. So there are up sides other way, from the customers’ point that strike me as knee jerk, or reactive. does the accountancy. But at the openness, fairness, willingness to and down sides.” of view, free bets and bonuses are We see policy delivered under the same time there are young people learn, openness in consultation, all enjoyable. We’re not in the business of assumption that it is helping problem in Gibraltar who aspire to be trained those buzzwords throughout the Joerg Hofmann: “In a way, I feel stopping the normal, healthy gamblers gambling, but without proper analysis accountants, lawyers, bank clerks, organisation and if that ceased to there is a degree of ignorance getting fun from what they’re doing. in partnership with the regulator and shop-keepers, ship maintenance be when I leave the Gambling surrounding the black market. If you All we’re worried about is people being the industry some policies just scratch people, teachers and all the other Commission then I would really want to protect players then misled or spending more than they the surface, often the wrong surface.” professions aside. If the gaming have failed.” you need to introduce measures perhaps should. It’s a difficult balance: industry became too intense you which will be successful in doing so. letting people have fun but measuring Jenny Williams: “There is often this would start to get upward pressure Hakan Hallstedt: “I talked to the In Germany, we have total prohibition the activity to stop them getting gloss where the industry says there on pay and downward pressure on the CEO of a major lottery company on online casinos to protect players sucked in. We’re very interested in is no evidence with which the policy availability of skills. So, I think the just a couple of weeks ago and from gambling addiction. The result pushing the debate and exploring makers can choose X or Y. But there question of scale in Gibraltar is to an asked what impression he would is some players find their way to the what works.” is no evidence if you don’t look for it. extent regulatory, but I think it’s more leave when he left. He said, ‘take black market, which is massive. This That is something we’ve been working a macro-economic one.” your hand, put it in a bucket of cold market is totally uncontrolled, totally “Something else to consider is very hard to do, that is ensure that water, take it out again and look at unlicensed and totally unprotected. whether or not prohibition will decisions are made on an evidential “I keep asking politicians not to use the surface; that’s the impression Are we successful in practising these encourage others to go elsewhere. basis and in partnership. But it takes the term ‘selective licensing’. It’s I’m going to leave behind’. We’re all measures, or does it make no sense? Prohibition of FOBTs, for example, the engagement of the industry as actually just that we have a higher easily forgotten, but if the frame is Moreover, many of the discussions on could lead players to other machines, well as the regulator.” bar to entry. We can keep raising the clear it should be filled with the right this matter are controlled by politicians other forms of gambling. One of the bar as high as we want, but we can’t competence in the perfect world. and lawmakers, many of whom have problems we have in the UK in this Joerg Hofmann: “What we’re looking unilaterally discriminate against those At the same time, it would be stupid very little knowledge of the online regard is the anonymous use of cash towards is dialogue; dialogue between who meet that high bar simply to reject the importance of personality gambling market. I would say it takes in these machines, which makes it very the industry and dialogue between the because we’ve got too many. So, and openness in the regulator in every time. You make little adjustments and difficult to monitor player behaviours regulators, particularly on cross-border yes, the industry can get too large for case. Of course, the way you act and you correct your mistakes over a long and develop measures for protection. issues. There are different types macro-economic reasons, but I can’t really are is of major importance to term period. Do you see this happen So there’s a real political policy trade- of regulators; those who educate think of it as a regulatory issue or of a how your jurisdiction works.” in Sweden as well? off. Should we, for example, be themselves by taking part in the regulatory ceiling which I could legally 37 38 “The good thing about a single customer view is you do get a lot more data on The Multi-channel what a customer is doing. It’s right and proper to use that data to maximise Value Equation your response to problem gambling and social responsibility.” Paul Leyland, Partner, Regulus Partners

Paul was an Equity Analyst in the City for over 10 years, among the first to be and bingo retail sectors. Retail is that you lose the money on the land- which is a problem that a number of gambling was shown to be growing based side and you don’t make it all land-based businesses have. “It’s this focused on the gambling sector. He researched and reported on small and large fitfully for the past five years, whilst back on the remote side. That is a clear lack of differentiation. If you have a gambling company stocks, as well as advising many companies in relation to IPO remote gambling has been growing reason why land-based operators have completely vanilla offer that looks and M&A. During his time in the City he worked for a number of investment banks, at double digit percentage rates. In to engage in omni-channel. This is the exactly the same as the remote only being encouraged to enter the remote real reason for omni-channel and it is operators, but the remote only most recently Investec and Collins Stewart (now Cannacord). gambling space, the retail sector’s a negative one, not a positive one.” operators have some pretty important traditional customer base are built in advantages then you’re going introduced to a more competitive and For omni-channel to be the good to immediately suffer. We’ve already Following on from this, he moved into the industry, as Corporate Development fragmented market which forces retail thing that everybody is talking about, seen that in action with the poor Director for leading gambling company William Hill, advising on retail strategy, businesses to compete aggressively Mr Leyland noted that it is very market share of Ladbrokes, or Gala regulatory issues, the racing industry, supply chain management, and M&A. online and reduces overall revenue for important to get the retail experience Coral or Rank, compared to the high market-share retailers. to reflect the remote offering and excellent remote offerings of, for Paul has proven strategic and analytical skills, as well as in depth sector for it to be much more dynamic instance, Bet365 or Paddy Power. knowledge and a broad range of industry and professional services contacts. “What this demonstrates”, he and engaging, and not merely The remote operators can be an explained, “is that a lot of landbased transactional. The transactional awful lot more dynamic than retail operators, successful ones that have gambler can now be persuaded to businesses. It’s incredibly important “I want to talk this morning about benefits in terms of the increased been around for a long time, tend to use remote devices rather than travel for the omni-channel operator to bring “What that channel a buzzword that’s flying round the ability to leverage a brand with a single have a quite high market share in their to a retail location because it is much that dynamism in. The remote gambling sector, ‘omni-channel’, which customer view. Omni-channel enables given retail sector. It is something that simpler. “The retail location has to give businesses have it already and it’s shift can essentially is particularly relevant to the UK retail companies to create a centralised is a given in pretty much every market, something better, something different, very, very difficult to migrate across.” businesses but also to other operators digital living space, complete with a including the competitive commercial and in the UK innovation is not mean is that you from a competitive dynamic”, Mr single, cashless wallet within which UK market. The problem is, the something we’ve seen very much of “But omni-channel is also a bit of an Leyland began. “Retail gambling customers can view any medium, remote sector is structurally a more at all. The remote offer also mustn’t issue for regulators and tax collectors. lose the money on businesses in the UK have been anywhere and at any time. This in turn competitive, fragmented and dynamic be so poor that it damages the overall There is the potential to arbitrage attempting to be successful remote allows companies to rebuild presence, one and it can always, even in a taxed brand and this is a problem that a lot product. In an environment where the land-based side operators for fifteen years or so, with improve service, enrich content and and regulated environment, support of land-based businesses in the UK customers are much more relaxed more failures than successes. During square the payments circle with lower more operators. Consequently, it’s have. If you’ve got a high market about choosing between retail and and you don’t make that time they’ve all said an awful lot costs of customer conversion and almost impossible to deliver the same share of casinos, betting shops and remote, having a rigid set of product about being “multi-channel” before stronger retention capabilities. market share in remote as you have bingo halls you can take money off regulations in terms of stakes, prizes, it all back on the some point last year when being multi- “What’s not to like?” in land-based, even if you’re very good customers even if you haven’t invested coupons and that sort of thing, while channel was no longer good enough. at online. William Hill, for example, in those assets for quite some time. having a free for all in the remote remote side.” Everybody is now “omni-channel”; Multi-channel has become so big it which has got 30% market share in If you put up a poor online or mobile environment as channels become a word which is now peppering the has had to be renamed. Indeed, as terms of shops in the UK is running at offer, people will spot it as being poor more fungible is going to cause a lot dialogue of nearly every large operator Mr Leyland explained, the benefits are about 13% in UK online overall – and very quickly. If you don’t deliver the of headaches. It puts the land-based and supplier: nearly all are now hiring not just limited to the gaming space, there’s a very long list of land-based market share that your brand should sector at a considerable disadvantage to deliver it.” with the ordinary man on the street companies who haven’t done deliver it will start to tarnish the against the remote sector, potentially now already accustomed to omni- anywhere near as well as that.” business. Retail businesses can’t just accelerating its demise.” Mr Leyland continued in explaining channel marketing from the majority be online; they have to be incredibly that the dialogue around omni-channel of large retailers. “So it’s here, and “The problem with that is that if good online.” “There’s also the potential to arbitrage has also, and inevitably, all been very it’s a very important driver, but what customers are increasingly choosing tax. A casino in the land-based positive. Omni-channel is deemed to I want to flag this morning is that to use remote channels as well as, Mr Leyland added that the remote environment in the UK is taxed up be an important growth driver for omni-channel is not necessarily the or in some cases rather than, retail division for retail businesses is a to 50% against only 15% in online. land-based businesses in the remote force for good that everybody seems channels; those customers start to very big challenge. The market share You can also structure your business gaming space. Mobile is now to think it is. In fact, it is potentially become exposed to a much greater of migrated customers must be in a remote environment in a way ubiquitous, with a much more a fairly weak mitigator of some number of operators. It becomes sustained otherwise a land-based that you can’t in a land-based, which convergent customer base which dangerous and offensive behaviour.” much more difficult, then, to control business risks losing money by going is something the government is means that mobile and land-based the market share in the remote online. The offer also needs to already attempting to correct. So, can no longer co-exist without the Mr Leyland then drew the attention of environment as it does in retail. What complement the retail offering and omni-channel isn’t just an operational risk of cannibalization. Countering the summit to a table demonstrating that channel shift can essentially mean stand out from other remote offers, driver or a customer driver, it’s going that, there are a lot of operational market share within the betting, casino 39 40 Predicting Customer “Is omni-channel a good thing? Behaviour with Data Analytics It’s necessary, because if

the retailers aren’t competing Martina King and David Excell, Featurespace effectively online then they aren’t going to Martina King is the CEO at Featurespace, the world-leader- in Adaptive Behavioural be competing at all Analytics. Martina was formerly Managing Director of augmented reality company Aurasma, and has an extensive career in media technology. Her previous leadership in the medium term.” roles include Managing Director of Capital Radio, where she doubled revenues as Sales Director and successfully defended the radio station’s number one position in London. Martina was also Managing Director for Europe at Yahoo!, where she rebuilt to start driving the regulatory “As we talked about, the remote market are, by necessity, going to environment as well.” market share is structurally always grow because there’s an awful lot the UK and Ireland business after the ‘dot com’ collapse and subsequently led the going to be lower than the land-based. of investment going into remote rebuilding of Yahoo!’s European division. Martina is also non-executive director of “Going back quickly to what we were It’s expensive, but it’s simple to grow a capability from retail businesses. The Cineworld and Debenhams. talking about earlier; the good thing large market share in land-based: you problem is that isn’t necessarily going about a single customer view is you open a lot of units, and/or you buy a lot to grow demand. It is going to grow do get a lot more data on what a of units. In online, there isn’t an easy competition, which means the remote David is Co-founder and CTO of Featurespace. He has over seventeen years of customer is doing. It’s right and proper way of building up your market share only operators have got to join in this to use that data to maximise your because it is incredibly competitive.” arms race and start improving their experience transferring technology into practical business applications, and under response to problem gambling and product and infrastructure to make his leadership Featurespace has grown from a concept to a commercial success with social responsibility, but it’s also “Remote operators also have some sure that the spend they’re getting many blue-chip customers. He obtained a first-class honours degree in Engineering certainly going to be the case that huge inbuilt advantages, which is justifies their higher cost per that data gets kicked about, politicised something that I think the retail sector acquisition and/or lower spend created and IT from the Australian National University before studying towards a PhD at and potentially encourages regulatory still hasn’t got its head around. This is by the customer reach of the retail Cambridge University. David has been awarded more than 11 prizes and scholarships change to the economic disbenefit simply in terms of being able to take environment. All that means is that for his academic and commercial achievements, including the 2011 ITC Enterprise of the sector.” decisions quickly and having a much if the awful lot of remote investment more flexible supply chain, and also (cost increases) which is going on at Award for Young Entrepreneur. “So, is omni-channel a good thing? being able to take money from more the moment is simply being deployed It’s necessary, because if the retailers jurisdictions in a more relaxed manner around competition, which it is, then Ms King introduced Featurespace grown to now provide services examine whether it is possible aren’t competing effectively online than some more heavily regulated, it won’t increase demand. And if it as a machine learning tool which to 16 companies in the gaming to identify players with addictive then they aren’t going to be competing land-based peers. This means that doesn’t increase demand, there’s a lot uses data analytics to monitor sector alone. tendencies, to distinguish between at all in the medium term. But it’s not the retail operators have to create a less profit in the system, which has and predict individual customer harmful and non-harmful gaming necessarily good. The problem with remote product that’s every bit as also come at a time when UK Point of behaviour in real-time. She “We’ve been involved in a number machine play and, if so, what omni-channel is that to be a credible good as the remote only product if Consumption taxes have now come explained that the company began of very interesting projects over measures might limit harmful omni-channel operator you need a they’re going to compete at all, which through. It’s our view that this is the life as a consultancy spun-out of the years”, Ms King enthused. play without impacting those who large scale retail estate and it’s very is hugely expensive and is going to beginning of a very difficult cycle Cambridge University’s Engineering “One example was an invitation do not exhibit harmful behaviours. difficult, in an environment with an start driving up the costs of the for UK facing remote operators as Department and employed to investigate a case of game Featurespace found that it was indeed increasing channel shift, to see where remote sector.” competition increases, but not in a behavioural understanding methods manipulation, in which we found that possible to identify markers of harm, the growth in that retail estate is way that’s designed to drive demand for a variety of industries, ranging the probability of the player getting a with the results from that study coming from. So, to be a good omni- “It’s our view at Regulus that omni- but instead to try to take market share from financial services to insurance. certain result was in fact 12,800 times now published and available on the channel operator you’re effectively channel is not the good thing that off other operators. If that’s the case, Featurespace was founded in 2005 more unlikely than the odds of winning Responsible Gambling Trust website saying you’re going to be shackled everyone is talking about. It’s certainly the big winner is the customer; by David Excell and Prof. Bill the jackpot on the UK National Lottery http://www.responsiblegamblingtrust. with a large, declining retail footprint, not the time to start feeling sorry for the big losers are many operators.” Fitzgerald and in 2008 was seven times in a row. That evidence is org.uk/Research-Publications. whereas a remote only operator can remote only operators who may have approached by Betfair to help now part of the ensuing court case to focus entirely on growth. Or, if you’re been expecting a lot of online market them continue to grow their ensure that justice is done on behalf Ms King then introduced the Co- an omni-channel disruptor like Paddy share growth from retail businesses. customer base without needing to of the gaming sector.” founder of Featurespace, David Excell, Power, you can choose exactly where It’s a defensive move designed to grow their fraud team at the same to demonstrate to the Summit how you’re going to place your shops for protect against channel shift, which rate. A dedicated fraud system was Ms King continued in describing the technology works. maximum omni-channel benefit, is being talked about as a very developed from Mr Excell’s shed what she termed “probably the most again, to the disbenefit of the positive move. Overall, the costs and with very positive results. important piece of work we’ve been “One of the first things we need to ask large incumbents.” of competition within the remote Betfair renewed its contract with involved in recently”. Here, she before attempting to understand this Featurespace for a further five years explained, Featurespace was chosen technology is what behaviour is and 41 in 2013, and Featurespace has since by the Responsible Gambling Trust to then what data do we need access to, 42 “If we can get the right amounts of the data we want to track, and make them come to life, we can describe and distinguish between lots of different types Martina King of behaviours.” David Excell

in order to predict what an individual’s task was to describe or uncover the mask, rope, knife, and pepper spray. scalable, can be fully integrated with every single player, we’re able to take percentage of players within that future behaviour is likely to be”, opened different types of data that existed Now, this may be a typical average existing processes, and is integratable a very unique approach to problems group is playing within their Mr Excell. “We then need to look at how in this scenario and which would but it isn’t something that I would and versatile.” that have existed for a very long time boundaries, these are the players we apply this to an online or business be pertinent when describing the necessarily buy. This is the danger both in the online and offline worlds.” on our watch list, and these are the environment and what behaviours characteristics of an individual of averages; if you treat your “So how does this work in practice? players for whom intervention is we’re interested in within that context. interacting in that environment. customers as if they’re all the Let’s take a casino environment. “If you can understand who a person necessary’. The analytics can feed Does our customer, for example, enjoy By identifying and applying these same you compromise the Typically, one of the first things a new is and what their normal patterns of directly into a CRM system and enable our service? Is the customer going to data points, we were able to discern individual’s experience.” customer wants to do is fund their play look like, you’re in a position to you to manage that intervention.” come back and continue to enjoy the characteristically masculine and account, which means a whole series use the anomaly spotting technology service? Are they going to recommend feminine traits which our subconscious “So, what is this technology, how of activities. The next thing they’re to identify an account takeover, hack “Of course, there’s another part of our service to other customers? brain could then use to assume does it work and how is it deployed? likely to do is stake, so they’ll go or attack, for example. Many fraud the project at the moment, which is Are they going to go onto social differences in people without needing Put simply, it’s an engine; a complex through a series of staking activities. companies will counter attacks by to identify which of those intervention media and blog negatively?” to, say, see their face. If we can piece of engineering that serves the Now, depending on whether or not building walls – they’ll try to guess techniques are most effective. The get the right amounts of the data single purpose to process data, they win or lose, they’ll then go on what all the different types of fraud other thing that’s really helpful is Typically, Mr Excell explained, a we want to track, and make them understand that data and deliver to other activities. If they win, or attacks are and build rules against you’re not just taking a sample size business will collect data around the come to life, we can describe and results back to your business. It’s a win a certain amount, they go on to them. What we do is to take a totally which is made up solely of self- financial information they need in order distinguish between lots of different piece of engineering that does its job. withdraw, with the chance that they’ll different approach. Instead of building excluders. As we’ve heard, one of the to discern the location of incoming and types of behaviours.” Known as ‘ARIC™’, it combines data return or come back. They may also go walls, we said ‘if you genuinely know things that people would like to do is outgoing funds, profit and loss figures science with a modern software onto another game to see if they also your customer, and you know the try to pre-empt customers going into and whether or not systems need to Mr Excell explained that, typically, engineering platform.” have a chance there. They might stake behaviour patterns of your customer, problem areas. So, again, we’re using be changed around those. To then when analysing data over time it too much and decide to self exclude. you will be able to understand whether different behavioural patterns to make understand those figures, the business is necessary to find a way of “ARIC stands for Adaptive, Real-time, What we can do is track a customer all it’s them or not and therefore be our predictions.” will need to understand ‘richer’ summarising and describing that. Individual, Change-identification. Each the way through these decision points able to flag a fraud attack before information about their customers, One of the more popular techniques of these terms describes something to understand, say, how many bets it happens.” “Yesterday we also heard that the such as how they were acquired, used is to look at averages. Mr Excell unique about our software. Adaptive they’ll place, what the balance is, what marketing expenditure, as far as the where they registered, which products used the example of two customers describes the fact that ARIC models their win ratio has been, all the way “As we mentioned earlier, we’re online industry was concerned, or services they preferred, how they who each deposit an average of £20 self-learn as new types of fraud occur, through to then be able to say how the also working with the Responsible equates to about 25% and 30% of arrived at that point, whether their per week over the course of four which means zero model degradation. customer is transacting through this Gambling Trust and took the data of revenue simply to get the punters in experience was a positive one, or weeks. Using averages they appeared Real-time refers to the fact that it can journey and what their next likely five operators – which is ten billion the first place. We often find, however, whether the depositing process was exactly the same, but upon closer spot anomalies the moment they decision is going to be.” pieces of data – to analyse. Even that whereas a lot is being done to convenient. “All of this information inspection it was evident that the two occur. This means there is no need to before we worked with this data, attract customers, very little is being gives us very rich information as to behavioural stories were very different: create new business rules to combat “One of our mobile customers came however, one of the things we thought done on retention. This is where we the behaviour of the customer and one customer was very regular, fraud, manage risk, identify suspicious to us with the challenge of predicting would be really fascinating to see was can employ a new technological the experience they have when depositing £20 every week, whereas transactions and flag them before they when a customer was going to whether it would be possible to build approach which enables us to follow interacting with the product.” the other was erratic, depositing an are actually processed. We don’t just withdraw from their wallet – and was a health check to separate out those these customers and start to predict increasing amount every day over the do this across the entire customer astonished with the results. They were players who are playing healthily. Let’s the moment they’re going to leave “So, that’s the type of data that we course of four days. “This could mean base but also on an individual profile able to use our data to decide that if a say we’re watching players, particularly you. From that moment in time, we’re need. How do we then go forward he’s experiencing problems or is a basis. We learn the nuances that customer was going to withdraw, they high value players like professional then able to determine what sort of and use it in an environment which fraudster, and is in fact the sort of describe one customer over another would give them the opportunity to try footballers. If you put up a blunt rule incentive we’re going to put in place facilitates predictions about what the customer that the operator needs and we know that no two customers another game and keep them for that says we’re going to permit people or what type of conversation we need customer is going to do? As people, to pay a lot more attention to.” are exactly the same, so we don’t slightly longer.” to only spend a certain amount of to have on an individual basis. In one we’re very good at spotting the want our analytics to be exactly the money, that isn’t necessarily going to particular instance, working with a behavioural characteristics of “I have a friend who wanted to play same. This enables us to accept more Ms King then returned to the stage do anything for the enjoyment of the large operator, we were able to see individuals, even strangers. We can baseball but didn’t have a bat. Amazon genuine customers and optimise to discuss further applications for player if they’re high net worth. But a massive uplift in monthly revenues use posture to discern their mood seemed like the right place to go so treatment and their experiences. the ARIC™ platform, and its success by following and understanding the and, more importantly, a 43% increase and we can tell if they’re lost based on he went online. One of the things Most importantly, we understand rates. She reminded the floor that pattern of play of that person as an in revenues from those extra players whether they seem to be wandering that really surprised him was the change. We understand the nuances Featurespace are able to follow a individual, we can start to see if we were able to retain. The gaming around. The challenge comes with recommendation that came back of when our customers start changing customer in real time, compare they’re chasing their winnings, start sector really is ahead of the curve in teaching these very human concepts when he tried to do so. I was their normal behaviour. These nuances individual patterns of behaviour, to see unhealthy behaviour, and send embracing a world-leading machine to a computer system.” intrigued, so I logged in myself and are the most important feature of compare that person against perhaps an alert or flag pertaining learning approach to build healthy found the baseball bat that Matt was understanding whether a change is themselves and compare that person to that individual. The system is now relationships with your players, comply “When researching for my PhD I was going to buy. Then I scrolled down to significant of a risk that you want to against the whole global population. built, it is deployed, it is working such with responsible gambling legislation given access to data relating to 180 the recommendations and was slightly interact with, or an opportunity that “Because we’re able to understand that we’re now able to identify a group and detect financial crime, and for that 43 people walking on a treadmill. The surprised to be recommended a ski you want to grow. The system is the individual digital fingerprint of of players and say ‘we know that x Featurespace would like to thank you.” 44 Closing Words

Micky Swindale Managing Director, KPMG Gibraltar “After a long two days full of information “Last but not least, our and fascinating discussion, I would just speakers and of course, like to finish off with one or two thank everyone here in attendance; yous”, Ms Swindale said in closing we hope you enjoyed KPMG’s fifth eSummit instalment it and we hope to see in Gibraltar. you all here again

“Ian and his team at Sound dinner – I am particularly grateful to next year.” Reinforcement Systems, who helped Phill Brear and Paul Astengo, who have us with the technical installations both been very hands-on.” here and at the Gala Dinner in St Michael’s Cave last night; we really “Our most sincere gratitude to our don’t know how we would do this sponsors Continent 8 Technologies, without you. Ashgrove Marketing, Isolas, Gibtelecom, W2 Global Data, who are based in the Isle of Man but Intelligent ID, World Trade Center who have also done some amazing Gibraltar, Hassans, and Ramparts. work for us here in Gibraltar at various Thank you also to our media partners venues, in various ways, faced with iGaming Business and Gambling various challenges over the years – Insider and a very special thank thank you.” you to the International Masters of Gaming Law.” “This year we have a huge thank you to make to the Government of “Last but not least, our speakers Gibraltar – they have supported the and of course, everyone here in summit since its inception in 2010, attendance; we hope you enjoyed with Ministers and the Regulator as it and we hope to see you all here speakers – but in 2015 they really went again next year.” the distance with last night’s gala

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