Kindly sponsored by

1 Introduction

Home to 28 of the industry’s leading has resulted in its becoming the Summit; a debate concerning the legal licensable brands as well as over jurisdiction of choice for many of the and regulatory issues facing the 3,000 specialist employees, industry’s most trusted brands. landbased and online sectors. Gibraltar has drawn upon its stable Following the regulator’s update from Concluding the day’s proceedings was political and economic climate, Gibraltar’s Gaming Commissioner, Phill a resolute and erudite address on the harmonious cultural environment, Brear, the morning’s session then dangers of the UK Point of and robust legal and regulatory continued with a technological focus Consumption licensing and taxation framework to remain one of the which saw Gibtelecom’s Jansen Reyes regime from Sir Peter Caruana KCMG world’s leading onshore gaming examine the jurisdiction’s QC, after which a distinguished panel, jurisdictions for the past 17 years. telecommunications framework and moderated by Peter Montegriffo of Continent 8’s Nick Nally benchmark Hassans, tackled the outlook for By placing a continued emphasis upon Gibraltar’s infrastructural offering. A gaming in a discussion which ranged accepting only the most committed, truly international delegation of DLA from technological developments and most reputable and most consumer Piper representatives from London, market consolidation, to social gaming conscious operators and suppliers, Madrid, Milan, Munich and the and regulatory enforcement. Gibraltar now hosts a community of Netherlands then introduced the first eGaming concerns which today panel session of the day with a This report seeks to provide an insight represents almost 60 percent of the discussion of the evolution of remote into the outcome and spirit of the day’s UK’s remote gambling presence in gambling across their respective events with a view to sustaining the Europe, and which is defined by its jurisdictions. impetus generated by representatives sense of collective obligation, and of an industry undergoing a cooperative approach to developing Opening the afternoon proceedings remarkable process of maturation. the global sector. was an expert panel of payments KPMG would like to take this specialists who together discussed the opportunity to once again thank the On 3rd April 2014, a record 230 fascinating, albeit still contentious, Summit’s sponsors, speakers and delegates from the public, private, potential of Bitcoins and their attendees for contributing to what was licensed and ancillary sectors boarded application within the industry, under the most popular installment in the Ocean Village’s newly opened Sunborn moderator Archie Watt. Matt Gorman series to date. We look forward to Gibraltar to embark upon a day’s of Standard Bank then took over with seeing you all next year. discussion and debate concerning the an examination of Africa’s role in present and future status of the sector. shaping the future of private and KPMG employs a number of eGaming commercial banking. A highlight of the industry specialists both in Gibraltar The Hon. Albert Isola, the Gibraltar day saw Peter Howitt of the Gibraltar and globally and is committed to Government’s Minister for Financial Betting and Gaming Association and cutting through the complexity of this Services and Gaming, kindly opened Paul Leyland, who kindly offered to constantly evolving industry. proceedings with an address which represent the Association of British reaffirmed Gibraltar’s commitment to a Bookmakers as a last minute stand-in, private/public sector partnership which embark upon a format new to the

A word from the Sponsor

A harmonious, robust and multicultural environment, Gibraltar has established itself as a pivotal eGaming hub which is home to some of the most reputable global brands in eGaming and one of ten hosting centres in Continent 8’s global network.

The Continent 8 Gibraltar Data Centre is one of the most secure and well Continent 8 is proud to have been here equipped in the jurisdiction and is from the start. We hope you enjoy the uniquely housed 500m deep within the report and to see you again next year Rock of Gibraltar itself at the ex-United at the KPMG eGaming Summit Kingdom Ministry of Defence facility. Gibraltar, 2015. This year’s Summit was characterised by industry cooperation, resolve, and a Richard Ebbutt growing sense of maturity throughout. Continent 8 Technologies 2 Conference Opening

The Hon. Albert Isola Minister Gibraltar Government

The Hon Albert Isola

A third generation member of the Where are we today? doesn’t want them to be, but also family-owned law firm Isolas, which undermines the reputable businesses has been doing business in Gibraltar “When you look back 20 years at the that are seeking to ply their trade in a since 1892, the. Hon. Albert Isola telephone betting industry, and you regulated and orderly fashion, all whilst was admitted to the Bar in England see where Gibraltar is today, with 28 losing revenue for the UK.” and Gibraltar in 1985 and was licensees and over 3,000 employees appointed as the Gibraltar within the sector, it is easy to see how Mr Isola explained that the Government’s Minister for Finance far we’ve come,” Mr Isola reminded Government of Gibraltar has had and Gaming in July 2013. Since the Summit. “It is also interesting to numerous exchanges with HM then, Mr Isola has overseen the note that since December 2011 when Treasury and HM Revenue and continued expansion of Gibraltar’s we held the last general election, and I Customs and had provided a number eGaming community to now don’t use that date for political of industry reports, one of which accommodate over 3,000 reasons, the number of employees KPMG was a key author, to explain employees as well as 28 licensees, within the sector has risen by a that the approach to taxation the UK and has been instrumental in thousand. We have more licensees has taken is the wrong one. “Of the securing the jurisdiction’s reputation and people within the community than regulatory changes, we are equally as a global centre for eGaming. ever before, and I think it’s no concerned,” Mr Isola added. “In coincidence, therefore, that today’s Gibraltar, we seek to regulate in a “When I look around the room I see Summit is the largest of its kind that practical and pragmatic manner, and what our gaming community here in KPMG has ever hosted.” we require a presence here. But the Gibraltar is all about”, he enthused. manner in which the UK’s proposals “Every aspect we talk about when we Taxation and regulation are to be implemented will, we discuss online gaming is represented believe, drive businesses away from here today, and I would like to thank “But there are challenges, as well as the country and from Europe. That’s you all not just for your attendance, but opportunities,” Mr Isola continued with not something that we hope for or for your commitment to Gibraltar and reference to the UK’s Point of want, but it is certainly what we to expanding its gaming community.” Consumption Tax and its regulatory expect to be the unintended Mr Isola then expressed his desire to implications. “Our government’s view consequence of the proposed thank at the outset the Gibraltar has been that these changes are changes.” Betting and Gaming Association fundamentally flawed. Of course, we (GBGA), for its own work in sustaining respect the right of the UK What is our position for the future? Gibraltar’s global reputation as a centre Government to set its own tax rates; for eGaming; “It really is a partnership, every sovereign government has that Mr Isola observed that it is no secret something that I am extremely keen to ability. But we continue to make that the GBGA has long been continue to develop and I would like to representations at the highest levels to considering the potential for a judicial thank them for their continued voice our concerns that the manner in review of the Gambling (Licensing and commitment, particularly over this which that tax has been set will drive Advertising) Bill subject to it gaining past, difficult year.” business into the grey market. We royal assent. He explained that the believe that it not only puts consumers Government of Gibraltar will not take 3 where the UK Government says it legal action against the British “It really is a partnership, something that I am extremely keen to continue to develop and I would like to thank them for their continued commitment, particularly over this past, difficult year.”

Government, but that it would certainly “We will continue to screen operators European Union and the US. Since intervene if proceedings were to to ensure that the ones we have here, then, we’ve expanded that to 27 TIEAs: begin, to ensure that the interests of like you, are of the best quality, and are we have the multi-lateral convention the Gibraltar people and its businesses committed and careful not just in their which gives us an OECD standard for are represented and protected. “We operations, but in caring for their some 70 jurisdictions, we have FATCA would not initiate those actions,” Mr reputation to the same extent and with the UK, and we are shortly to Isola reiterated. “But were those degree as we do. We believe that enter into FATCA with the US. We actions to commence, we would when you say you’re in Gibraltar, you believe in the fight against tax evasion, certainly seek to ensure that our stall really are in Gibraltar. Our we believe in the fight against money is properly represented and laid out. It requirements for a presence span a laundering, and we’re totally is part of our duty not just to you, but range of reasons, and I believe we got committed to it. I believe that it is our to the rest of the community.” the formula right, first time, 20 years responsibility to you to ensure that we ago. Regulation, pragmatic and real, is take all the steps that we can What are the opportunities? a difficult balance to strike, but as far reasonably take to protect our as I’m concerned the best online reputation as a jurisdiction. Partnership “This sector, as we all know, is one regulator in the world is still our is how I see the way forward, and our that is very fast moving,” Mr Isola Gambling Commissioner, Phill Brear.” government is entirely committed to continued. “The speed and pace of the gaming community. Our doors are your growth and the technologies you Consumer Protection always open.” are running with is quite extraordinary. Obviously, there are opportunities in “Finally, consumer protection,” Mr the US, and many of you are in contact Isola added. “In Gibraltar we don’t just with US based concerns to provide pay lip-service to this term, we them with the expertise you enjoy and consider it to be an integral part of they require. I also see the new what gaming is all about. We believe regime in the UK as an opportunity for that it is absolutely critical that Gibraltar. I believe that the regulatory everything that can be done to protect regime that will be introduced is so far the consumer is done. All of these distantly removed from what we’re combine to give us, the Gibraltar doing here, that we’ll become an even Government, our regulators, licensees more attractive option.” and non-licensees, the reputation that we deserve and will continue to work What is our recipe? to protect.”

“Every person here knows full well He continued: “Our culture of what the Gibraltar Government’s compliance is similarly important, recipe for gaming has been for the because that’s how our reputation as a past 20 years, and I can tell you all jurisdiction is judged. Interestingly, in now, categorically, that it’s not 2011 there were 17 tax and information changing,” Mr Isola noted in closing. exchange agreements within the 4 Phill Brear Gambling Commissioner Regulator’s Update Gibraltar Government

Phill Brear was appointed as Head of management and staff numbers now provide Gibraltar standards to all those Gambling Regulation for Gibraltar in exceed 3,000 individuals. The rumours we come in to contact with, and I’m October 2007 following two years as and scare stories surrounding pretty sure my licensing team of Director of Operations with the British redundancies and downsizing are no Lorraine, Caroline and Darren look Gambling Commission. In July 2011, more than that. Industry insiders know forward to the day when the industry is he was appointed as Gibraltar’s that every year the number of staff stable and predictable, but I fear that’s Gambling Commissioner in addition across every industry and every operator still a long way off.” to his existing responsibilities. Having ebbs and flows as companies change played a leading part in the roll-out of their support and management structure Consumer protection and complaints the UK Gambling Act and gained to meet the demands of an ever experience across the breadth of the changing customer dynamic. We have, “This is an area in which, I believe, we in British gambling industry, the switch perhaps, become too used to the flow the industry have excelled again this to Gibraltar, ‘home to the world’s appearing to be constantly upwards, but year,” Mr Brear affirmed. “I’ll not dwell on leading online gambling operators’, let’s not forget 2006 when UIGEA took the fact that whilst one jurisdiction has brought a new set of challenges, with out a quarter of jobs in our industry, or seen repeated corporate failures by Gibraltar’s adoption of its new 2002 when another quarter were lost – pretty thinly financed and managed Gambling Act. Since his appointment ironically to a UK gambling tax change. licensees, who simply would not have Phill has steered through a series of These numbers were quickly recovered.” been given that opportunity under a changes to the regulatory regime properly balanced licensing regime, whilst working closely with operators Licensees and applications another has seen another licensee and their representatives on a wide subject to intervention by their local law range of operational and Mr Brear went on to explain that the enforcement agencies. Regrettably, organisational issues. Phill is also number of licensees in Gibraltar has these are the events which define public responsible for liaising with bodies as more than doubled since 2008, and and political opinion about the industry. challenging as US regulators and the trebled since 2005. Similarly, These are the events that register in the European Commission. employment has also doubled in six trade press, the wider press, are referred years. He emphasised, “Whilst we must to by politicians, and become the Mr Brear introduced his presentation as not underestimate the impact of underpinning of legislation.” providing an overview of developments redundancy on the individual and family, within his department over the past 12 we must not get over-heated over what “But when you read that, in one case, months, coupled with an examination of has so far been a very modest winning bets were not being paid in the impact of anti-money laundering adjustment to changes in September, the blog sites were lighting measures, with particular reference to circumstances.” up in October, and the regulator was the 4th European Anti-money Laundering made aware in November, before Directive. “This time last year, I said I expected accepting assurances that the issue was there to be more than 30 licensees by ‘technical and marketing’ and that things “On the domestic front,” he advised, “I this time this year,” Mr Brear reminded would hopefully get better by the am very pleased to say that interest in the Summit, “and on 31st March 2014 following February, you realise how much Gibraltar licences continues apace, there were. By 1st April, however, two truth is in the saying ‘you make your own despite events elsewhere. In the last 12 takeovers were completed which took bad luck’. The company went under, of months, six new licences have been the overall number of licensees back to course. All the cases we’ve seen have granted to now include Lottoland, Adobo 28. We still have a handful of applications strong elements of foreseeability about Games, WMS, Scientific Games, under development, so by this time next them. Not that they were predictable, Realistic Games and Net Entertainment year I expect there will again be over 30 but there were elements in the business in our portfolio. One existing licence was licensees. We may soon run out of the model, the licensing model, or the also reissued following a change of quality B2B licence holders, however, regulatory arrangements, that cried out ownership. As with last year, virtually just as we may soon run out of the that they were not waving but drowning, every new licence was B2B (business to quality B2Cs.” whilst the regulator was busy doing business), but given that virtually every other things. My fear is that, even when B2C (business to customer) operator that Expressing thanks to his staff, he went such crises can be firmly pinned on the can be here is already here, this is likely on: “All of our licensees create a varying regulator’s chest, no one does so to be the growth area for some time to amount of work for us each year, and because hanging the industry out to dry come.” that’s something that has more than is so much easier.” doubled over the last six years as He continued: “All Gibraltar licence regulation has become more formalised, Security holders continue to demonstrate a real the customer base has grown, and the commitment to the jurisdiction. As range and complexity of business Mr Brear continued in explaining that 5 you’ve heard from the Minister, partners has escalated. We continue to during 2014 his department had seen a Phill Brear Gambling Commissioner Gibraltar Government short run of reported ‘dodgy bets’ which papers looking ‘hollow and inadequately Gibraltar is both well positioned and well had, at the time of his presentation, only informed’. “To the cynic, the Expert informed ahead of its results. Mr Brear recently abated. Allegations surrounded Group leading the Action Plan was a added that it was with great pleasure issues of scores, scoring and outcomes. device for moving as little as possible as that he could confirm the industry had Some, he explained, had all the hallmarks short a distance as possible, and it’s been invited to join the relevant working of contrivances – new accounts, beginning to look as if they’ll have their group. customers with no or a dubious track way. Gibraltar is continuing to make record, high value or multiple moderate representations,” he confirmed. “But as The Gambling (Licensing and value bets with no clear provenance. we are locked out of the debate, except Advertising) Bill Others, however, showed signs of being for seeing the minutes, it looks like the what Mr Brear described as ‘tipster led’ output of two years’ work will be a series Turning to the UK licensing and tax or ‘sleepy trader’ events, where savvy of recommendations ranging from the proposals, he posed the question: “How customers with advanced technology anodyne to the misunderstood.” much more wrong could John Penrose were getting ahead of the traders. [former Minister for Gambling at the “These cases are incredibly difficult to The 4th European Money Laundering Department of Culture Media and Sport judge,” he remarked, “given the almost Directive 2010-2012] have been when he informed invisibility of some of the markets and the UK Parliament in 2011 that he had a events that are now being offered, but “Much has already been said about this bill of four ‘short and simple clauses’ we will defend the rights of savvy document because it explicitly includes, which he hoped to tag on to somebody punters to be paid, even if the trader as a designated non-financial business else’s primary legislation and coat-tail the loses his bonus, as vigorously as we will which must adopt risk based protections, bill through the system?” Mr Brear resist claims by those who seek to remote gambling in its entirety – that is remarked. “It is no surprise that there defraud operators.” casino activities and betting. The were no takers and that this eventually European Parliament has recently given became a stand-alone bill. I would love to “On that front,” he added, “there has the draft quite a rough passage, applying have been a fly on the wall when they been a blip this year of unexplained bugs more heat than light to its contents. My found out that royal assent had been or interferences in some types of slot reading of it and the Parliament’s early delayed. But what swings one way may, games. There’s no doubt that as observations is that the new directive of course, suddenly swing back. We technology becomes ever more offers to simplify some of the currently have, since March 2010 when this sophisticated and commonplace, those overly elaborate language and double cunning plan was first revealed, gently that seek to undermine game security layering in the 3rd Directive. The and diplomatically informed the UK are trying to do so, and in some cases politicians, I believe, will struggle to open decision makers that this bill is wrong, they are succeeding. To date, they have its jaws too wide because of the mainly wrong and wrong again. It is bad for been careless and left small but clumsy general applications of its provisions. consumers, it is bad for the UK industry footprints that have allowed the event to What is sauce for the gambling goose is and it is bad for the UK Exchequer. It may be unpicked, but this is an uneven battle, sauce for the financial services gander, also be good or bad for Gibraltar, but as as many thousands of them try to pick and though the financial services things look it’s going to be neutral.” off the few dozen of you. So let it not be industry’s reputation may be at an all a Gibraltar operator holding the parcel time low, the European Commission isn’t He continued: “The bill substantially when the hackers get bored of breaching going to choke off that source of weakens UK consumer protection by NATO and UN systems and turn their economic activity through the AMLD. multiplying the supply chain with a range heads and hands to your games. That Some states may try to use the new of weak suppliers. Some existing UK threat is out there and getting stronger directive to attack the remote gambling companies will go to the wall, some will and stronger, and your defence systems sector,” he continued, “but they could be taken over, or become shadows of must not stand still.” have done that anyway with the 3rd their current selves. UK companies will Directive.” make and report lower profits to the The European Union Exchequer. Some will no longer be UK Local focus companies and report nothing at all.” Mr Brear observed that there had been Turning to events which preceded the little progress within the EU over the past Moving on to local developments, Mr bill, he stated: “It is very well 12 months. Though the European Brear alerted the floor to the recent documented that the only remotely Commission had made developments government launch of a series of troublesome remote gambling policy surrounding those that may be exposed industry and public sector working issue that the DCMS and the Gambling to infringement proceedings, the Action groups to examine the jurisdiction’s Commission were faced with in 2008 Plan project continues to move at what readiness for the 4th Directive. He and 2009, when the ink wasn’t even dry he described as ‘glacial place’. The UK explained that this government on the Gambling Act, was the challenge had denied Gibraltar a place at the programme will work slightly ahead of and suspension of the defective white meetings, leaving the emerging advisory the Directive, and should mean that listing process. There were no regulatory 6 problems with Gibraltar or Malta, or even different language, not subject to EU don’t believe it did, or it does.” Latvia, Lithuania or Bulgaria, who controls, usually with no local regulator at “Moreover, EU law requires that the fix recently have been thrown into the pot all, and demonstrably able to pull the it puts in place for the problem it has to add colour to officials’ ramblings and wool over their regulator’s eyes and the defined must be proportionate and it has rumblings. All the significant UK draw-bridge up.” to work. The UK must now know that in gambling regulatory issues in the last months to come applicants for licences five years have come from the White “That,” he said, “is the problem the will creep up out of the woodwork. List, if not from the UK itself. This is not Gambling Commission knew they had to Companies and individuals that have sour grapes, just look at where these fix back in 2008/09. That they produced, avoided the mainstream and even not so events came from and why they came in a joint study between 2009/10, a mainstream licensing process, who have about.” confection of problems that became the bought licensing in places where the bar consultation document in 2010 does is low, will apply under Section 69 of the Mr Brear explained that the Department great disservice to the UK. If the UK act for a licence to target UK of Culture, Media and Sport and the problems and deficiencies set out customers. Section 69 and 70 contain Gambling Commission had prepared laboriously in the 2010 document many fine words, but the upshot of “almost coherent” white listing criteria in existed, why had they not been raised those sections is that you fill the form, 2006: “I say ‘almost’ because it was with us? 60-80% of the UK remote you pay the fee, and the Gambling clear to me that someone was trying to gambling market is in Gibraltar. Why had Commission has to give you a licence add ambiguity and wriggle-room to the they not been raised with the white list unless it can show that you are not document”, he added. “The criteria regulators, whose arrangements they competent, not fit and proper, or cannot were, however, misapplied, ” he must monitor and be advised if any afford to be an operator, as set out in the explained, “for no ‘brass-plate’ significant changes are made?” Statement of Licensing Principles.” jurisdiction can meet key parts of the criteria.” “It remains the case that the Gambling “The government that introduced the Licence objectives of keeping crime out Gambling Act used the phrase: ‘in the Mr Brear then referred to sections of the of gambling, ensuring gambling is a UK, gambling licensing will stop white listing criteria document, which transparent affair, and protecting the becoming a privilege and start becoming state that: ‘It is vital that the [UK] young and vulnerable have been let a right.’ Now, forgive me for naming Secretary of State may be assured that down a disproportionate number of names, but Canbet, Bodugi, and GloBet the jurisdiction has the capacity, technical times by white list licensees, but not were all operating under UK licences six and regulatory ability, and political here. If it’s not broke, you shouldn’t try to months ago. They were all giving off impetus necessary to enforce its fix it.” distress signals, and all went under not regulation.’ and ‘[the white list paying customer balances. All, I would jurisdiction] must have the facilities and Market share argue, had structural flaws that the resources in place to ensure compliance Gambling Commission should have been and enforcement with those values of Moving towards a conclusion, Mr Brear alive to, but it wasn’t. It licensed them, the regulatory regime in operation.’ And referenced a recently published analysis then looked the other way at its other he compared this to powers given to the conducted by Gambling Data, an advisor business. So, losing one may be Gambling Commission ‘enabling it to to the Gambling Commission, on the size unlucky, losing two appears careless, ensure compliance, and to investigate of principal operators’ UK market share, losing three in six months really does and prosecute offences, including “although you have to take their work beg some questions about the process. powers to investigate and access with a pinch of salt; their authors are not I hope I don’t live to regret these words, licensed and unlicensed premises used traditionally supporters of Gibraltar and but could I stand here if I lost one, two or in conjunction with gambling (such as a they have misplaced one Alderney three licensees not paying customer gambling operator’s head office) and licensee as being UK licensed,” he balances?” powers to access key gambling added. He reported that their findings equipment.’ suggest that up to 90 percent of UK “In terms of the UK proposals, we are bingo is licensed in Gibraltar, as is up to now in year two of a five year cycle, but He pointed out that if the Secretary of 70 percent of casino, over 60 per cent of we will have no idea how years three, State believed “the Gambling betting, but only 25 percent of poker. four and five will play out until year two is Commission needed powers to access “Now given that betting has got 3 million completed. With royal assent delayed, licensed and unlicensed premises and active and not so active punters, poker and the legal challenge looking more key equipment used in conjunction with has 20,000 players, with bingo towards likely than not, we are very much in the gambling, then I’m pretty sure the white 600,000 players, and casino more than thick of it, and it looks to be that way for listed regulators needed very similar that; if somebody is online gambling in a very long time.” power as well. Without them, they the UK, they are 7 to 10 times more likely cannot relate to the company, let alone to be gambling with a Gibraltar operator Mr Brear concluded by thanking the seek to exercise the necessary controls. than anybody else. The point of all this is audience for their attention. Let’s not forget; regulators’ powers stop that in EU law, and in very simple terms, at the border. The typical white list the UK has to have a legitimate reason to operator is located hundreds, if not change its legislation to make it more thousands, of miles away from the difficult and expensive for a licensed and 7 licensing jurisdiction, often speaking a regulated industry to operate there. I Gibraltar - a global communications hub Jansen Reyes Associate Director, Technology Development - Gibtelecom

Jansen started his career in communications as a graduate engineer working for Nortel Networks and later setting up his own consultancy business in the UK. On returning to Gibraltar in April 2005, Jansen joined Gibtelecom as an Assistant Team Leader in the Internet Department, progressing his way to Next Generation Network Manager in 2011. In 2013, as part of the Company’s succession planning programme, Jansen was promoted to Associate Director, Technology Development and in May 2014 was appointed Director of Technology.

Jansen is the only Gibraltarian to hold a Cisco CCIE accreditation, one of the most prestigious networking qualifications in the industry which he attained in 2009. In 2002 he was awarded a First Class Honours Degree in Computer Systems and Networks and Distributed Systems from the University of Plymouth and in 2011 an MA in Enterprise Management from the University of Durham.

An energetic and enthusiastic engineering complexity - which has other partner cables landing in the speaker, Mr Reyes began his now been supplanted by a third consortium’s landing stations and it interactive presentation by dimension; international politics. means that we are one service explaining that Gibraltar’s offering “Unfortunately,” he observed, “when provider hop away from six out of the to Gibraltarian e-businesses is you add that third axis the model seven continents.” underpinned by customer choice in becomes extremely sensitive. When a number of service providers, you pull on that third dimension it Returning to Europe, Mr Reyes notified including two for international skews absolutely everything, making it the Summit of Gibtelecom’s recent transport (Gibtelecom and very hard to find the right balance.” finalization of a pan-European, self- Sapphire), three for internet optimising and self-healing transport provision (Gibtelecom, Sapphire and “But we did find that right balance, network spanning from Gibraltar to Continent 8 Technologies), and four and we did so when Gibtelecom London via Madrid, Marseilles, for data centre services (Gibtelecom, invested in a 15,000km cable, which Monaco and Paris, thus completing Sapphire, Continent 8 and Cube). spans three continents and features 13 what he described as “a resilient and “Indeed,” he enthused, “I can landing stations, one of which lands in robust mesh”. “Now, because we own confidently say that you are no Gibraltar. This not only gives us the technology and the infrastructure longer bound to the incumbent.” hundreds of gigabytes worth of at each of these points of presence,” capacity in and out of Gibraltar, but it he continued, “not only does it mean Finding the right balance also gives us 35 milliseconds of round that we can offer break-in and break- trip time from Gibraltar to London and out telecommunications services, but Starting with what he described as the back, and roughly 130 milliseconds to we also have a platform for speedy “most difficult service to get right in Mumbai and back. For the more internet access.” Mr Reyes explained Gibraltar”, Mr Reyes then quickly technically inclined amongst you, that Gibraltar has been developing its moved on to the ‘notoriously hard’ when you take the sum of those two internet peering footprint over the past topic of international transport. He parts you quickly come to the decade such that its service providers explained that the reasons for its realisation that that is the shortest now pair with some of the largest in notoriety can be ascribed to the typical possible route from London to Mumbai Spain, France, the Netherlands, and ‘two-dimensional’ model used within – it’s fabulous stuff. Supplement that every single provider with a UK ISP. the service provider industry - cost vs. with the fact that we have a number of This, he explained, means that 8 Jansen Reyes

customers throughout Europe are just amounts of data. Such volumetric that we don’t bring down half the one service provider ‘hop’ away from a attacks are often conducted as a internet when we initiate a response,” Gibraltar based service, which creates means of exacting revenge, of he added. As an aside, Mr Reyes also an augmented customer experience. extorting an operator or, albeit rarely, noted that respondents, or those who as a form of ideological ‘hacktivism’. In attempt to negotiate with Data Centres 2010, Gibraltar was the host target of cybercriminals, are the most likely the largest DDoS attack known targets of future attacks: “This is not “Over the last decade, Gibraltar has anywhere in the world at that time, advice, but from our experience these seen the build of over 2,000m2 of although it was successfully mitigated criminals will simply ask for double, rack-power cooling facilities, or data by specialist technologies within ten triple, quadruple the original ransom, centre space,” Mr Reyes observed. minutes. Since then, attacks have and they will not stop.” “From Gibtelecom’s 700m2 hosting grown to a maximum, in 2011, of facility, rated tier 3, which is located 50 105.11Gbps, which is equivalent to How real is this threat? metres above sea level, to Continent more than the inbound bandwidth to 8’s absolutely unique, ex-NATO facility the whole of Gibraltar. The jurisdiction “Regrettably for all of us, I am not embedded 500 metres into the rock, was also the host of one of the world’s exaggerating the scale of this threat,” to Sapphire’s aptly located facility in most prolonged DDoS attacks, which Mr Reyes reiterated to the Summit in the hub of the e-commerce district, I lasted for 9 months and was also closing. “In just the last 24 hours there can truly say that we have the capacity successfully mitigated by Gibtelecom’s have been 180Gbps of cumulative to support any services we may need dedicated technologies. DDoS attacks around the world, two of today, or in the near future. which are in Gibraltar and are being Unfortunately for all of us here, Mitigating and ‘scrubbing’ successfully mitigated. But the however, great bandwidth, fantastic problem is, these attacks are facilities and hosting are not the be all Moving on to cyber-security, Mr Reyes becoming too easy. You don’t need to and end all, because according to explained that the most common be an expert, it can be cloud based, some extensive research carried out means of mitigating a DDoS attack is you can go and buy it at a rate of just by industry analysts, the combined known as ‘scrubbing’, a method by $5 for 5Gbps. Realistically, therefore, sector of eGaming commerce is the which ‘scrubbing farms’ attract both you could bring the whole of Gibraltar number one target for cyber malicious and legitimate data packets, down for just $100; it would crawl vandalism, which manifests itself and filter out those which are used as without the proper systems and predominantly in a DDoS, or part of an attack. He noted that technologies in place from your choice distributed denial of service, attack.” Gibtelecom currently enjoys 14 of data service providers.” ‘scrubbing farm’ clusters, which are He explained that a DDoS attack is, in situated throughout the Americas, Asia simple terms, one which is carried out and Europe, including one in Gibraltar, by multiple computers with the aim of Madrid, Marseilles, Paris, London and overwhelming the computing Bude in Cornwall. “And the reason for resources of an operator to the point this is that we need to be as close to of network saturation with vast the source of the attack as possible so

9 Nick Nally Chief Development Officer Continent 8 Technologies

Nick Nally has 25 years’ experience in many sectors of the IT & telecommunication industry, encompassing senior management, consultancy, sales, carrier relations, engineering, and business development. Nick has been with Continent 8 for 7 years now and Nick Nally looks after business development and strategy as it relates to the rollout of offerings to service the eGaming market. Previously, Nick was an advisor and consultant to the Department of Communications within the Irish Government.

Mr Nally introduced his presentation The numbers are based upon total Power Charge Ratios as providing a global jurisdictional overall charges, they are not rates comparison, using Gibraltar as a charged by the electrical utility Mr Nally then drew the attention of the base standard against which to companies and they incorporate Summit to a bar chart depicting power benchmark the staple offerings of concepts such as PUE, or power usage charge ratios in selected jurisdictions. providers in power, effectiveness,” Mr Nally observed. Again, furnishing Gibraltar with a base telecommunications, and hosting “This measures how efficient your rate of 1, the Isle of Man came in a bundles. He explained that data centre is. In an ideal scenario, 0.68, Alderney at 0.78, Malta at 1.41, Continent 8 now runs 10 different you’re trying to get down to one Dublin at 0.56, and London at 0.71. data centres around the world, first because we’re measuring the total “The point to make here is I’m not in Montreal in the late 1990s and amount of power in the data centre surprised by Malta and Gibraltar now in such jurisdictions as London, over the total amount used for your because they’re typically hotter Paris, Dublin, Isle of Man, Gibraltar, hosting operation; service, storage and locations, so it takes more energy to Guernsey, Malta, Singapore and, data communication equipment. If cool those data centres,” Mr Nally following a recent transactional your PUE is 2, for example, that means noted. “In the case of the Isle of Man, service waiver, New Jersey. half of your energy is going to your Dublin and Gibraltar, we own all of our client’s IT infrastructure, and the rest is facilities so we can invest in and Power going to your infrastructure i.e. cooling, improve our own infrastructure BMS, overheads, etc.” internally, which does affect those “What I call these ‘staples of our numbers. In Gibraltar, for example, we industry’ - power and Mr Nally referenced studies conducted have invested millions to treble the telecommunications - are effectively by the Uptime Institute to explain that capacity of the data centre from a the basis upon which we form and in 2007 the average data centre PUE 750kw to a 2.2 megawatt facility. In charge for the services we provide to was 2.5, which is highly inefficient. In the typically cooler climates such as our client base in different locations,” 2011, that number had gone down to the Isle of Man, Dublin and London, Mr Nally began. He explained that his 1.89, lowering to 1.65 by 2013: “which we use advanced technologies such as presentation would compare Gibraltar shows that our technologies are adiabatic wheels to take advantage of to five other jurisdictions composed of becoming more efficient with every the cooler air.” standard gaming jurisdictions, such as passing year,” he added. “Although the Isle of Man and Alderney, and ‘tier there is one caveat to those numbers Telecoms 1’ locations such as Dublin and in that 6% of respondents claimed that London. Rather than provide specific their PUE was less than one, which is Again taking Gibraltar as a base value, figures, however, for comparative statistically impossible.” Mr Nally explained that telecoms purposes Mr Nally elected to use charges comparisons are calculated Gibraltar as a base value of 1, with the using a base value of a 10Mbps supply. remaining jurisdictions providing a “I should state at this point, that relative evaluation. Continent 8 takes connectivity from a number of different carriers so that we

10 “Gibraltar is taking steps to improve its offering, no doubt to further its reputation as a global leader well into the future.”

have a redundant and resilient supply,” value, Mr Nally then demonstrated that To close, Mr Nally touched briefly upon Mr Nally added. “This enables us to Malta’s offering came in at 0.27, with the topic of availability of skills and guarantee our services on a the Isle of Man, Alderney, Dublin and embracing technological change, continuous basis, but these dual London scoring 0.15, 0.22, 0.10 and noting that this was an aspect of the networks obviously increase the cost. 0.12, respectively. “This again industry that will always represent a We also rely heavily on carriers like demonstrates that there is great challenge for the industry’s regulators. Gibtelecom so carrier infrastructure is potential for Gibraltar to further Mr Nally then paraphrased a comment very important to us.” improve upon its bundled offering,” he made by Richard Scheutz, added. Commissioner of the California Again drawing the attention of the Gaming Control Board, who stated summit to a bar chart, and using Observations that he’d rather have fewer lawyers Gibraltar’s offering as a base value, and more engineers working within his Mr Nally provided a jurisdictional Moving on to continuity of supply, Mr commission. “That statement is very comparison which showed the Isle of Nally then alluded to the importance of pertinent,” Mr Nally added; “you need Man’s offering at 0.07, Alderney’s at reliability in the provision of power to to have the expertise in place to keep 0.13, Malta’s at 0.16, Dublin’s at 0.03 businesses. “Our customers don’t feel abreast of technological changes, and and London at 0.02. “These are the the loss of incidents such as power that is something that many regulators costs that we receive and deliver to outages, but we do rely heavily upon struggle with.” our customers,” Mr Nally observed. incumbent suppliers to allow us to “Really they show that telecoms is maintain a standard of service,” he “Finally, intervention,” Mr Nally where the biggest potential to improve explained. Concerning the provision of concluded. “Thirteen years ago, Ireland Gibraltar’s offering to e-business lies. telecoms services, Mr Nally was faced with a massive problem. As with all jurisdictions, telecoms will commended the quality of Gibraltar’s Microsoft had approached the Irish have a dramatic impact on future infrastructure in allowing Continent 8 Government and stated that they had offerings in all sectors.” to operate without a single set-back to leave the jurisdiction because the since its establishment in Gibraltar in telecoms infrastructure was so poor, Bundled offerings 2012. DDoS, or distributed denial of and because it was so expensive. service attacks, however, remain a The Irish Government immediately To provide an example of a bundled significant problem for incumbent invested in the infrastructure and sold offering, Mr Nally explained that a operators. Mr Nally explained that it back into the marketplace. I was the typical customer may approach Continent 8 owns and operates its consultant for the government at the Continent 8 and put its two basic own protective services for the time and spent a number of years offerings – power and bandwidth – into eGaming sector, and emphasised the putting everything in place. That is a a bundled offering of 1 rack, 5kW of need for greater vigilance to guard choice, and I know that Gibraltar is power, and 10 Mbps of bandwidth. At against malicious activities. taking steps to improve its offering, this point no other services, such as no doubt to further its reputation as a DDoS protection or cloud storage, are global leader well into the future.” included. Taking Gibraltar as a base

11 Panellists Albert Agustinoy – DLA Piper, Madrid Guilio Coraggio – DLA Piper, Milan Patrick Schwarzbart – DLA Piper, Munich Ash Averill – DLA Piper, London Panel Session 1 Niels Boef – DLA Piper, Netherlands t The Evolution of Remote Gambling Across Europe

Moderated by: Stephen Ketteley - DLA Piper, London

“Going back to the major Patrick Schwarzbart - “In Germany we of the casino black market and work to jurisdictions we discussed 12 have seen some progress in the last the advantage of the regulated months ago; I think it’s fair to say 12 months because we have at least, market.” that Germany was a mass of in part, a regulated market. Last year, confusion,” Mr Ketteley began. “As there were already licences in place Ash Averill - “For the UK, there are far as the UK was concerned, we with respect to Schleswig Holstein, a two main areas of concern. The first is were simply waiting to see what state which we must remember to an increase in focus on the gaming was going to happen. In Spain there distinguish from the rest of the machines, so mainly the B2 machines was discussion about whether or German market. Over the last 12 or fixed odd betting terminals (FOBTs). not slots and exchanges were going months we’ve found that several These have high stakes and pay-out to arrive, and whether the licensing operators licensed in Schleswig limits and have already undergone a window was going to open again. Holstein have taken up their regulated review, albeit to remain at the same Italy had then fairly recently opened operations. We haven’t seen any levels. The problem surrounding this is up for slots, which was quite a major changes to regulation, but the accessibility. Bookmakers are currently move for the market and likely to Interstate Treaty on Gambling provides allowed four B2 machines in each of have a major impact on the that a remote offering is possible if so their high-street shops, and there has jurisdiction, and in Holland there licensed and we have seen that the been a suggestion that these are were some movements from the lottery operators in each of the sixteen amounting to most of the income for government to allow operators to federal states have embraced this these operators. As a result, there continue trading in the market opportunity. They have ticket have been suggestions that this has pending the emergence of a purchasing websites in place and they led to a proliferation of betting shops regulatory regime. Now, 12 months are also strongly advertising. Horse on the high street, which is a land- on, things have fundamentally race betting operators are already based topic but, as tends to be the changed. But to repeat a question regulated and provide their offerings case, remote gambling is being tarred posed to each of our panelists last remotely. With respect to sports with the same brush.” year; what is the societal perception betting, however, the mess is getting of online gambling in your bigger every day; we still don’t have “The other issue surrounds respective jurisdictions?” any licensing in place, and no advertising, which is certainly growing regulation to support it.” around sporting events. There has Niels Boef - “I think it’s fair to say that been a six-fold increase in in the Netherlands online gambling is Guilio Coraggio - “From Italy’s point advertisements between 2007 and still heavily debated. The legalization of of view, the biggest change has been 2012, and I think there’s a worry that the online market is scheduled to take the launch of slots, which has this will increase even more when the effect on January 1, 2015, but it is not increased the scale of the casino new regime is put in place.” absolutely certain that this timeframe market. We also have the liberalization is feasible. Legislative proposals are of sports betting, which was very Albert Agustinoy - “It may seem still underway and there has been a lot restricted under the old regime. There obvious, but from a Spanish industry of debate in the press recently about will be some new games and events stand-point one year has gone by and opening the online market, which has launched over coming months, as well the market is now more mature. I mostly been fed by the land-based, as a new betting exchange. We also mentioned last year that online state casino, lottery and land-based expect new bingo regulations to soon gambling is perceived as an slot operators. This then extends to the come into force. The goal of the entertainment industry and this has regulatory environment and the tax regulator in this respect is to decrease been reinforced in the mind of the angle. So I would say that this market the scale of the black market, which at Spanish consumer. Advertising is now is still heavily debated, especially in the the moment is very much the main wide-spread and the introduction of financial press and that means that the issue. This is to be achieved through products on new devices and politicians are still reluctant to engage measures such as a move by the platforms has consolidated the market. with the issue, but it is in motion, Italian regulator against game From a regulatory standpoint, I would that’s for sure.” suppliers, which will decrease the size say it’s quite an exciting time. At the 12 moment, we expect that slots may competitive offering they can for “Players are going to soon be regulated. This will be domestic operators. Another positive supported by the introduction of new attribute is that the Spanish regulators gamble anyway, products such as exchanges as well as tend to hear the industry and learn other important developments this from the experience accrued by those whether on the year. There is a paradox in the Spanish operators that have been in the market industry in that it is still, broadly for years. The Spanish authorities know black or regulated speaking, half the size of Italy. From private industry has a clearer picture of the point of the regulator it is the market and are always happy to market, and we’ve important, therefore, to ensure that hear their input.” this potential for market growth is come to learn that fulfilled.” Guilio Coraggio - “I think it’s also worth mentioning that the European the best results From the perspective of those regulators do talk to one another, working in the more mature which means that an improvement in cannot be achieved markets, what lessons can the one jurisdiction often means an regulators learn from their improvement in another,” Mr Coraggio by restricting relationships with your clients? added. “This sort of collaboration may What do your regulators do well, eventually lead to something gambling.” and what could they do better? resembling common standards between jurisdictions, which is Guilio Coraggio - Mr Coraggio certainly lacking at the moment.” commended the Italian regulator for an open-mindedness and business Do you get the impression that there oriented approach, which has saved is any kind of movement towards the online gaming market from those harmonized or common standards more old fashioned regulators. He within the European market? explained that the lesson for the Italian regulators was the realisation that it Guilio Coraggio - “In terms of shared must do the best for the market by liquidity, I think Italy and Spain need to proposing practical guidelines and understand how their technical taking a proactive approach to their standards are going to interface before implementation. “Unfortunately,” he we can make a decision. Everyone explained, “discussion between the was waiting for France to do the same, regulators can sometimes go very fast, but unfortunately the French and sometimes very slow. The lesson Parliament decided to consider it is to simply do the best for the market, further. Italy was waiting for Spain which will have the knock-on effect of while it was thinking of opening a dot attracting new business and enable com environment, which is something operators to do the best for their that Italy wouldn’t accept, so we need players. Players are going to gamble to find a common agreement. In anyway, whether on the black or relation to common technical regulated market, and we’ve come to standards, the position I got from the learn that the best results cannot be Italian regulator is that they were going achieved by restricting gambling.” to use common UK standards as a benchmark.” Albert Agustinoy - “I think the Albert Agustinoy - “From the Spanish Spanish regulator also follows a side it’s no secret that the General business oriented model, although Director is in favour of shared liquidity. some here may disagree,” Mr The approach that he is defending is Agustinoy remarked. “Given the that it is up to the operators to ensure framework they are working within, that once international liquidity has they are moving to create the most been executed, they will always 13 remain bound to the technical and regulatory side concerning a severe regulatory requirements in Spain. Dutch litigation case surrounding the “I think it’s also worth This makes the situation more difficult. gambling tax, which is currently From a philosophical standpoint, pending and, he explained, is currently mentioning that the therefore, I think the regulators in overshadowing a series of proposals Spain, Italy, Denmark and so on are in under government consideration. European regulators agreement. The problem lies in putting Incumbent land-based operators are the details down on paper. I would not claiming that the current tax regime is do talk to one another, be too optimistic in the short term, but not compatible with EU law. In the certainly in the medium.” current proposals, online operators are which means that an offered a 20 per cent tax rate, while There are a number of regulations in land-based casino operators incur 29 improvement in one different Member States that per cent rate. This differentiated continue to flout European legal regime is putting a lot of pressure on jurisdiction often principles, and we know the the current system and, he explained, Commission wrote to a number of is slowing down the legislative means an them in November. Patrick, could process. you remind us of Germany’s improvement in situation with regards to the In answer to Mr Ketteley’s original infringement process? question, Mr Boef explained that the another” Dutch industry had recently seen Patrick Schwarzbart - Mr Schwarzbart some M&A activity where the party explained that an infringement acquired fell within the scheme of proceeding has been ongoing in privatization policy. “So what I see Germany since 2008, which is one of right now is that the foreign players are the focuses of the European circling around it and waiting to see Commission and is still being what is going to happen,” he added. assessed. He explained that, to his “We will have to see, but I don’t knowledge, there are currently two envisage regulatory change being too pending cases with the European far off.” Court of Justice. The first relates to the potential incoherency of a dual Generally, people continue to take regulatory regime in Schleswig casino and poker out of Germany. Holstein; one liberal and the other, the Some are betting on paying the tax. Interstate Gambling Treaty, more What is the situation there? restrictive. The second deals with “It’s a very complex situation, transparency issues surrounding the particularly because we have sports betting licensing process and, Schleswig Holstein in the mix,” Mr as Mr Schwarzbart noted, is unlikely to Schwarzbart observed. “First of all, be resolved until 2015, during which many operators that are licensed in time operators will continue pose legal Schleswig Holstein take the view that challenges.” they are entitled to operate throughout the rest of Germany, but we have yet What should potential licensees look to see to what extent they will be to do in the interim? Is it going to contested by the other federal states. prejudice the process of acquiring a On the other hand, it is important to licence in a Member State? understand that until we have that Specifically, where are people now, licensing regime in place we still have in the Dutch and German markets, if a de-facto state monopoly on sports they continue to trade? betting in place in Germany. With respect to this state monopoly, the Niels Boef - Mr Boef first wished to European Court of Justice has ruled focus on a single issue on the that this is incoherent and therefore 14 “Developments are anticipated, however, and since the Italian casino black market is known to be the same size as the regulated market, we could soon see the regulated casino market double in size.”

not valid and operators can take the addition, the Gambling Commission Italy is doing is talking to regulators same viewpoint. Insofar as requires similar justification concerning worldwide, say in New Jersey or enforcement is concerned, that is a any jurisdictions that are actively Nevada, and notifying them of any different issue. We don’t have one targeted by a company, irrespective of licensees that are acting illegally in regulator which is enforcing laws the 3 percent or 10 percent of total Italy. This is creating a lot of issues. against unlicensed operators; we have revenue threshold. He explained that For instance, major game suppliers in sixteen states each with their own the Gambling Commission wants to Italy will stop offering games to non- enforcement competence. There is no understand the processes and Italian operators that offer games to real coordination in their approach, but procedures put in place to engage with Italian players, so we have a double that will change one a single regime is an outside jurisdiction, and how that route: game suppliers offer the same in place.” engagement takes places i.e. through games to unlicensed and licensed a dedicated domain name or the use Italian operators, but the payout for As everyone prepares for the new of a local language. “This is still unlicensed is, of course, much higher licensing regime in the UK, one of the moving, but we understand that the so players gravitate to unlicensed questions we’re asked the most Gambling Commission does not intend platforms. Developments are concerns a particular line in a provision to issue a blacklist of jurisdictions from anticipated, however, and since the aimed at applicants with a business which business is banned. However, Italian casino black market is known to plan. This involves sharing with the we don’t understand what they are be the same size as the regulated Gambling Commission your rationale going to do with this information, market, we could soon see the for doing business in jurisdictions whether it will be used to prevent a regulated casino market double where you don’t have a licence. What company from gaining a licence, or in size.” view does your regulator take with whether that company will be required relation to doing business in other to stop doing business in those parts of the world? jurisdictions in order to acquire and maintain a licence in the UK.” Ash Averill - Mr Averill explained that the requirement for a company to Albert Agustinoy - “I think that the rationalize its desire to do business in regulator should be banned pursuant other jurisdictions could be described to the powers of regulation it is tasked as very ‘Nevada style’ in its to fulfill and enforce. In the Spanish implications of extraterritorial probity, licensing system there was a similar but reminded the floor that this only requirement, but this was more for applies to jurisdictions from which an statistical purposes. Overall, I am operator takes more than 3 percent of surprised that this is the case.” its total revenue. Moreover, for smaller operators with a total revenue of less Giulio Coraggo - “In Italy, no director than £5million, that threshold is or ultimate shareholder is allowed to lowered to 10 percent. He explained have a pending or active criminal that the Gambling Commission proceeding in Italy, or criminal sanction requires a company to provide a worldwide. This extends beyond an rationale to justify the legality of taking individual’s role within the company to business from a jurisdiction in which any personal liability. What Francesco that company is not licensed. In Rodano, Head of Remote Gaming in 15 16 Panel Session Bitcoins & Beyond - payments, conventional & alternative

Moderated by: Archie Watt, Director, KPMG Gibraltar Panellists: Paul Davis - CEO, Counting House Stephen Quinn - Ukash Ian Benson - Maclay, Murray & Spens Eric Benz - UK Digital Currency Association

Archie joined KPMG Isle of Man benefit of the Summit, could I ask for between electronic devices over the from KPMG London, where he was an overview of what Bitcoin is, and internet between two individuals and recruited as an IT Advisory Director what it means to the payments as long as those two individuals in the Information, Communication processing world? believe that it represents value, and and Entertainment practice, with a they both have a way to do something particular focus on online gaming Eric Benz - “I’ve been working within else with it, then it operates exactly clients. Archie worked on the the digital currencies sector for the like a currency. We use the term ‘fiat bwin/PartyGaming merger and he past couple of years now and over that currency’ to describe money issued by has also worked on a number of period I’ve seen something that initially central banks, and ‘cryptocurrency’ is acquisitions in the gaming sector attracted only a very small following emerging as the most popular term for and the public listings of 888, grow to become very much larger than these privately issued alternatives.” Playtech and PartyGaming, amongst life,” Mr Benz enthused. “We realised others. Archie is a regular that we really needed to do something Mr Davis continued: “Bitcoin and its contributor to sector publications. for the industry. We started an cousins are very scary for He co-authored the report Online association that would spearhead governments, banks and, to be honest, Gambling: A Gamble or a Sure Bet, engagements with HM Revenue and even for payment processors. This is and was recently consulted for the Customs, the Financial Conduct because widespread acceptance of a Remote Gambling Association Authority, and other financial digital currency that can be transacted report on the impact of the institutions and groups to provide the at no charge from person to person forthcoming changes to tax and right guidance and understanding - has the potential to put us all out of regulation of the remote gaming whether from a banking or compliance business. Consequently there’s a industry. perspective - as to how companies massive political lobby against Bitcoin. that use cryptocurrencies need to Governments and banks who can “I think we can all agree,” Mr Watt operate and do business within the influence the press in many parts of opened, “given the amount of regulated financial system. In many the world are content to encourage the coverage they have gained over the ways, it’s very similar to the eGaming publication of negative stories. But past few months, that environment a decade ago. It’s every single concept that is rallied cryptocurrencies have evolved from something that needs attention and against the crypto-currency cause - something that would seem I’m glad that we’re here.” that it can be used for drug dealing, completely anathema to regulated transacted across borders without eGaming markets, to a form of Paul Davis - Having briefly consulted banking fees, and can be laundered - currency that is perhaps now entering the floor as to delegates’ prior can be applied to cash.” the mainstream. It’s one of the key understanding of Bitcoin and its points I would like to discuss with our mechanisms, Mr Davis first opted to “Because of this fear and lack of panel, which today represents a large provide an overview of the technology: understanding surrounding portion of the payments processing “A Bitcoin is a piece of machine code,” cryptocurrencies we are now in a world. But before we begin, for the he explained. “It can be passed space which is very similar to that of 17 “I think the statement should be made at this point that there really is no anonymity to Bitcoin. There’s privacy, but every single aspect of Bitcoin is visible.”

debit cards in the mid-1970s; everyone issues; it’s new, the regulators are but Bitcoin is really not the best way to thought it was insecure, that it could shying away from bringing Bitcoin do it.” be hacked, and that it would never take services within the fold of financial off. I doubt anyone here today doesn’t services regulations, and there’s a lot Because of the complete visibility of have a debit card in their pocket. There that needs to be resolved for that transactions, does that mean that is a young, aggressive, powerful group market to emerge, fully, as an Bitcoins should be incapable of of people that is developing, thinking alternative means of payment.” being stolen? of new applications and making it happen, and an older generation that’s When we talk about anonymity, Eric Benz - Mr Benz explained that tut-tut-tutting and saying it’ll never what are the subsequent anti-money there are two sides to Bitcoin, or what work. Bitcoin has been around long laundering issues surrounding he termed ‘big B’, and ‘little B’. “Little enough to have faced its challenges. Bitcoin? B concerns the price and its volatility, It isn’t now going to go away. The everything you may read about. But question for the eGaming community Eric Benz - “I think the statement the big B is what I like to focus on,” he is how best to use it, not how to stop should be made at this point that there observed. “This concerns the protocol it from happening, because it really is no anonymity to Bitcoin. and the software, the areas where the transcends borders, it opens markets There’s privacy, but every single aspect real investment and innovation is going and it represents a powerful tool of Bitcoin is visible. If you could see right now. Honestly, I don’t know if which, in my opinion, could be every single transaction using Visa or Bitcoin will be around in its current employed by forward looking MasterCard, for example, that would form in a year’s time, but I do know for companies.” be a great thing. The reason for this is certain that the software will be, and the ‘block chain’. The block chain is an it’s growing. You’ll see a lot of different Ian Benson - Mr Benson agreed with open ledger which shows every single systems being put into play and there Mr Davis in terms of Bitcoin’s potential transaction of a Bitcoin in real time as will be innovations within the block as a new entrant with tremendous it functions within the eco-system. chain and security to protect against possibilities for global markets. You’re able to see every movement hacking, or exchanges going down. In “What’s different, as Paul pointed out, within the Bitcoin system in real time, all actuality, this system has only been is that it avoids international clearing so we can track and see everything; in place for five years, and it has only systems,” he added. “That means you nothing is anonymous.” been gaining attention for two, so can send currency, irrevocably, as good there’s a lot of potential for growth.” as cash, for the cost of sending an “The privacy aspect comes in because email. Of course, when an individual people are acting as their own bank. comes to trade or convert that They have control of their own funds cryptocurrency they would bear without operating on a fractional transaction costs, but the avoidance of reserve type basis. From an AML clearing systems and charge backs are perspective, sure, there are ways that a key selling feature. There are a lot of people could find to launder money, 18 “The big advantage of digital currency is that it functions in most ways like a currency, and there is already an established framework of best practices which we all know and understand.”

Ian Benson - “I think the issue comes exchange and apply them to digital world, which allows the operator to sharply into focus when you have a currency as soon as possible.” take a Bitcoin deposit, instantly sell fraud,” Mr Benson added. “That’s that and give that value. In that world, always the thing that uncovers any “The other advantage they have is that the operator would have to cover its weaknesses in a regulatory or legal Bitcoin exchanges and operators really risk by selling off.” system. I mean no disrespect, but if want to be regulated because they the regulators are behind the curve want the credibility and the safety, not “But most credible gaming companies then the judges are always going to be only for marketing their product but have deep pockets these days, and even further behind the curve.” also to be able to get banking facilities you’re very quickly going to see an in the fiat world. There’s a free flow of emerging trend where big operators “In a fraud situation, accepting that the value between digital currencies and are quite happy to hold a portion of transaction is in a block chain model, banking currencies. The problem is that their wealth in Bitcoins,” he continued. you should be able to identify the big committees of people my age “There are many operators taking ‘route of title’, or predecessors of title. sitting offline in rooms writing things Bitcoin deposits today and you’ll see If you then go on to try and trace those down on paper can’t keep up with it – perhaps one or two companies a week funds through a Bitcoin trader, it’s terrifying for us.” joining those operators for the however, you may encounter some remainder of this year. They cannot be problems because that trader, whether Eric Benz - “There’s no risk blind to the fact that all those countries it likes it or not, is not authorised. This whatsoever to an operator that takes where it’s hard to take money from – is because at the moment, apart from Bitcoin deposits, or deposits of any Brazil, Argentine, Singapore, et al. – perhaps in Germany, no one is other cryptocurrency. You’re paid in are suddenly opened up by Bitcoin. In regulating the Bitcoin traders. This USD, Euros or any other traditional Brazil there are already two banks means you’ll have a problem trying to currency instantaneously and with no participating in the Bitcoin economy find that money and trying to secure a risk. I’d also like to point out that the which will send digital funds anywhere satisfactory court order to find that fees are minimal. You’re looking at a 0 in the world for a very low transaction money. So without those systems in to 1% fee for accepting Bitcoin cost. I know everyone in this room is place and, to be fair to the Bitcoin payments from some of the merchant thinking about it, and if you’re not trader, without the protection of AML processors now, whereas traditionally you’re about to miss a big boat.” regulation for client confidentiality, you the average is 5 to 9%, I believe. It’s a What about price volatility; is this may encounter issues.” fascinating way for businesses to pass something we should be concerned on those benefits to their players. This about? Paul Davis - “I think that lawyers like is especially true for micro- myself could wallow in fear for a very transactions.” Eric Benz - Mr Benz explained that, long time about the potential problems from the perspective of the UK Digital with Bitcoin, and we could charge our Paul Davis - Mr Davis agreed, stating Currency Association, price volatility clients quite a lot of money for that his belief that there are two quite distracts quite significantly from what concern. But the truth is that the different routes in which digital it is trying to achieve for various digital currency economy, like any currencies could have an effect within markets. “This is not a big community other field where there is an activity the gaming market. “The first is when at the moment,” he reminded the and a danger to the public – whether playing at tables, or against the Summit, “but the software and what it’s food or car production, aviation, operator where the currency in and out the community is trying to achieve is banking or insurance – there are going is digital,” he explained. “There is a risk going to be massive. At the moment to be good and bad operators. The big to the operator in that the rake won’t this is a thin market, with low trading advantage of digital currency is that it be worth what is was when the volumes and, as a result, massive functions in most ways like a currency, Bitcoin was taken on the table and the volatility.” and there is already an established operator gets round to selling it, but framework of best practices which we it’s a minimal and worthwhile risk. The all know and understand. All a Bitcoin second, more risky, proposition is to exchange or vending operation has to allow people to deposit Bitcoin but do to protect itself is to follow those then credit them, say, USDs to play codes, even if it doesn’t have to. The poker or bet on a horse. Therein lies a best thing governments could do is to piece of emerging business, which is take those codes for banking and currently very attractive to the digital 19 20 Hypothetically, then; I’m an innocent processing on behalf of regulated “Certainly in the UK, party involved in payment made by businesses. “Personally, I don’t Bitcoins. I’m involved in a understand how that can work,” he the consistent transaction, possibly several stages added. “Ultimately, the Gambling removed, which has to do with Commission is not the FCA, which is attitude from the money laundering. How do I stand? who we are regulated by. Ultimately it Is this situation made more is they who decide whether we’re fit Prudential Regulation complicated than it would be with to process transactions. Indeed, traditional currency? picking up on something that was Authority and the mentioned earlier today; without the Ian Benson - “It is a problem, largely proper enforcement, as a payments Financial Conduct because Bitcoin traders have not yet processor we risk being pushed into been regulated,” Mr Benson explained. the grey.” Authority has been “Certainly in the UK, the consistent attitude from the Prudential Regulation Paul Davis - Before passing comment, that Bitcoins are not Authority and the Financial Conduct Mr Davis alerted the floor that he also Authority has been that Bitcoins are acts as a consultant to the Gambling money, there is no not money, there is no issuer of Commission on payment processing. Bitcoins, and therefore anybody “In my view,” he explained, “they are issuer of Bitcoins.” operating Bitcoin trading is not hopelessly misinformed about the flow involved in a payment service and is of funds into British gaming and British certainly not taking deposits. That licensed gaming companies. In a means that the Bitcoin trader is not recent round of discussions the idea able to respond to a court order for the was floated that there would be a production of documents in the same provision in the new legislation that a way it would if it was a financial UK licensee would only be allowed to institution and was protected in the UK take payments that were handled by a by anti-money laundering regulations payment processor that had a and under the Proceeds of Crime Act. European PSD [Payment Services This is something that the law is going Directive] licence. This would mean to have to grapple with. It is more that a company that takes bet difficult, but not, I suspect, payments from India on English insurmountable.” Cricket, say, would have to go through a European licensed company, which is Moving onto the Point of not particularly likely to happen. Consumption Tax; it appears that the Similarly, large poker companies would Gambling Commission is trying to not be able to take payments from move into regulation through the Russian players because there are no application of restrictions on Russian payments providers who are companies that operators use to regulated in Europe.” process payments on their behalf. Does the panel have any insight into “Despite this,” he continued, “they what the restrictions might mean in have proceeded with the idea, which, practise? Are they workable? And in my view, is a massive overreach. I are they in compliance with EU rules fail to see how the GC can tell on the free-flow of transactions? companies how they should act in other countries. The announcement Stephen Quinn - Mr Quinn explained that the Gambling Commission had that, to his knowledge, Ukash has not reached an arrangement with Visa and been contacted by the Gambling MasterCard to only process horse- Commission in this regard. He also betting transactions from licensees noted that Visa, MasterCard and contributing to the British Horse PayPal had an arrangement for Racing Levy, whether they are onshore

21 or offshore, is absolutely laughable. With the pending imposition of the Not only can they not police it, but Visa PoCT, all operators are looking at Question from the floor: where does and MasterCard cannot know what the ways to reduce costs. Do payments Bitcoin come from? Who invented betting product is that they’re providers have any solutions to it? Where is its value derived? transacting funds for. Take the example offer? of a person in Kenya, using a Kenyan Ian Benz - Mr Benz explained that a debit card, who deposits money into Paul Davis - “All well run businesses Bitcoin is a piece of 64-digit an account with 888 (a Gibraltar strive to reduce costs across their algorithmic code that gives a specific licensee), then decides to place some operations,” said Mr Davis. “Payment value. “The easiest way to explain it is winnings on a horse race in England: processing costs are not a big piece of to picture a virtual gold field. You have how on earth is anybody in that chain the equation in the gaming world; our virtual miners who are awarded a going to know that a bet was placed rates tend to be low and quite block. When it first came out, this on an English horse race? It’s competitive. I’m sure, however, that block would consist of 50 Bitcoins that absolutely ludicrous.” anything that impacts on an operator’s were released every ten minutes, but bottom line will provide the incentive the more miners there are and the Ian Benson - “It’s an odd suggestion,” to revisit their outgoings and try to more activity in the eco-system, the Mr Benson agreed, “because the renegotiate down. Ultimately, it’s the harder this is and the smaller the whole payments agenda is to make mark of a well run operation that they blocks become. They were created by the experience better for the negotiate well for the services they Satoshi Nakamoto, which could be a consumer. In the UK we’ve just had an buy. However, Bitcoin provides a way name or acronym, there will only ever announcement that the Payment to keep costs down because it’s free.” be 21 million released up until 2140, Council is to be replaced by the they are open source, are not Payment Systems Regulator and the Eric Benz - “What the internet did for controlled or owned by any one person agenda has been given by the FCA to communication, Bitcoin is doing for or corporation, and they will be around increase competition within the sector. money,” Mr Benz agreed. “Everything for a very long time. Of course, at the Additionally, the FCA are perhaps has become open and peer-to-peer and moment there are volatility and moving more towards an e-money costs are constantly being driven liquidity issues, but this is due to model rather than a payment services down. This means that those in problems with press and regulation. If regulatory model, so from the PSD to payments and gaming are going to there were any real problems, then the Electronic Money Directive. As have to learn to adapt or disrupt your Bitcoin would already have such it seems extraordinary, given the own processes in order to co-exist, or disappeared.” agenda to make payments better for risk becoming extinct.” the customer and introduce more Paul Davis - “It’s about belief,” Mr competition to the payments market, Where are alternative payment Davis said in closing. “As long as the to introduce these measures.” providers going? community believes there is value in a Bitcoin it will have value. If you find “I should, however, add that the Stephen Quinn - Mr Quinn echoed Mr that hard to imagine, think for a Payments Council has just managed to Davis’ sentiments, adding that the moment about diamonds. You can go secure an agreement with the banks difference from the perspective of to any town or village in the world and to make payments possible through Ukash was that between cost and find dozens of jewelry stores with mobile phones using the phone value. “Contrary to what many may diamonds in the window, yet people number, rather than the account think, there’s isn’t often very much we pay hundreds and thousands for them. details. This is clearly a positive step can do in terms of cost,” he explained, The only thing that distinguishes a forwards and something that may well “so we focus on adding value. If an diamond from any stone on the ground be of interest to a few people here operator feels pain, we feel pain. What is that there are only so many of them today.” we try to do is find out how we can and that work has been done on them help operators with the costs that to create value. Bitcoin is the impact them, such as acquisition or diamond of the currency world.” fraud, or we try to use our expertise to take them into new markets using new technologies. That’s really where I see our businesses going over the next few years.”

22 Digital Banking - Africa leapfrogging the developed world

Matt Gorman Matt Gorman joined Standard Bank in January 2013, having previously worked as Head of Operations for Head of Change, Personal & the Royal Bank of Scotland for two years and, most Business Banking International - Standard Bank recently, as Head of Operations, Channel Islands for Barclays from February 2011.

“Standard Bank has been around for Africa’s Banking Experience “Standard Bank is just over 150 years,” Mr Gorman began, “and personally, during that “One thing we can say about Africa as Africa’s largest bank time, I don’t think banking changed a whole, however, that is that it has that much. Until the credit crisis, undergone a series of experiences with a presence in 20 banking was running as you would which are vastly different to those of expect it to; making money and ourselves,” Mr Gorman continued. He countries and investing funds. Then the credit explained that the route to change and crisis arrived and the world growth has been completely removed supported by nearly changed. Today it’s quite humbling from that of the western world, to work in a bank”, Mr Gorman drawing upon technological advances 50,000 staff. We also added. “We caused a lot of pain such as landline telephones, VHS and around the world, and this has led walkmans to emphasise that Africa have offices in the us to change.” has been a process of leapfrogging technologies to arrive today at those offshore locations of “So we’ve started using different such as mobile and smartphone. Mr technologies within our banking to Gorman then drew upon the examples Jersey, Isle of Man make a difference,” he continued. of Blockbuster, Kodak and The “Standard Bank is Africa’s largest bank Encyclopedia Britannica to emphasise and Mauritius and we with a presence in 20 countries and the imperative for companies to adapt supported by nearly 50,000 staff. We to change, stating “Just because have a footprint in also have offices in the offshore you’re the first to market, or have been locations of Jersey, Isle of Man and around for over one hundred years, it Gibraltar to support Mauritius and we have a footprint in doesn’t mean that you’re going to Gibraltar to support the eGaming and stand and make a difference.” the eGaming and corporate banking market. We focus on serving clients with connections to “The same goes for banks – they have corporate banking Africa. to fundamentally change in order to survive, from their culture to their market.” Mr Gorman went on to explain that the DNA.” Mr Gorman offered the example most common mistake made is to of M-PESA, a digital wallet that allows homogenize African cultures and the transfer of payments between nations, before qualifying his mobile phones. M-PESA was launched statement by observing that 50% of in Kenya in 2008, already enjoys over 6 the Kenyan population is under 18, million customers, allows customers while the Nigerian economy is this to save and borrow money, and year expected to outgrow that of operates without a banking licence. South Africa for the first time. “There “Technology reduces friction,” he are over 170 million people in Nigeria, emphasised. “Smartphone penetration 25 million of whom live in Lagos in South Africa will reach 25% this alone,” he enthused. “And that year, which makes getting it right, 23 represents a huge opportunity.” making it easy, and making it always Matt Gorman

available, three critical steps for today’s telephone number rather than bank “This could equally be applied within banking providers. Take the Square account and sort code, create cash eGaming sites,” Mr Gorman added in app, a device which plugs into your vouchers and withdraw cash from closing, “or it could be applied to any Smartphone and enables chip and pin nearby terminals, purchase SMS purchase within that client’s financial payment via mobile. Within 3 years it credits, purchase electricity credits, window. If you then extend that gained 2.5 million customers. It’s monitor insurance policies, trade window, you could be looking at transformational, not just in its impact stocks and shares, and analyse market engaging social media and other online on local businesses but also the indices, all in real time. behavioural patterns, you could even developed areas themselves. At allow the customer to control accounts Standard Bank, we expect 80% of our Bringing data and customer thinking held with other banks. Ultimately, it’s customers to own a Smartphone together the client’s choice, not the bank’s within five years or less.” choice. As such, my final point is, “This is a remarkable product,” Mr although Standard Bank aims to Pop-up banking Gorman added. “A client can sign up become the best digital bank by from a tent and be set up with this app choice, the word bank may not Mr Gorman then drew the attention of within minutes. The product has necessarily apply. It could be any the floor to a slide entitled ‘The branch already been launched and we hope to company that becomes the best of the Future’, which depicted a pop-up be able to offer it to our offshore and according to customer preference, Standard Bank branch in a township business markets within a year. Going and if we don’t watch out, it could be named Alexandra in Johannesburg, back to our earlier point, however, one Africa that leads the way.” South Africa. “There are over 4 million thing we are concerned about is the people living in this township, some use of the data and information we’ve without running water or electricity, gained from our client base. I think we and we offer banking at the access have a lot to learn from the eGaming sites to their local suppliers,” he community. That may mean going into explained. “From a tent, we used a partnership or another form of working Smartphone to take a picture of their relationship, but either way it’s clear to KYC documentation, we gave that us that if we don’t do something to person a bank card, and their account understand what our clients need to was open, up and running within 8 remove that friction, we’re going to minutes. We have 86 Standard Bank have a problem.” access points dotted around the town that people can use to access and By way of example, Mr Gorman then manage their finances.” described an app-supported advertisement type, which is location Mr Gorman then drew the attention of aware and provides both the customer the Summit to a video which and the bank with real-time demonstrated Standard Bank’s information on the customer’s recently released mobile banking shopping patterns and budget. During application and which was described the purchase of a car, for example, the as allowing the user to see everything app could allow the user to request a that’s happening in their financial pre-approved loan, forecast their world. Users are presented with a financing obligations, request wholly customisable dashboard which alternative purchase options and controls a number of applications. contact their relationship manager at Users are able to conduct traditional Standard Bank directly. transactions, transact using a 24 Landbased and Online: The Debate

Moderated by Russell Kelly – Director, Audit & Advisory, KPMG

Russell joined KPMG in 1993 and has also worked for KPMG in the Isle of Man, London and Jersey. Russell’s audit experience encompasses banking, wealth management, mutual funds, shipping, real estate and e-gaming. Russell’s transaction services experience includes acting for clients with respect to acquisitions, disposals and flotations, in particular Russell has advised on flotations on LSE, AIM, Luxembourg and New York Stock Exchanges. Russell also provides Internal audit and SAS 70 services.

Peter Howitt - Gibraltar Betting and the Association of British Bookmakers “From the GBGA’s Gaming Association (GBGA) was unable to attend, and was replaced by Paul Leyland of Regulus perspective, it Peter has worked for 15 years in the Partners. KPMG would like to offer e-commerce and financial services their sincere thanks to Mr Leyland for appears they are just sectors as a lawyer and corporate standing in at remarkably short notice, advisor in England & Gibraltar. He is and kindly pass on Mr Vennix’s not listening to our dual-qualified in England & Gibraltar. apologies. He is currently the CEO of the concerns about the Gibraltar gaming industry association Mr Kelly then invited both Mr Leyland (www.gbga.gi), the Secretary of the and Mr Howitt to introduce risk of competition Gibraltar E-money Association themselves and their respective (www.gema.gi) and the founder of organisations. Mr Leyland began, and with the unlicensed, Ramparts - a European law firm in introduced the Association of British Gibraltar (www.ramparts.eu). Peter Bookmakers (ABB) as the leading unregulated and also has experience in establishing an trade association for high street online social network for artists. bookmakers in the UK. He explained untaxed online that the ABB represents the operators Paul Leyland - Regulus Partners of around 7,000 betting shops in the sector.” UK, including multi-channel operators Paul Leyland is a founding partner of such as Gala Coral, Ladbrokes, Paddy Regulus Partners, a strategic Power, Stan James and William Hill, consultancy focused on the gambling adding that it is also increasingly and related sectors. Prior to this he representing the online or remote was Corporate Development Director industry by its association, if not by its at William Hill, from April 2012 to mandate. The ABB also represents the October 2013. Paul started in the City interests 65 small family-owned and was an Equity Analyst focused on businesses with around 400 high- the gambling sector for over a decade. street shops, which gives a total He worked for a number of Investment representation of around 80 percent of Banks including Investec and Collins the landbased market in Britain. Stewart Cannacord. Mr Leyland then identified three The Association of British common challenges that the Bookmakers landbased operators share with their online counterparts. Competition, tax Upon introducing the debate’s and levy he described as a tough participants, Mr Kelly first noted a commonality that is only likely to change to the original Summit increase with the emergence and 25 programme. Regrettably, Dirk Vennix of subsequent convergence of regulation within the gambling industry. place in the Netherlands. We know machines, or FOBTs, went up. There’s Concerning responsible gambling, Mr that in Belgium the Commission no specific customer protection issue Leyland observed that the ABB is approved a differential rate on public around tax, but I would say that where launching a new Code for Player policy grounds, so we were surprised landbased operators have a significant Protection and that the two sectors are that the UK was finding it difficult to advantage in many jurisdictions is that working together to share best take a different approach. Thankfully, in the tax, and particularly the practice on advertising and self this year’s Budget we saw that the UK employment, footprint is considerably exclusion, adding that ‘the sooner the wasn’t quite adhering to that principal higher than online. It will be so still for industry follows in a similar vein, the when they reduced the tax for a number of years.” less likely it is that the politicians will landbased Bingo to a rate below intervene and do it for you.” Finally, on online!” “Also, if landbased operators are clever the 4th European Anti-Money they can be very entrenched. My Laundering Directive, Mr Leyland “From the GBGA’s perspective, it observation would be that the noted evidence that both sectors are appears they are just not listening to bookmakers in the UK forgot how low risk, a message which must be our concerns about the risk of entrenched they were a few years ago. promoted coherently and effectively, competition with the unlicensed, They got on with operating their and emphasised the importance of unregulated and untaxed online sector. businesses, forgot to talk to implementing a risk based approach I also don’t think their taxation government and the regulators and, as that is effective at fighting crime. objectives are coherent with concerns a result, lost battle after battle. That’s about consumer protection. The something very important for the The Gibraltar Betting and Gaming justification for having reduced taxation remote operators to understand: Association for land-based, as opposed to online government in a regulated for example, shows that they are not environment is your biggest, most Mr Howitt took over in introducing the really consumer protection driven at powerful and potentially most Gibraltar Betting and Gaming all.” dangerous stakeholder, and unless you Association as the single voice of the treat them in that way you’re going to Gibraltar online gambling industry, “I think that has certainly been true get caught out, and caught out very representing most of Gibraltar’s 28 during the first phase of remote painfully.” licensees. He explained that Gibraltar gambling,” Mr Leyland agreed. “But I is within the European Union Single do think that is starting to change. Mr Kelly - You touched very quickly Market and that the GBGA is an Mobile and tablet gambling is there on FOBTs, which is a key area affiliate member of the European undergoing what we euphemistically for debate in the UK at the moment Betting and Gaming Association call ‘channel shift’. It is a significantly and one upon which government (EGBA). GBGA members are rigorously more simple transaction medium, it is policy is bound to have an impact. regulated by the Gibraltar Gambling demographically more similar and, What are your thoughts there with Commission, are leading e-commerce certainly around large sporting events, regards to possible future suppliers of online gambling services we are starting to see volumes regulation? and provide approximately 60 percent increasing on mobile but less so in a of all UK online gambling transactions. landbased environment. So I think “I think this is a really, really useful there is a greater degree of direct object lesson in what not to do,” Mr Howitt continued in explaining that competition with landbased and I warned Mr Leyland. “Broadly over the last 12 months the GBGA had suspect that will be exacerbated by speaking; if you have your ear to the been in close conversation with the UK increasing levels of country specific ground, you talk to your regulator very concerning competition, tax and levy. regulation where you end up creating often and you understand what the Particular focus had been placed on more homogenous markets, rather mood is, you make sure that you do the extent to which competition to the than a bunch of disparate landbased just a little bit more than that in terms regulated online sector increasingly operators with a dot com umbrella of protecting people so that the comes from the unregulated online over the top.” regulator is happy and it doesn’t get on sector rather than the landbased, the front page of the newspapers. It’s which the GBGA does not consider to He continued: “A combination of relatively simple to do. If, however, you be a substitutable service. “When we regulation, technology and a change in say ‘there is no problem’ regardless of spoke to HM Treasury and mentioned customer behaviour is going to make whether there’s a problem or not and that online needs bespoke them more competitive and I don’t the regulator feels it needs to consideration,” he added, “the initial think anyone from the ABB will intervene, you then increase the risk of view we got back was that it would be disagree that the government won’t it becoming a political as well as a difficult to implement different rates take an entirely political view on tax. regulatory issue. That’s exactly what for landbased and online, which is why We saw that very clearly in the has happened with FOBTs.” I was interested to hear earlier about Budget. Not only did Bingo duty go the legal challenge that was taking down, but duty on category B2 26 “From the GBGA’s perspective, it appears they are just not listening to our concerns about the risk of competition with the unlicensed, unregulated and untaxed online sector.”

“The addition to that is that there is an of machines, or their use, in shops. well regulated industry because at the awful lot of data out there, but the But it would be shortsighted to think moment that message is absolutely extent to which that data has been that once they’ve finished with not getting across. presented in a clear and transparent landbased they won’t turn that focus to way that persuades the layman that online. The industry here in Gibraltar “Tying in to the UK’s proposed there is no problem is open to does do a lot, but I actually think that changes, one of the things I expect to question. That again is a huge problem this is an area in which we need to do happen is that the online operators, for the sector. It’s no good just saying more. The industry needs to take the particularly those with a UK focus, will we’ve got the data, we understand lead and not wait. If you wait for have to coordinate much more closely,” everything’s ok. If you can’t put that people who know very little about Mr Howitt added. “If we’re right and point across in a very clear way that what you do to get involved and tell we think the evidence is there, they’re makes people feel less concerned you what to do, that would be very bad going to be competing much more then, when they get off the fence, for your business. They’re likely to have with those outside of the regulatory they get off the fence with a view to you implement measures that may sphere. So it might actually become regulating you. Regulators are always have an effect upon those with a easier to reach agreement on a lot going to be a little bit behind the curb gambling problem, but may equally more, and the consequence might be in terms of understanding how the affect those without, which is the vast that we realise we actually share a lot industry behaves, but politicians are majority. This is one of my key areas to more common ground. That way, the even worse. When you get yourself in focus on with the GBGA over the next politicians will realise that we’re the to the political arena, only bad things 12 months. I want to make sure we’re people they want to interact with, that will happen.” able to show and communicate our we’re not the enemy. At the moment, obligations and show that we’re taking the sense that I have is that, in the UK, “So, from a political standpoint, I think them seriously, rather than just wait regulated online and landbased –all of Labour made it very clear what they for the politicians to take the lead and it – is open for attack, possibly because wanted to do. I think the Lib Dems are decide what’s best. It is difficult online, they haven’t had a large unregulated broadly in support of that, and in a but the fact that something is difficult supply, which is going to change.” Lynton Crosby Conservative Party 2015 is not a reason not to do it, it simply campaign consultatnt, known as the means that you need to be careful in Russell Kelly - Do you think that a Master of the Dark Arts] style, I think what you do.” future approach to the UK will be what the Tories probably need to do is driven by some of the large, ensure that the debate moves on away “I think Peter is absolutely right”, Mr integrated operators that have an from the Labour debate, look like they Leyland agreed, “and I would add that estate who will try to converge the own it, and try to put it to bed before the most damaging thing that the agendas of online and offline, or do the election. That means doing gambling industry does to itself is talk you think it will be two very something pretty aggressive so that it down other operators, products and separate lobbies hopefully working gets off the papers and the Tories look jurisdictions and say ‘I’m alright but in the same direction? like they’re being tough on something they’re terrible’. There will, for that it’s popular to be tough on.” example, be an awful lot of landbased “I think we’re likely to see different operators based in the UK who are stakeholders making different points, Russell Kelly - Concerning responsible very smug and very crowing about all but with an element of commonality,” gambling; despite the fact that the the problems the bookmakers face at Mr Howitt explained. “On responsible online industry does a huge amount to the moment, but it’s very dangerous gambling, for example, we’ve seen protect consumers, this is often more and very shortsighted. You will be next. that an industry group has now been difficult to see from a public side than That’s how it works.” formed by the ABB members and the for landbased. What is your view about RGA, so we’re seeing some coherence the online space and how that would “So I think one of the very important across channels and sectors as they be affected? things that needs to be done is every realise that all of the operators are operator and trade association ought experiencing similar problems when it Peter Howitt: “To tie in to the political to work out what the key messages comes to making sure that they take point, you’re right, just dealing with the are, make them as similar as possible, measures and communicate those FOBT issue and the landbased is and keep getting those messages out measures to the wider public.” clearly easier for the politicians and the there. We need to make it absolutely public. It’s easier to see the prevalence clear that this is a safe, trusted, and 27 “Where you’ve got quite invasive authorised financial institutions, makes Paul Leyland - “I think the challenges regulation I think that will start to online an extremely unlikely place for land based might be considerably divide operators not so much by through which to launder money.” simpler but certainly no less remote or landbased but by what their problematic, and I should reiterate that risk exposure is to that regulation,” “There are some negatives however, this is my view and might not be that added Mr Leyland. “Just to give an particularly surrounding structural of the ABB. To my mind, the industry is example; there’s the Gambling issues in the sense that the directive very good at batting averages about Commission’s 3 percent rule which appears to not take any account of the and every operator in the room knows says that they want to understand digital economy. A lot of what is going that those averages are very whether or not every single bit of on in Europe at the moment is focused misleading, that the industry’s reliance business you do over £5 million or 3 on the reduction of compliance costs upon higher spending customers is percent of gross income is going to be and the legal complexities for pronounced. The case of Graham legal, and at the moment we’ll see electronic businesses, and this Calvert vs. William Hill was a great how they get on with that. But let’s directive appears not to take into example. It was thrown out, but it say you take a Coral, a Ladbrokes, a account the issues of firms that does highlight, as an extreme, the Paddy Power, these operators would conduct business across borders. huge sums of money that can change be quite relaxed about that, in fact I There are things that could be done to hands between relatively few people. think they would be quite pleased. But fix that quite easily, as they’re doing in The fact that the average bet size is there’s a whole bunch of other the current data protection regulation completely irrelevant in that context; operators who I think would be with a one-stop-shop style approach. there is absolutely a need to apply nervous. That would not only divide That’s not going to happen for this AML regulations. There was, of opinion, but would also start to divide directive if it goes through as drafted, course, a debate about the limit, but if behaviour.” however. I think operators need to be any operator is suggesting that there is aware that the AML laws that apply to absolutely no need for AML, that Russell Kelly - Moving on to the 4th their supplies across Europe might would be not only risible, but European Anti-Money Laundering include some surprises. One counterproductive.” Directive; that must present very jurisdiction may have adopted a place different challenges for the online of supply model, and another a place Russell Kelly - How do you think they and landbased industries. What sort of establishment. One jurisdiction may will police AML in the landbased of impact do you think it will have have gold plated, or added, to their environment? Are you going to have to on each? interpretation of the directive and produce ID, and what assurance is that other may simply have different going to give the bookmaker that Peter Howitt - “As we’ve mentioned in adopted a different assessment of those cash funds are not the proceeds previous discussions, in the UK, risk.” of crime? Gibraltar and other jurisdictions, online has been covered in existing legislation “Quite frankly, moreover, it’s going to Paul Leyland - “I think there are two in one way or another. The 4th be difficult for an operator to persuade points to this argument. Number one Directive does have some very good a national court that they should is that the betting industry, as opposed features. It starts with principles and overrule their jurisdiction’s assessment to the casino industry, is not used to objectives and, in particular, asks of money laundering risk. I think that doing it. Number two concerns the jurisdictions and stakeholders to changes the game if some of the problem that you’re actually solving. In undertake risk-based assessments and Member States, as I suspect they will, general terms there is almost certainly make sure they their policies and seek to use the stronger directive, a problem and almost certainly a need approach to money laundering are with stronger enforcement powers for regulatory intervention. That debate evidence based. That will have a with specific reference to online should focus on proactively solving the benefit for the online industry because, gambling to find a way to reduce problem, rather than act as a forum for in our view, there’s very little evidence gambling supplies. So I do have some bookmakers to protest their to suggest that online gambling is a concerns. It’s going to be a huge innocence.” very useful tool for money laundering. amount of work for people, and at the This is not to say that it doesn’t end of it operators may not be able to happen, but we believe that the do business in some states”. electronic nature, the fact that its transactions are all logged through 28 The dangers of the UK Point of Consumption Licensing and Taxation Regime Sir Peter Caruana KCMG QC

Sir Peter Richard Caruana, KCMG QC is a former Chief Minister of Gibraltar (1996-2011) in which capacity he also held the portfolio of Minister for Gambling, was an architect of Gibraltar’s pioneering legislative and regulatory regimes and oversaw Gibraltar’s growth into one of the world’s premier and best regulated online gaming jurisdictions. He has now returned to legal practice and acts as a consultant to the Gibraltar Betting and Gaming Association.

Despite acting as a representative and “Part of our objective had been to try motivated as a collection of Gibraltar consultant for a number of private to prevent the United Kingdom from stakeholders to engage with the UK firms and public regulatory bodies in committing the same mistakes that Government by concerns about certain various roles, Sir Peter addressed the other European countries had outcomes, it is axiomatic that if we KPMG eGaming Summit in an committed and try to ensure that the have failed then we now face the very individual capacity, and as one privately UK would learn those lessons,” Sir dangers that we were seeking to concerned with the impact of the UK’s Peter continued. “There has been prevent in the first place.” Point of Consumption Tax model on some quite intense dialogue with the both the UK and Gibraltar’s eGaming Department of Culture, Media and Licensing economy. Sport (DCMS) and with HM Treasury to achieve that. Usually when Sir Peter continued in explaining that “This is an important moment for this governments are lobbied by sectorial the UK Gambling (Licensing and industry in general, and for Gibraltar in interest groups, there is an intrinsic Advertising) Bill, which was expected particular,” Sir Peter began. “Let me conflict of interest between what to receive royal assent in May 2014, say at the outset that I am optimistic, industry doesn’t want, and what the establishes a quite unprecedented and in no sense pessimistic, about government wants. Here, we thought, system. Effectively, in his opinion, the Gibraltar’s ability and indeed prospects was an opportunity, rare indeed, where Bill allows operators with little or no of remaining a jurisdiction of choice it was possible with a little bit of market penetration or nexus to the UK and excellence for your industry. It is intelligence, application of industry to obtain a UK licence. Indeed, the Bill reflective of the fact that Gibraltar is an expertise and sensitivity to the provides that operators must obtain a important player in this industry, government’s objectives, to actually licence if their facilities are used in the particularly the part that faces the UK, line up all the stakeholders’ ducks in a UK. This obligation extends to every that all stakeholders have taken part row – the British consumer, the British operator on the planet that offers over the last 18 months or so in the industry, the Gibraltar industry, and the facilities into the UK on penalty of attempt to ensure that what the UK UK Treasury.” committing a criminal offence. does in relation to its announcement to alter the basis of its licensing and “We could see a clear win, win, win “Those of you who are UK lawyers, taxation system was sensible. scenario; a win for the sector, the and those of you that have had Sensible, not just in relation to the consumer and HM Treasury’s tax yield. recourse to the UK judicial system interests of the industry, but sensible In the event, we have not enjoyed a before will know that, almost uniquely, in their impact upon those who these great degree of success for any. the UK has a legal system of public measures are purported to be in the Indeed on licensing we have enjoyed administrative law and judicial review interests of: the consumer, and none, and on tax it looks as if it may be which is considerably more intrusive of sensible also in relation to the UK none, but it looks like we may still administrative and executive discretion Treasury that was obviously after more succeed in the latter areas. We think than most other legal systems around money.” that a great opportunity for a win, win, the world. The idea that in a situation win scenario has been spurned. The where people commit offences unless opportunity has been wasted and, they have a UK licence - and that that therefore, if we were driven and offence is committed as easily as

29 “We could see a clear win, win, win scenario; a win for the sector, the consumer and HM Treasury’s tax yield.”

30 having equipment anywhere in the This was in the face of dogged “How will the world that they know, or should know, opposition from the Gambling is being used by just one person in the Commission who saw it as a Gambling United Kingdom – the UK courts are frustration of their desire to achieve going to allow the Gambling the powers and functions that they felt Commission obtain Commission to exercise the degree of were necessary, but that those of us administrative discretion as would a in Gibraltar and elsewhere where the capacity and jurisdiction that is being selective in there was a store of experience knew their licensing process, is naïve in the would operate to precisely the ability to monitor extreme.” opposite of the intended effect to enhance protections to the UK compliance? How Sir Peter continued: “I believe that, on consumer.” the basis of the way in which this will it enforce statute has been drafted, the “How will the Gambling Commission Gambling Commission is going to be obtain information?, Sir Peter asked. sanctions?” inundated with licence applications “How will the Gambling Commission and is going to be hard put to restrict obtain the capacity and ability to the numbers and nature of the monitor compliance? How will it companies that are allowed into the enforce sanctions? United Kingdom in a way that is going to bear scrutiny in court. So there is a All of these are unanswered from an danger of a multitude of UK licences, organisation that has already and the UK Gambling Commission will demonstrated how difficult it can be to simply not be able to effectively and regulate distant operators that it has reliably regulate those operators already licensed in to the UK. How, spread around the world. In good too, will the Gambling Commission times it doesn’t have the resources, protect the UK consumer and police or let alone in stringent, austere times prevent the black market operators which show no signs of abating.” which have suddenly been handed the incentive to target the UK market?” The alternatives “This is all to take place at huge Sir Peter explained that Gibraltar had reputational risk not just to the United suggested an alternative model Kingdom but to reputable regulated designed to protect the UK, its entities in the UK because, effectively, consumers and its industry from the the government has set up “brass consequences of these provisions, plate Britain” when it comes to online and had proposed a system of gaming. Companies will be able modified passporting that would have operate under a licence, tax free as far allowed the UK regulator to have relied as Britain is concerned, anywhere else on and used local regulators in the in the world. Companies established in (approved) home jurisdictions of whatever remote corner of the planet overseas companies as an extension you might wish to imagine that may of the UK regulatory reach. Through have no UK business and indeed no regulatory memoranda of intention of having UK facing business understanding, the Gambling will nevertheless be able to apply for Commission would have been able to and obtain a UK licence which will effectively regulate companies provide them with the imprimatur - the established in jurisdictions which were badge of honour – which the rest of approved by virtue of the UK’s own the world, rightly or wrongly, may regulation and statutory systems. “Yet interpret as a badge of reliability, we failed, at the highest level, to quality, and of respectability.” 31 persuade the DCMS to adopt them. “This is all to take place at huge reputational risk not just to the United Kingdom but to reputable regulated entities in the UK because, effectively, the government has set up “brass plate Britain” when it comes to online gaming. Companies will be able operate under a licence, tax free as far as Britain is concerned, anywhere else in the world.”

32 Compliance and AML sensitive, and this Bill saddles the UK’s alternative, less burdensome proposals reputable core of suppliers to pricing available which will enhance the whole Sir Peter posed the question of how, pressures that will make their products legitimate aim, but which have been therefore, the UK will continue to less competitive than it is almost too declined. Indeed, it is difficult to find comply with its international anti- obvious to need saying. So a Gambling an expert in this profession that does money laundering obligations, an area Commission that arguably lacks not believe that this Act will degrade, in which the British Government itself resources to regulate what it currently rather than enhance, consumer currently leads. He posited that the does in terms of online operators is protection.” implications are of huge reputational hardly going to be well placed to risk, and indeed danger, to the UK and enhance that level of consumer “I won’t take your time by reminding those companies already established protection which is currently delivered you about the global nature of this in the UK, all for no discernible net to UK consumers by the vast majority industry, about the effect of turnover gain. “So despite the absence of of UK facing gaming operators today and consumer migration, except to say evidence for the need for this change located in reputable, well regulated this; governments often don’t in regime - in the context of the way jurisdictions in which the UK has sufficiently recognise that, effectively, the existing one is working, for which confidence,” Sir Peter added. the government is a shareholder in no evidence has been provided that it every single business in their country. is exposing the UK consumer to European Legal Implications There are times, therefore, when the particular levels of risk, certainly no interests of the other shareholders in more than they will now be exposed to “There is, to boot, a body of eminent the business are actually aligned with under the new regime,” he added; legal opinion that considers that this those of the government, which as tax “this will saddle compliant, licensed Act is unlawful under European law. collector, probably has a bigger stake operators with additional and Why? Because it places unsuitable and as quasi-shareholder than any other unnecessary licensing and compliance disproportionate burdens on European real shareholder. Anything that costs.” operators whilst increasing consumer jeopardizes the volumes, revenue and risk.” Rhetorically, Sir Peter asked the sustainability of the client base of the “These companies are, therefore, question of ‘why should the UK not be operators who are the tax base of the faced with a choice. In an industry free to do what other European UK revenue undermines, in similar where there is already a low margin countries have been doing and measure, the sustainability and the they will either have to absorb the continue to do?’. The answer, he level of the yield for the treasury.” costs themselves, or they will have to submitted, is that the UK is restricting pass it all, or in part, to the consumer, a hitherto open market as opposed to, Sir Peter continued in explaining that becoming in the process in part, liberating their closed markets. when a conversation to this effect was uncompetitive in the global virtual He explained that Article 56 of the engaged with the UK Government by market with which we are concerned. Treaty established in the European UK stakeholders, their proposals When that happens, overseas, Union, which regulates restrictions on included measures that would improve unregulated operators that hitherto the freedom to provide services, the sustainability of the country’s tax have had no incentive to target the UK makes it clear that the only justification base and reduce the effective rate of market will do so because this Bill for placing restrictions on the provision the tax to the UK’s operators. risks providing those consumers with of services to consumers in the UK is Deductions included, for example, top- the reasons they have never before if there is a legitimate aim. “And that line areas that were currently deemed had to migrate, to do business, to play, by itself is not enough,” he remarked; to be income, but which in reality are to bet, with those unregulated “the aim has got to be legitimate, and not, such as free bets and bonuses: operators. the means to achieve it have got to be “reasonable acquisition and retention proportionate. Those that subscribe to costs”. “This is an industry with a customer that view believe that the UK’s base that is savvy, extraordinarily measures do neither. There is no mobile, and extraordinarily price evidence for it and there are

33 Sir Peter Caruana KCMG QC

Sir Peter referenced the critical effect, measures that were introduced there favour of unregulated, unlicensed not least for the operators, but for the in 2010. In Italy, despite website operators offering their products at a UK tax base of the loss of clientele blocking, official sources close to the much lower cost base.” through price competitiveness, regulator estimate that up to 50 drawing upon what he described as percent has gone to and remains with “In so far as Gibraltar is concerned, I the “frightening figures” associated unregulated operators. In France, the think concerns about the impact of with business currently done through situation is not much better; up to 70 these measures tends to be the affiliate markets. “These are percent of sports betting is in the overstated. I think there will be a people whose willingness to send hands of unregulated operators. The period of readjustment; some traffic to UK licensed and taxpaying US demonstrated that legislation and established operators in Gibraltar may companies, as opposed to their prohibition is simply insufficient to choose to make alternative unregulated counterparts who have guarantee the integrity of a national arrangements and others may wish to not been saddled with additional costs, gaming market, unless you are willing reconfigure their operations, but here will depend entirely on whether the to take extraordinary measures – is an industry that is still growing in affiliates’ income is prejudiced or not,” which do not come easily or naturally Gibraltar, and is growing impressively he explained. “So the companies will to countries such as the UK – to in spite of all these months of have to pay not just a tax on the physically and technologically enforce uncertainty. In my view, it will continue business the affiliates send their way, against the things that they want to to do so. The industry in Gibraltar is but also pay the affiliate its share of prevent from happening. But in those robust and established enough, and the revenue on a gross profits basis; countries that have tried it, and I don’t sufficiently engrained into the ethos of effectively, therefore, succumbing to see the UK with any ideological our companies, community and two losses. The price of not doing so is propensity to go down this road, they economy, that the Government will the risk that the affiliate sends the have almost always demonstrated that remain sensitive to its needs. business elsewhere, the operator it doesn’t work: the consumer will Whatever the temporary disruptive loses the revenue, and the British always find a way around such effects of the introduction of this new Treasury loses its tax base. You see, measures.” system in the United Kingdom, the the ducks were in a row all the time.” combination of that, I am certain, Conclusion means that Gibraltar will remain a Jurisdictional comparison location of choice and one in which we “There are dangers, lots of dangers for can expect growth to continue.” In drawing towards a conclusion, Sir both licensing and taxation”, Sir Peter Peter explained that, ultimately, much stated in closing. “The Point of will turn on the topic of enforcement. Consumption system is dangerous for A summary of his arguments found the operators, and it is dangerous for that a lot was premised on the view the consumer in the UK. There are also that it is not possible to effectively dangers for the UK Treasury, which I prevent consumers from migrating to think has been motivated by their competitors and it is not possible to drawing a figure of around £270 million prevent unregulated operators from in the air that they would rather not targeting the UK market. “But that collect than have to explain to view is not used simply for self-serving parliament why they are changing it. purposes”, he argued. They will be lucky to collect that figure and they will be lucky to collect it “You all know of the statistics that are sustainably unless ways can be found out there in the public domain that to protect the compliant, licensed demonstrate it. In Norway, more than sector operators from loss of half of online players have found a way business, loss of margin, loss of to circumvent the payment blocking profitability, and loss of turnover in

34 Panel Session 3 The Outlook for Gaming

Moderated by: Peter Montegriffo, Hassans Panelists: Archie Watt - Director, KPMG Gibraltar Juergen Reutter - Operations Director, William Hill Online Martin Weigold - Chief Financial Officer, bwin.party digital entertainment plc Michael Carlton - Chief Executive, BetVictor

Before putting questions to the final over the next few years. Then comes pressures that we have to bear at the panel of the day, Mr Montegriffo first the role of technology, not just in moment, we need to consider ways to expressed his desire to set the scene delivering the product to the broaden and increase our revenues to very briefly by highlighting five main customers, but also in payment counter the new costs of operating. themes that are impacting on the processing systems and indeed the Third is maximising the efficiency of sector at present. Firstly, he noted the way that businesses run. We are well our cost base to ensure that we can political environment in which the aware of the significance of mobile, generate profit as effectively as sector operates. “Clearly the political we are well aware that delivery of the possible.” environment in the United Kingdom is product has changed dramatically. So extremely difficult, even hostile,” he have we moved away from the Martin Weigold - “Firstly, I agree that remarked. “We need to ask ourselves traditional methods of delivery, or are a critical part of the success of most if there’s more we can do to correct we moving into an area where the companies now is to continue to that. The political tide in Europe, delivery systems are going to be multi- evolve your products as we transition however, is probably, at best, faceted or diversified than they were to mobile. The other two priorities indifferent. Those of us who harbored three or four years ago?” include preparing for the transition expectations that we might have had towards internationally regulated some relief from Europe probably gave “Finally, because we’re in Gibraltar but markets, which are coming whether up that expectation long ago, although also because we’re in a business that we like it or not. We’ve been we will always remain hopeful that operates internationally; what is the experiencing this first hand, with 56 perhaps some deeper engagement future of ‘hub’ jurisdictions given the percent of our revenue coming from might still be possible in the future.” inexorable move towards regulated nationally regulated markets. That markets in a domestic context, putting transition is very painful, so whatever “The second theme,” Mr Montegriffo to one side the prospect of you can do to set up your businesses remarked, “concerns the huge divide convergence at European and even US to enable that to happen more between the regulated and level. What is the value proposition of effectively i.e. ensuring an open and unregulated sectors. Operators are jurisdictions like Gibraltar? What more adaptable platform to comply with all grappling with this reality more today do we need to do to remain relevant these regulations, is going to be a than ever before. Developments not and, indeed, be of value to operators? good thing. Also, that means you have just in Europe but also in the United So with that introduction, a very to choose your battles more carefully; States mean operators are going to simple question; what are the top you can’t be a winner in every market have to decide how to position three priorities for the development of you operate in. When we see these themselves and decide what risk your business over the next few years? markets opening up there will be new appetite they will have in a world players that emerge, so you have to where the challenges of dealing with Michael Carlton - “I think, firstly, it’s focus on those markets where you can both markets will, I believe, become important to focus on the multiple be a top three player. My third priority difficult to handle.” distribution channels that are available concerns the agility of the business. to us. We’re focusing specifically on Consumers are becoming increasingly “Thirdly, as a result of many factors, mobile of course, but it’s important to demanding so the ability to react margins are being squeezed further. make the complete range of delivery swiftly to consumer demand is very We will discuss what this means for channels available so that the important.” market consolidation, what the new customer can use them at the times, dynamics for the new market are, and and in the ways and manner that best 35 what these will mean for the outcome suits them. Secondly, looking at the Juergen Reutter - “Just to add to that, happy, and everything is working as it operations, compared to what the we believe there is a great opportunity should, then they will naturally stay potential buyer thinks. So I think there awaiting for the sector in the general longer. It’s in everyone’s best interest will have to be a period of 12 to 18 technological developments that are to do that.” months, during which the buyer will ahead of us. If we look at the UK, 4G wait to see what the true impact is. and free WiFi coverage is increasing, Juergen Reutter - “For us, again, it This will result in some of the medium Smartphone and Tablet penetration is goes back to technology. Every sized companies being absorbed, booming representing underlying customer in the UK, for example, has while some of the smaller companies, drivers that we must embrace. The two to three accounts running at any quite frankly, will struggle to survive.” industry is at the forefront of mobile one time, so retention is key. If you technology and this must remain the look at mobile we now have 1.5 million Archie, are you seeing some of case with emerging technologies if we app downloads in the UK. This enables those stresses in the market? are to continue to drive our business to us to communicate with our the next level. This ties in with my final customers via ‘push notification’; a Archie Watt - “The M&A market is priority which is to have product and notification which arrives directly from quite buoyant at the moment, with service innovation as an integral part of the app on to the user’s home screen. some of the smaller entities actively the organization.” You cannot get closer to your looking to be acquired. These are customer unless you shake hands. This entities which have a particular USP, Archie Watt - “I echo what has been can not be a one size fits all something that they’ve developed and said on technology; harnessing and notification, it has to be tailored and brought to market up to a point, and making the most of it is a key priority. personalized to drive added value to which are now looking to exit. That has Secondly, I think businesses need to each single customer. In order to do always been the case, however, and place more focus on keeping that you have to be able to complete the UK’s new regime is not changing customers and enhancing their the bridge between your front-end that. I agree with Martin: just as in experience. Acquiring customers is presentation technology and the data France and Spain companies are expensive, but keeping them for longer systems in your backend. This is one of looking for a voluntary exit from the must be a more cost effective option. the key challenges for the future: UK market. As for consolidation, we’ve Thirdly, and to pick up on an earlier Leveraging on user data for a tailored been hearing a lot of promises for a discussion; if companies can get personalized offering presented in real- very long time.” ahead of the curve in terms of what time to your customers. the regulators want for player Juergen Reutter - “I agree with protection and problem gambling, they One of the bigger challenges is Martin: I think the pressure on the tier can be seen as good corporate learning how to deal with the new 2 and tier 3 players in the regulated citizens. Being a good corporate citizen regulated markets in Europe and markets will only increase. To take the is going to be beneficial to the future elsewhere. What effects will that UK again, it’s a big tax hit that has to of the industry.” have upon the issue of market be absorbed into the bottom line. Add consolidation, and the issue of who to that the cost of acquiring a licence Just to focus upon the point of survives and who does not? in order to remain compliant in those broadening the revenue stream; are jurisdictions, and the cost of facing the we talking about the retention of Martin Weigold - “I think there will, to incumbent operators, and you can see and extraction of more value from some extent, be a polarisation. There that it won’t be an easy environment existing customers? Is it simply a will be some M&A or consolidation in for smaller businesses. As a result, I case of being better at delivering the both the unregulated and regulated think we will see an increased market product they will buy? Are we sectors, and there will be some share for the tier 1 players.” talking about expanding client base companies that will happily operate in demographics, or diversification the unregulated markets – as we I think we’re all agreed that we into areas such as social gaming? know, it is very profitable to be there. haven’t done a very good job Equally, I think the larger companies historically of defending and Michael Carlton - “I think it’s a will focus on the regulated markets in promoting the industry, or in combination of all of those. As Archie the future and so it is inevitable that presenting the safeguards inherent was saying, the cost of acquiring there will be some degree of in our technology to dispel the customers is increasing day-by-day, so consolidation.” prejudices that exist. What more do once you’ve got those customers it is you think we should be doing? vital to try to extract the maximum “Taking the UK as an example, I don’t value out of them and for the longest think there will be a rush towards Michael Carlton - “I think we ought to period of time. This entails keeping the consolidation. When the market opens focus on what we’re good at. This customers happy, keeping them there will be a large discrepancy means delivering a product that is playing, and it entails player protection between what the vendor expects the what the customer wants, it means as well. If the customer is content and impact to be on their target business’ working very closely with regulators in 36 the market, and it means working with must maintain that flexibility and compared to my generation – the the governments where necessary. It’s adaptability to embrace change and parents of the generation Ys. They about enhancing the reputation of the sustain the positive environment that want a different lifestyle, have a individual companies and the industry, we work in, despite the fact that it will different outlook on life, want to do and making sure it attracts the best not look like it does today. It will different things during the day and people to deliver the best service to change, and we need to drive that during the weekend. If a jurisdiction create the right level of perception and change. This includes the way we as wants attract staff then they need to confidence in the industry. I think a operators, the government, and the ensure that this generation is catered hub such as Gibraltar, which does pick supplier industry operates.” for. This means resolving such issues up on a number of those points with as the Gibraltar border and making its support from the government, Martin Weigold - “I think Gibraltar has sure that the leisure activities are regulator, operators and individuals, indeed shown itself to be very available. That’s the sort of stuff that can only add to the whole quality of adaptive, and whilst recent national really attracts people, and if you can’t the industry.” regulatory developments in other attract staff your business cannot jurisdictions have made the principles continue in the long-term.” Martin Weigold –- “I certainly agree of a hub jurisdiction less relevant, with Michael, and I would add that one there are still many reasons to choose Do you see social gaming coming area in which the industry can to be based here. We still enjoy into the sector in the medium term? definitely improve is lobbying and how corporation tax and VAT advantages, a Even if it doesn’t, do you see it as a it interacts with various interest robust licensing regime, and an viable means of broadening your groups. I think there should be more established pool of industry expertise. revenues? competition on commercial and Of course, there is still room for technological merit, and perhaps fewer improvement. Ultimately all our Martin Weigold - “I don’t think that attempts to exclude certain types of businesses are about our staff, so we particular business needs to become operators by alleging that, say, one have to focus on attracting more regulated in order to become of form of gaming from one type of people to our jurisdiction and keeping interest to operators. It is a very good operator is worse than another. It’s bad them here. Things like the border issue opportunity and you only have to look for all of the industry. I have to say, are relevant to our business to the at some recent acquisitions in the however, that I’ve been very pleased extent that it affects our staff and their space - Caesar’s with Slottomania and with the level of cooperation the desire to live here.” Bingo Blitz, IGT with Doubledown – to industry has shown in getting together see that there is the potential for a lot on the Point of Consumption tax and I Juergen Reutter - “We have around of growth. At bwin.party, our approach hope to see similar levels of 450 people who we are able to recruit has been a little different. We’ve cooperation in other areas in future.” and retain because they are very actually bought a development team happy here. We are looking for very based in the Ukraine, which is Archie Watt - “I absolutely agree; specific skills in people, many of beginning to roll out some of the first speaking with a single voice has to be whom are working at the forefront of social gaming slots. This is very much good for the industry. The UK new and emerging technologies, and a ‘hit’ driven business, however, and Government seems to be driven by the driving our product development. the jury is still out on the level of front page of The Daily Mail so what There are many reasons for us to be conversion between social and real the industry needs to be doing is committed to Gibraltar, but the border money gaming.” projecting that single voice onto its situation remains a topic of discussion front cover. It needs to show that is it for the many who have to cross it “Overall, I do think social gaming is an taking positive action in the areas daily.” opportunity for operators. Personally, I where The Daily Mail has had concerns don’t think it ever will be the case that in the past. That must be the right way Archie Watt - “I agree in that I think there is a large overlap between social to go forward.” there are still many benefits to be had gaming and real money gaming, but by operating in Gibraltar. I travel the numbers are so high that you don’t Moving on to hub jurisdictions like through many similar jurisdictions – need such a large cross-over for it to Gibraltar; what do you think are the Alderney, Malta, the Isle of Man, and become a meaningful business. It is major issues we need to tackle in the brass-plate operations in the UK - also important to remember that we the medium term to remain a and I would split them into two can learn a lot from social. Without the jurisdiction of choice for major categories; the brass plates of real money aspect, the quality of the international players? Alderney and the UK, and the ones gaming experience needs to be where there are real operations taking enhanced, so what we’re trying to do Michael Carlton - “I think it’s our place, such as Malta, Gibraltar and the is take some of those social features ability to adapt: Gibraltar was terrific 15 Isle of Man. The issues we all have are and build them into our real money years ago when it realised gaming staff related, but we have to products.” would be a tremendous opportunity understand that the ‘generation Y’ and it has enjoyed great success. Now, people we recruit have entirely with the challenges that face us, we different approaches to work 37 “In terms of regulation, I think social How do you see alternative payment Martin Weigold - “I agree with gaming will inevitably attract the methods gaining traction within the Juergen entirely, I think the market will interests of the regulators at some industry over the next few years? still be growing on the back of new point as the lines between social and technology, but I also think that real money gaming are becoming Michael Carlton - “I think you have to gaming in general has become more increasingly blurred.” be flexible and keep an open mind. The socially accepted – that’s one of the consumer is quite quick to embrace benefits of national regulation and the Moving on to effective enforcement; new technologies and concepts and freedom to advertise. This is good for is there more that we, the virtual currency is one of them. I’m not the industry. Having said that; there regulators, or the governments can sure to what extent it’s going to will be a few bumps during the do to impede the grey/black market penetrate into the market, however; process of transition where or to discourage players from even with the vast amount of e-wallet restrictions are placed on the market. entering it at some point in the near solutions that are available and the Casino and bingo as a product group future? number of customers that use them, are markets that will be adversely they are still eclipsed by credit and affected by national regulation. Certain Juergen Reutter - “I think we as an debit card. Yes, customers will use countries, as with the Spanish slot industry all aim to operate in a Bitcoin, say, and propensities for use offering, will look to restrict them in regulated market, in strong partnership will vary from market to market, but I some way. Concerning poker, I think with the regulators and in a healthy think it will form another part of the product growth is pretty tired in eco-system. Enforcement is key for us. many payment solutions available to Europe - the potential there lies with It is expected, in the end, of regulated them.” the US as and when it opens up - operators and there are technical while prospects for sports betting measures that can be taken by Where do you see the industry in remain positive across the board. Asia regulators to help the process of two to three years’ time? Are we in shows little sign of regulatory enforcement. In the short-term, the the throes of a transformation? development and I expect the market issue is one of resource; the will remain somewhat in the grey area, expectation from licensed, responsible Juergen Reutter - “Again, I would like despite its being a potentially very operators is that there should be some to answer from a technological point of lucrative market for operators willing to protection afforded to those operating view. Eight to ten years ago, when we accept players from that jurisdiction.” within the regulated environment.” were developing for the PC, operators only had to worry about compatibility Michael Carlton - “It’s a very exciting Martin Weigold - “To the extent that with two to three major web time. The markets are growing, the we are able to deal with it, I would say browsers. Four or five years ago, with propensity to gamble is increasing and we need to deal with it ‘at source’ and the emergence of smartphone, our the availability of the product is get the regulation right in the first developers were faced with a couple increasing. There are new markets place. The UK is regulated at the of hundred devices with which to becoming available to transact moment, with almost no black market, ensure compatibility. Today, most business in and I’ve never seen an whereas the French market has operators have become flexible industry in which the people are so between 60 to 70 percent of it in the enough to accommodate both, but agile, resourceful, and resilient. Of black market. Why is that? It’s because what we’re also seeing is multi-device course, we are going to see some the French regime is uncommercial driven behaviours in our customers. A changes in tax and regulation, but it and the market is substantially user may start their journey during the will accept those, it will find distorted by the product restrictions day on their smartphone and move on resolutions, and it will be stronger and and high tax rates that are placed on it. to a PC at lunchtime, while the better for it.” For me, educating those that are evenings are increasingly being taken drafting the legislation at the outset is over by tablets. Looking two or three important. We need to make them years ahead, we’ll see wearable understand that the facts we provide technologies – iWatches and Google are true, are not aimed to distort, and Glass – coming to the market. So there are for mutual benefit. Of course, as are added complexities for the we’ve heard from Sir Peter Caruana operators and their developers to work QC in an earlier presentation with and adapt in order to offer a concerning the UK, you can bring the seamless gaming and entertainment horse to water, but you can’t always experience across different platforms. make it drink. As far as enforcement is Those are the major challenges, but concerned, I think that it is as much they are also the major opportunities about political appetite as it is about for the sector.” technical ability.”

38 Archie Watt Russell Kelly Closing Words

Russell Kelly Archie Watt Director, Audit & Advisory Director KPMG Isle of Man KPMG Gibraltar

Mr Kelly concluded the day’s events Gibraltar,” he remarked. “It has been Mr Watt then took the opportunity to with a closing address which evident throughout the day that there thank the day’s sponsors – Continent 8 remarked upon the rapid growth of is a growing acknowledgement of the Technologies, Gibtelecom, Counting the KPMG eGaming Summit imperative for the remote gaming House, Standard Bank, Sphonic, Gibraltar series in just the four years community beyond Gibraltar to adopt a Hassans, Word Trade Center Gibraltar, since it first began. “Thank you collective stance in extolling the Call Credit, Sunborn Gibraltar, DLA everybody for coming along today virtues of the industry, rather than Piper and the Isle of Man Post Office to our fourth eGaming Summit here competing on common ground.” for their generosity and support in Gibraltar. It is tremendous to see throughout the process before the level of support we enjoy for all “This is an industry that, of its own expressing his gratitude to the of the Summits we run here and in volition, remains at the forefront of speakers and panelists who helped the Isle of Man and I’m sure you’ll online consumer protection, make this year’s eGaming Summit in all be pleased to know that for the international legislation and regulation, Gibraltar KPMG’s most successful to first time now the Gibraltar Summit anti-money laundering and compliance date. “Finally,” he added, “I would like has grown in size beyond its Manx procedures, technological to say a big thank you to my team at counterpart,” he enthused. advancements and, not least, the KPMG, particularly Katie Richardson, customer entertainment experience. as well as the team at Ashgrove “Key to this success has been the What remains is to come together to Marketing for putting all of this tireless enthusiasm of our eGaming tackle that final and most elusive of together. Thank you and we look team both here in Gibraltar and in obstacles; public and political forward to seeing you all again next pockets of influence across the globe. perception.” year.” We all play our part in helping this “As many of our speakers have already industry to progress, perhaps none reiterated today, it is up to the industry more so than our resident expert to ensure that those in a position to Archie Watt. It is for this reason among have a significant effect on eGaming, many, and with great pleasure, that I its laws and regulation, contribution to would like to take this opportunity to the economy and, of course, announce Archie’s appointment to customers, are made aware of the Director of KPMG Gibraltar and to offer great care it takes and the progress it my congratulations on behalf of has made in little over the decade and everyone here at KPMG.” a half since its inception. It is hugely gratifying, with the passing of each Mr Watt then took over from Mr Kelly KPMG Summit, to take an active role in thanking the KPMG team and those to this end and to see the growing who attended the day’s events: “I’m consensus that this is an industry that sure the success of the KPMG can meet any challenge and still only eGaming Summit series reflects upon go from strength to strength.” the quality of speakers who were kind enough to join us and offer their expertise, and upon the attitudes of 39 the eGaming community here in Archie Watt

“This is an industry that, of its own volition, remains at the forefront of online consumer protection, international legislation and regulation, anti-money laundering and compliance procedures, technological advancements and, not least, the customer entertainment experience.”

40 Russell Kelly

KPMG Limited Tel +350 200 48600 www.kpmg.gi

The information contained herein is of a general nature and is not intended to address the © 2014 KPMG Limited, a Gibraltar limited company and a member firm of the KPMG circumstances of any particular individual or entity. Although we endeavour to provide accurate network of independent member firms affiliated with KPMG International Cooperative and timely information, there can be no guarantee that such information is accurate as of the (“KPMG International”), a Swiss entity. All rights reserved. date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.