Im-Esummit-Report-2011.Pdf

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© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 1 (“KPMG International”), a Swiss entity. All rights reserved. Introduction

The 2011 KPMG eGaming Summit, this opportunity to thank everyone held at the Mount Murray on the Isle who took part in particular the of Man on 22nd November, built speakers and sponsors who upon the significant success of the contributed so heavily to making it a inaugural event in 2011. Over 180 worthwhile event. delegates attended, drawn from KPMG retains a number of eGaming both local and international industry experts both in the Isle of eGaming operators, service Man and globally and are committed to providers, regulators and cutting through the complexity of this Government representatives. constantly evolving industry. The event was again opened by the We look forward to seeing everyone Hon Allan Bell MHK, this time in his again at the next Summit, in new role as Chief Minister of the Isle November 2012. of Man Government, and was closed by the Minister of the Department for Economic Development, the Hon John Shimmin MHK. As with last year, the A word from day featured a number of engaging presentations by industry experts, as the Sponsor well as three panel sessions where questions were taken from delegates. Everyone here at Continent 8 Technologies is proud of the part we The purpose of this report is to have played in supporting this key summarise the varied topics covered industry event for the second year by the different speakers and running. In such a complex panellists as an ongoing resource for marketplace, it is absolutely the eGaming community, particularly essential that decision makers those who were unable to join us on across all of the involved parties – the day. We would also like to take be they operator, service provider or legislator – work from a shared understanding, which is largely to its telecommunications made possible by industry events infrastructure and we want that such as this one. leading to edge to be maintained. Whilst Continent 8 operates a global This report will help to widen access to network, including data centres in the shared knowledge base the event Europe, North America and Asia, the offered and thereby to maintain and Isle of Man is crucial to our business build upon the Island’s quality offering. and we are heavily committed to the eGaming community here. The Richard Ebbutt jurisdiction is truly world-class in Continent 8 Technologies everything from its legislative outlook

Allan Bell Chief Minister Allan Bell Isle of Man Government

The Summit was opened by The He said the island had avoided The Isle of Man Government had Chief Minister, the Honourable Allan recession. The unemployment rate developed and nurtured the eGaming Bell MHK, for the second year. was still very low, running about 2.1%, industry from its humble beginnings A long standing advocate of the whereas the UK had an unemployment and, despite some difficult times, had eGaming industry and its benefit to rate in excess of 8%, which reflected always been keenly focussed on what the Manx economy, he again well on the collective effort everybody was important to the industry and to presented the Island as a strong and had shown on the island to maintain the players. “I am proud that we are competitive jurisdiction. He called those figures. There was no budget home to some of the most influential on delegates to build relationships, deficit to contend with and, although names in the industry and equally knowledge and collaboration the VAT situation had to be dealt with, proud that they are pleased to call us between eGaming companies, this was under control at the moment. home,” said Mr Bell, highlighting the service providers and the Manx “We have our recovery plan underway contribution eGaming companies Government in order to capitalise and, so far, we are ahead of where we made to the local community through on the Island’s significant eGaming expected to be,” he stated. TT and hospital charity sponsorship credentials. and in support of various sports team eGaming at the forefront which benefitted young people. Mr Bell began by extending a warm This strong performance, Mr Bell welcome to everyone on behalf of the Within the gaming sector, Mr Bell continued, had been underpinned by Isle of Man Government and thanked emphasised that young people also the increasingly diverse nature of the KPMG for their hospitality in organising received training and career Island’s economy, which now the event. development in areas such as IT, comprised considerably more than just marketing, financial modelling, An Expanding Economy a finance sector. It had been a compliance, regulation and others that deliberate Government policy over the Mr Bell said he is passionate about the allowed them freedom to flourish. last few years to diversify in to other economy and promoting business, areas. “eGaming, in particular, is one However, it was also important to explaining that the latest confirmed that is very much at the forefront of maintain the reputation of businesses national income statistics for 2009/10 that,” said Mr Bell. “The Isle of Man based in the island, so that player showed that the economy had grown should now be regarded as an confidence remained high. “For those by 2.1% in real terms. “This international business centre that plays businesses that are transparent, well measurement was taken in the host to a range of successful business managed and play a central role, you immediate aftermath of huge global sectors, some of which are among the will find a like minded partner in the upheaval,” he reminded the Summit. best in the world, including eGaming,” Isle of Man,” said Mr Bell. Eighteen months further on, the he added. indications suggested that the economy had continued to expand with positive growth during the current year.

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 3 (“KPMG International”), a Swiss entity. All rights reserved. “I am proud that we are home to some of the most influential names in the industry and equally proud that they are pleased to call us home”

High Quality Reputation total to around 750 which was “a major There were issues that still faced the contribution to the economy.” An sector, he said, but the industry was Reputation was at the forefront of additional £30m had been spent locally, fully aware of the challenges Government thinking in respect of the taking the annual spend to just over generated by changes in Europe and entire business community, he £165m. “When the economy is under the UK. Despite these challenges, new stressed. “As Chief Minister, I will do pressure, such as it is at the moment, enquiries were still being received. “I everything in my power to ensure that this is a vitally important contribution can you assure that politically and at the very high quality reputation that that you are making,” said Mr Bell. officer level we are responding very the Isle of Man has developed over vigorously to those challenges and we the years is protected and enhanced But perhaps of greater importance, he are making good progress,” said Mr wherever possible,” he said, adding added, was that eGaming businesses Bell, adding that he had developed a that when gaming licences were had contributed over £15m in paid very good relationship with the UK refused, it was to everybody’s benefit taxes in the year 2010. This, he said, Minister in charge of gaming. “We since the island needed to focus on was the budgetary equivalent of an have a very good understanding of the quality in everything it did. entire department of Government. “So eGaming is making a major role that the Isle of Man industry plays He said this approach to developing a contribution to the provision of public in the broader field.” Those delegates high quality economy had borne fruit: services on the island as well,” Mr Bell who were abreast of EU the national accounts for 2009/10 had stressed. “All in all, this is a truly developments would be aware that demonstrated that eGaming was now remarkable achievement, given the the German MP Jurgen Kreutzman 9.1% of GDP. That figure was 40% up world’s upheavals.” was putting together a report to put a on the previous year, following 56% common collection of laws in place But he warned that now wasn’t the growth in the year before that, Mr Bell regarding eGaming across Europe. time to sit back, admitting that the disclosed. “That is a quite astonishing “We welcome this from the Isle of eGaming sector wanted somewhere achievement in less than 10 years and Man and will be happy to work in that would provide tight business- I congratulate you for the efforts you conjunction with our European centric regulation, combined with have put in to achieve that,” he told partners to promote a regulated player protection. It was this that gave industry with player protection at its the Summit. This growth had resulted everyone the confidence to grow their core,” he said, although he felt this in jobs and in real spending in the business, he said. In recent years, he economy, which many commentators was pleased to have supported new situation might be some way off. feared would not be the case over the legislation aimed at making the island Breakthrough Bi-lateral Cooperation last 12 months. more competitive. This included the Agreement Vital Contribution new network licensing regime, which meant companies were already Mr Bell used the Summit to Mr Bell reported that paid up eGaming approved to offer services globally to announce: “the Isle of Man has licensees had increased from 22 to 38 other businesses from the island. agreed the terms of a bilateral which showed a 24% increase in “This is the business model of the cooperation agreement with Denmark growth in 2010. A further 102 jobs had future and we want to be at the centre in the field of eGaming. This is to been created in the sector, bringing the of it,” he said. coincide with the regulatory

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4 development within the country. This all our companies. This is quite a which has given the Isle of Man a new is the first international cooperation breakthrough for the Isle of Man and I boost in terms of job opportunities, agreement between the Isle of Man would like to congratulate all of those revenues and a diversified economy.” Gambling Regulator and its overseas concerned,” said Mr Bell. In conclusion, Mr Bell reminded the equivalent.” He added that this would audience that a diversified economy present a range of commercial and He went on to mention that the DED’s was at the absolute core of his new business opportunities for the Isle Head of eGaming, Garth Kimber, was Government and its new strategies for of Man. returning to the private sector to develop the business in that area. the future. “In eGaming, you will “My congratulations to Steve Brennan, “Garth has been a great supporter of continue to play an important part in the Gambling Regulator, for the hard the island, said Mr Bell. “He has that. I can promise you absolutely that work he has put in and achieving what worked tirelessly to generate new you will have my 100% support, is a breakthrough agreement for the business and I want to put on record whenever possible, to develop the island in the present circumstances and today all my thanks.” industry further and I look forward to something which is going to pave the continuing the cooperation and the way for greater international A Vibrant and Prosperous Sector positive and constructive relationship collaboration in the future,” Mr Bell said. In summary, Mr Bell said that as Chief I’ve enjoyed with you as Treasury Minister, Economic Development In order to keep the number of Minister he was delighted to be at the Minister and now as Chief Minister.” collaborative relationships growing, the Summit. “It has been a ten-year Government’s Marketing Initiatives journey since we started eGaming. It’s Fund had made money available to heartening to see, in spite of the carry out further discussions and visits, problems and difficulties that we faced he disclosed. The objective was to along the way, that we have today “reach agreement with our European established a vibrant, exciting, partners to ensure market access for successful and prosperous business

“So eGaming is making a major contribution to the provision of public services on the island as well,” Conference Russell Kelly Opening

Russell Kelly “It’s fantastic news that we have been Director: Audit & Advisory able to announce the MOU with Denmark. KPMG Isle of Man Hopefully the first of many to come.”

Russell Kelly joined KPMG Isle of Other difficulties in 2011, such as the In posing the question as to what lay Man in 1993 and has also worked US poker industry controversy, had ahead over the next 12-18 months for for KPMG in London and Jersey. shaped industry thinking during the last the industry on the Isle of Man, he His client experience encompasses six months. But this had “also shown said: “That is always open to debate financial services, telecommunications , the Isle of Man to have very robust and and it is difficult to plan too far ahead eGaming and real estate. He also good regulation in the area of clients’ in an industry that changes so undertakes transaction services and money,” said Mr Kelly. “The regulatory quickly.” The UK were currently ISAE 3402 (SAS70) work. approach in general has been shown to making changes to their tax and be very strong, which is a credit to the licensing regime. EU regulation Mr Kelly set the scene for the Summit, team we have in place.” continued to evolve. “It’s fantastic outlining how the industry had news that we have been able to changed in the last year as well as He also revealed that the Isle of Man announce the MOU with Denmark. looking ahead to future opportunities eGaming sector had seen great Hopefully the first of many to come,” and challenges. growth in 2011. There were now 38 Mr Kelly said. licences in operation – up from 22 on He said that there were in the region of the previous year. 40% of those After thanking the Summit sponsors, 180 people present which was “a licences were focused outside the UK who he acknowledged had been very fantastic achievement” and showed and the EU, which showed the global generous in helping make the day how large the eGaming sector now reach of gaming on the Island. There possible, Mr Kelly then outlined the was on the Island. It was interesting to was also “a fantastic pipeline” of day’s programme. The morning reflect on the initial first conference in business that would lead to a further session would focus on the theme of 2010 and to see what had happened increase in licence numbers. The the Isle of Man being “A Safe Place to locally and globally since then in the sector was growing, said Mr Kelly, Play” with the afternoon more gaming sector. “Globally, we still see a with almost 800 jobs locally, excluding generally looking at trends in the wider very difficult outlook across Europe and the support sector, which was made industry. The day would also include the rest of the world, yet there is up of corporate service providers, three panel sessions; the first of which growth in certain areas of the gaming lawyers, accountants and bankers, all would compare the Isle of Man with sector which is great to see,” said Mr of whom were employed to provide other jurisdictions, followed later by Kelly. “Asia is still showing strong services to the sector. “We also have the future of hosting and finally a growth, mobile is showing strong great Government support which session at the end of the day growth, all of which is being embraced shows how committed the assessing the future for gaming over here on the Isle of Man and I think that Government is to our sector and the next 12 to 18 months. indicates very positive trends for the making it work for the future.” future,” was his optimistic assessment.

Sector Update - Isle of Man Specific

The Summit began with an upbeat, Legislative Changes Steve Brennan jointly presented Sector Update by During the last 12 months, Mr Steve Brennan, Director of the Isle Brennan said several new pieces of Chief Executive of Man’s Gambling Supervision legislation had been introduced. The Commission (GSC) and Garth Isle of Man Gambling first of these was the Gambling Kimber, Head of eGaming Supervision Commission Supervision Act, which treated the Development within the Isle of Man Gambling Commission as a Statutory Government’s Department of Board. There was now even clearer Economic Development (DED). They separation between the policy maker explained the different functions of Garth Kimber and the regulator, which stood the Isle the Regulator and the marketing of Man in good stead for the next IMF team charged with promoting Head of eGaming assessment. Development eGaming on the Island. On the key theme of player fund Mr Brennan recognised that 2011 had protection, Mr Brennan highlighted Isle of Man Government, been a unique year, which was not the Online Participants Gaming Department of Economic without its challenges but very Money Regulations. “This provides a Development successful. The issues the GSC faced cost effective way of ensuring that in the future concerned the any players’ funds that are deposited international regulatory landscape. “In with any Isle of Man licensed Europe, more jurisdictions are in the operator, if there is any operator process of opening their legislation up default, then the player will be able to for regulating online gambling,” Mr get his funds back.” Brennan explained, highlighting Denmark as an example. It was also necessary to introduce a Prevention of Terrorism Online Code In the United States, he said the under the Terrorist Finance Act 2009 current focus was typically on State but Mr Brennan said he was mindful versus Federal regulation. “But the that new legislation brought more bottom line is that it’s going to be some costs for business. “So we have tried time before that picture crystallises.” It to make sure overheads are would appear inevitable that the US minimised. When we come in for market will regulate in some form or international scrutiny we are ticking all other, he predicted. the boxes the IMF might be looking Mr Kimber’s opinion was that the EU for,” he assured the Summit. market was one of the key issues for Meanwhile, Mr Kimber said the the Isle of Man eGaming sector. Exclusion Regulations had been “a big “Making sure the island’s operators success, taking away the need for have access to the EU market is a key peripheral parts of the industry to be driver for both the Government and regulated.” In the last year, as result of the Gambling Commission over the the Regulations, six new companies next 12 months,” said Mr Kimber. had located to the Isle of Man, “The USA is hard to keep up with. including affiliates, marketing There is a lot happening there but we companies and brokers. do understand its significance.” On Network Services Regulations, Mr Brennan recognised that a robust regulatory framework supporting

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 7 (“KPMG International”), a Swiss entity. All rights reserved. Steve Brennan

gambling networks on the island latest MeGA Survey showed local the GSC to the granting of a licence. attracted good business and a couple spend was up 24% and that 100 jobs “We are passionate about promoting of licences had been approved for were created on the island in the last the island. Doing what we say quickly that purpose. year. “These figures are pretty and transparently is why a lot of impressive,” he said. businesses are choosing the island,” Mr Kimber said what was new to the said Mr Kimber. Isle of Man in the Network Mr Kimber said online organic growth Regulations was that players who was important to the DED. “The easiest Future Trends belonged to operators in other place to get growth is from businesses He said there was now a steady sector jurisdictions were not the that are already here.” New businesses migration under way and a number of responsibility of the Isle of Man for the were starting to recruit people and lay businesses were bringing an first time. “It’s a unique piece of down firm foundations in the island. increasing proportion of their legislation, but it has been Recent figures showed that just over operations to the Isle of Man. successful.” He added that some 20% of employees were on work businesses wanted to upgrade to the permits. “Nearly 80% of employees are Business to business was also a highly Network Licence and other companies Manx workers, so this is really paying important area. Network legislation were in the process of being dividends,” said Mr Kimber. had taken off well and was helping. “I sponsored to do so. “I see it as part of really want to see a big push here next the globalisation of the Isle of Man Four years ago, the island did need year,” said Mr Kimber. “We need to within the industry,” said Mr Kimber. start-up businesses so it could be seen work with the software providers and as a credible jurisdiction within the companies in this area because they Record Numbers of New global sector. “But I’m happy to say, are good long term-businesses for the Licence Holders looking back over the last year, 50% of island.” The Summit was told that there were businesses that came to the island to There was now a cluster effect of non- now 38 paid licence holders. A further take licences were existing licensable peripheral companies 10 were approved, had met all the businesses,” enthused Mr Kimber. discovering the island was a good GSC requirements and were in the The UK and the EU markets were very place to do business. “As a process of launching. important with 60% of businesses here Department we are looking for as Licence fee revenue up to April 2011 UK and EU facing, and 20% focussed many companies as possible to was £1.1m, an increase of £300,000 on Asia and the rest of the world. relocate and help grow our skills base on the previous year. By the end of on the island,” said Mr Kimber. He said that in February 2011 the DED April 2012 it was expected to reach had visited Panama and Costa Rica In his view, Asia, Central and South about £1.4m. The duty figure of looking at what could be done in America were important regions and £2.64m was still “a quite significant Central and South America, declaring were not simply there as a backup to return” from the sector. There were proudly “I can report there are seven the EU. “We are a global player. Our four casualties during the year; two companies in the system at various technical infrastructure is superb and licences were rescinded and two that stages which are a direct result of that we should be concentrating on getting were approved weren’t taken up. “No visit.” business from anywhere in the world player who had money deposited with that we can legally do so,” Mr Kimber the two live operators was unable to A Successful Island Proposition insisted. get their money back. That’s The reasons behind the island’s something we hold quite dear within International Cooperation success in eGaming were complex, the GSC,” Mr Brennan stressed. and Common Standards Mr Kimber suggested. But it was Mr Kimber said that a further 10 underpinned by making the application Mr Brennan suggested the future companies were currently preparing and licensing process “properly joined trend was for regulators to talk to each applications with the GSC, which up.” For any fully prepared application, other. The Denmark agreement, like demonstrated a healthy pipeline. The there was a 12 week guarantee from the one with the UK, was key for the

island’s sector. The next logical step Mr Brennan said the banking Mr Kimber said this year it was exactly was to agree to common standards in environment on the island impacted the same plea to the banks as the areas such as system testing, game the online sector. Consumer previous year – for consistency. testing, age limits, player time and protection is a key tenet of the GSC, “Gaming is a business which is player fund protection, to ensure any with player fund protection one of its extremely well regulated by the GSC,” business that had its home licence in cornerstones. The new Online he said, adding that the perceived risk the Isle of Man was not being asked to Participants Gaming Money for banks was greater than the actual duplicate standards or to meet Regulations provide a robust and cost risk and that they should take each different requirements in another effective mechanism for operators to jurisdiction on its merits. jurisdiction. segregate and protect player funds, Mr Brennan then turned to Black but this legislation only applied to Threats and Opportunities Friday, April 15th, and the US banks on island. “We have got very Department of Justice online gaming Mr Kimber said the UK White List easy and robust regulation on the indictment. With conspiracy theories Review was the island’s opportunity to island of those funds and they can be and rumours widespread, the GSC had remain a primary regulator for protected in an Isle of Man licensed monitored the situation throughout the eGaming companies operating in the bank. Unfortunately there are few summer. “We came under a great UK market. “That is the major banks offering gambling facilities here deal of scrutiny after the initial action,” negotiation and discussion for the next at the moment. Alternative protection he admitted. Players were concerned 12 months,” Mr Kimber affirmed. mechanisms, usually through off-island that they would lose their funds. “By banks, can be expensive and do make He likened the EU to a hub-and-spoke having that clean separation between it difficult for business re-locating or model. “The hub is the home, the Isle company money and player funds and starting up in the Island,” Mr Brennan of Man, where the business is based,” segregating player funds in protected pointed out. he explained. “The spokes run into accounts, coupled with effective different countries where you are going He said some potential business communication coming from both the to have to be licensed to do business. ended up going off-island because operator and the GSC, the players As regulators talk more to each other, I banking requirements couldn’t be concerned all came to the see the key being to grow those links found. “I am pleased to see Conister understanding they could get their but to keep the island as the home. coming forward today with a product, funds back. Certainly that was the What we have to do as Government is but I would like to see more banks in case for the Isle of Man licence to negotiate agreements that give our the space and I‘ll extend an invitation holder,” said Mr Brennan. “The GSC operators the lowest cost access to to all the banks here to arrange a has had no complaints from any player take licences.” discussion,” Mr Brennan suggested. with regards to getting their money

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 9 (“KPMG International”), a Swiss entity. All rights reserved. “We are passionate about promoting the island. Doing what we say quickly and transparently is back, either a US based player or As for Europe, Mr Brennan said there why a lot of further afield,” Mr Brennan confirmed. was a fact finding Green Paper out regarding gambling and the EU was Whilst April 15th was stressful for the businesses are looking at regulating online gambling. GSC, in contrast, Mr Kimber said the He said there was now a change in events of that day were an opportunity choosing the mind-set amongst European for some good PR. “It was player jurisdictions, especially Denmark. protection and the way the Manx island,” business was behaving that really did Mr Brennan was very pleased to have make it possible for all the players to get signed a mutually beneficial their money back from the Isle of Man agreement with the Danish Regulator licensed operator whilst others weren’t which supported both regulatory able to from elsewhere,” he reflected. cooperation and business development. “Operators based Regarding the outcome of the UK outside Denmark can keep their key White List Review, this had been “a infrastructure in a jurisdiction outside long burn,” Mr Brennan said. The Denmark – as long as that jurisdiction most likely outcome was that by 2013 has an agreement and that’s the the UK would introduce the changes position we have finally got ourselves that they were looking for. into,” he said. He said the UK was moving towards a licensing regime within which any operator looking to take a player out of the UK would have to get a licence and have to pay tax and duties there. Mr Brennan said the UK had told the Isle of Man: “They are not looking to replicate any work that we have already done in terms of the licensing process for an Isle of Man operator getting a UK licence. Any change wouldn’t be as good as what we’ve got, but that’s the way the UK is moving and if we can negotiate that, it will be beneficial.” Tax Update

Malcolm Couch Assessor of Income Tax Isle of Man Government, Malcolm Couch Income Tax Division

Malcolm Couch is the Assessor of remain ultra-competitive it had to offer He also revealed that, in association Income Tax of the Isle of Man and is a 0% tax rate to business, at the same with the G20 Cannes Summit, The responsible for all direct taxation time as not threatening other Financial Stability Board had published and national insurance collection countries. “I think we are getting a review saying the Isle of Man was matters in the Island and pretty close to that now,” he added. second to none in terms of internationally, including governance and financial standards. He said there were a few other tax representing the Isle of Man at This had been confirmed by a previous issues in the air that he was OECD and EU forums and IMF review and so Mr Couch monitoring which could potentially negotiating tax co-operation concluded “that every time someone affect the eGaming sector. Mr Couch agreements. does an external audit of our referred to the Global Forum on Government and its regulatory Mr Couch presented an update on Isle Transparency and Exchange of frameworks we can’t be beaten.” of Man taxation and reviewed Information for Tax Purposes. This had international taxation areas affecting 105 member states and had grown out Although business sometimes felt the the Island in the future. One of the key of the 2009 G20 Summit. Its task was amount of regulation and red tape was aspects covered was what could be “to monitor the adherence to onerous, “all I can say is that that’s not discerned from the recent G20 standards and the practical going to change. It is naïve to assume it leaders’ Summit in Cannes regarding implementation of standards when will. We have to be a paragon if we are global taxation. countries cooperate with each-other in to keep our competitiveness,” he said. tax matters.” He said the Isle of Man Businesses in the Isle of Man had He said in the British media, tax issues was a full member of the Forum, had been keenly interested in the 0/10 were now in the press every day. gone through the full review process system since September 2009 when it Everybody was talking about illicit and had received “an absolutely first came under threat from the EU. financial flows, tax evasion, criminality, storming report,” adding that at the But the point had now been reached corruption and kleptocrats. “It’s latest G20 Summit in Cannes even where all the issues had been dealt become mainstream. I don’t think French President Sarkozy couldn’t with, Mr Couch confirmed. The anybody would have predicted the civil avoid saying that the Isle of Man was position expected to go before the society movements we are seeing and in the top flight when now assessed December 2011 meeting of the one of the key elements about their under those criteria. Council of Finance Ministers would be statements is about taxation. We need that the abolition of the ARI system “It’s a fantastic achievement. Another to watch that,” he cautioned. would be sufficient to achieve “roll- of these building blocks towards The Convention on Mutual back” of the harmful measures creating this reputation for probity, Assistance in Tax Matters identified by the Code Group. being well regulated and having a good Consequently “we have achieved rule of law,” he believed. This is also something delegates what we thought we would be able to would be hearing more about, as all Mr Couch then recalled that 10 years do which is to secure the future of the G20 countries said they would sign ago the island had “quite radically zero ten,” said Mr Couch. up to it, said Mr Couch. It had been pushed ahead of the pack of small around for some years but it was Although he thought a number of EU finance centres in understanding what updated in 2010, under G20 pressure, states would be resentful about the was coming and tried to influence the to make it suitable for any country to conclusion reached, “those of you process. “We have achieved that. ‘Our join (it used to just consist of OECD who are business promoters can look word is our bond’ is an extremely and Council of Europe members). In it, forward to a period of stability, with no important criterion. You can trust he explained, it had information fear for 0/10,” he said. working with the Isle of Man. If you do exchange, assistance in the recovery an agreement with us, if we say we Whilst cautioning that he didn’t think of tax debts, plus elements such as are going to do something, we will,” the island was completely out of the joint tax operations, which may cause he told the Summit. woods, Mr Couch emphasised his concern. “We’ve already been asked opinion that for the Isle of Man to by the UK if we’d like to be part of this

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 11 (“KPMG International”), a Swiss entity. All rights reserved. “we have achieved what we thought we would be able to do which is to secure the future of zero ten”

Convention and that could be achieved delegations at OECD meetings in more countries would move towards by territorial extension. If we did, we particular had now gone very quiet. automatic exchange on information for would in effect be an autonomous Having taken soundings on why, it tax purposes. “You can see more and operator within the Convention, seemed this was broadly down to more voices now talking about however.” This was something the FATCA. This was basically the US automatic exchange and the speed of island would need to think about very pushing through a unilateral piece of the change in the discussion has been carefully because some of the features legislation which said the rest of the from nothing just a few years ago to required to operate the whole of the world would be the tax compliance where even principal OECD countries Convention, such as assistance in the officer for the IRS. He said the are now talking about it.” recovery of tax debts, were not part of Americans were “sitting pretty” and Beneficial Ownership Manx Law. “Some say it should, some not worrying about anything anymore. say it should never be. That would “They watch spats going on in Europe Who owned what was always a cause debate,” said Mr Couch. and elsewhere with a degree of high problem, especially in the eGaming minded and lofty derision because sector where some argue that even Turning to the EU, Couch said one they feel that is what they wanted and servers were a permanent business project, the Saving Directive II for the they’ve got it,” was Mr Couch’s frank establishment. “The definition of where CSP sector in particular, “should fill all assessment. business is conducted becomes vital in of us with dread. This was the idea of the gaming sector where the bulk of moving beyond taxing people simply He revealed the Isle of Man was in the business in essence is running in for having savings accounts and outline discussions with the banks of boxes with blinking lights on earning interest and, instead, looking Department of Treasury in the US. He them. But where is the business? at all situations where they could have said there only used to be two island Sometimes it’s even difficult to know an investment that in EU jargon ‘is not businesses working under the old where the customer is! Where are effectively taxed’.” He said they qualified intermediary rules. But he said contracts concluded and operated? If wanted to look at corporate vehicles, that the difficulty with FATCA was what not already, these will become big such as Trusts and this was something constituted a US resident or tax payer themes in international taxation,” to watch very carefully. for the purposes of that legislation. He warned Mr Couch. said it was “very broadly drawn and The Common Consolidated scary stuff. We don’t want to trip up Country by Country Reporting Corporate Tax Base Project (CCCTB) with it.” He continued by posing the He said this was something coming Under this project, it was unclear what question; if you were a bank or wealth through pressure groups. Somewhere in would happen, said Mr Couch. Some management operation on the Isle of a multinational’s ”glossy”, not only countries were enthusiastic, whilst Man with US clients, was it legal in the would they have to say where they others were dead against it. He said Isle of Man jurisdiction to comply with operated but also what profit they that the idea was that a multinational the requirements of a foreign recognised in those countries. The group could pick a particular country jurisdiction? “Usually it is, of course, reason was transparency. “If there is a where it did its tax return filing, work because with eGaming you would want big operation in Germany, France and the out what the net assessable profit to comply with the country in which Isle of Man with a net profit of a would be, and then allocate that profit you operate, but it isn’t necessarily as thousand units I guess people would be to the various countries where it clear as that.” He said that if the Isle of interested if 990 of those units were in operates. “I think big business would Man wanted to collaborate fully with the Isle of Man, five in France and five in be happy because it would reduce the US, which it probably would want Germany. It needn’t mean there isn’t a their compliance costs massively, to, then “we need to know what the good reason, but this is what people although others might see it as really parameters are.” want to see, the tracking down of illicit threatening,” was Mr Couch’s view. In his view, international standards in flows and what people would call Outlining another issue causing fall- taxation were going to change. For objectionable planning,” said Mr Couch. outs between David Cameron, in instance, in areas of information The world of international taxation was particular, and everybody else was the exchange, he said there was a reconfiguring itself but Mr Couch felt the Financial Transaction Tax (FTT). The confidential OECD working party island was well placed “because we Isle of Man needed to watch this, he which was redesigning the watch things very carefully and we warned. “If it does start to build up commentary of Article 26 of the OECD position ourselves well.” But he said that some traction, even just in the Information Model Treaty. “This is one he could see some of the smaller finance Eurozone, it would have an impact for of the issues within the Global Forum sectors being finally extinguished by the Isle of Man because we will have we are aware of. It wouldn’t surprise some of these new initiatives. “I can’t interaction as a finance centre with the me if there has been some really see a world where you have 40 or Eurozone countries.” background conspiracy in the OECD,” 50 tiny finance centres being able to he surmised. The Foreign Account Tax subsist. Things discussed today could Compliance Act (FATCA) Information exchange standards would finally shake out some of the winners change, Mr Couch told the Summit, and losers,” he predicted. The US was a law unto itself, said Mr with the key issue being whether Couch. He had observed the US

© 2012 KP MG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 12 How EU Regulators see the Isle of Man and the Future for Mutual Recognition Clive Hawkswood Chief Executive Remote Gambling Association

Clive Hawkswood has been Chief the Isle of Man is exactly as it is to the He predicted that it would end up Executive of the RGA since its UK. So don’t think the IOM is being being watered down, but at least the establishment in 2005. Before that singled out for this – it’s not,” he said. EU was being more helpful. It was he was the General Secretary of “There is nothing more the DED, worth trying to emphasise why this ARGO. Mr Hawkswood was Regulator or Government on the Isle was. The problems were best formerly Head of the Betting & of Man could do. There is no finger explained by likening regulators to Racing branch at the British pointing in their direction. What we children of different ages, primarily Department for Culture, Media and have, though, is a mish-mash of nursery. Germany, Ireland and the Sport (DCMS). Prior to that, he was isolationism, ignorance and, dare I say, USA were examples. Then there was at the Home Office, spending time in arrogance in some cases,” Mr early learning. They were “a cute both the Gambling Section and Hawkswood told delegates. bunch in the corner, with maybe a few Horse Racing Policy Team. Earlier in rogues.” Then followed primary What is Mutual Recognition? his career he spent years working in school, where they were about to put the bookmaking industry. He is also It basically means one jurisdiction some of the early learning into a trustee of the Gambling Research accepting the licensing of another. practice. Here, there was good and Education and Treatment “It’s really what Europe should have bad again. After that came secondary Foundation (GREaT), the British been about in the EU. That’s what the school. “Some of these kids have charity that raises funds for problem Common Market should be. But forget gone up to the big school thinking they gambling related research, that, it is not going to happen,” was know it all, which unfortunately they education and treatment. his stark assessment. don’t,” said Mr Hawkswood. “Then you have those guys who have been Mr Hawkswood began by analysing So what do regulators feel about to University and graduated,” but not the politics of what happens mutual recognition? “At one end, it’s a all had gone onto better things, he internationally between regulators. fear and loathing,” said Mr said. The UK, for instance, had got a Hawkswood. “At the other, it’s How do Regulators see the good degree and had been unable to caution and their political masters feel Isle of Man? get a job so far, but was taking steps the same way.” to remedy that. The blunt answer was not so well, he He said there was a practical difficulty said. “I don’t mean that they don’t In every group of children there were in that not all legislation enabled have a respect for the quality of the those who were naughty, spoilt and regulators to enter into mutual regulation. They do. What they are not low achievers. One example of an recognition, or even sign up to the interested in is listening and seeing unruly child was Belgium, which is “in type of MOU that the Isle of Man had how it works. If you were in their breach of just about every EU law but just signed with Denmark, which had shoes you would think the first thing doesn’t seem to care.” Hungary was been a very welcome development. you would do would be to map out the another one, he said. The spoilt existing regulators, find who did what, Timescales for change at EU level children included Germany. France who did it well or badly and cherry-pick was a low achiever and “couldn’t have Mr Hawkswood said a Green Paper the parts you liked. But that is not the done worse in practice.” There were was out and intended to report in the case around Europe,” said Mr also truants. “Norway doesn’t even middle of 2012. The Kreutzman report Hawkswood. accept a school exists.” And then had been adopted by the EU others, such as the USA, South Africa There was the added complication of Parliament and the focus was on and Australia were “building their own “a cultural difference between improving regulatory cooperation, types of schools without really looking mainland and offshore Europe.” He which was very encouraging. at what is happening elsewhere.” included the UK as offshore “because the approach of European regulators to “Unfortunately, in every school culture

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 13 (“KPMG International”), a Swiss entity. All rights reserved. “There are good minimum standards out there and there are also gangs,” said Mr Hawkswood. Top of the list was the certainly on social International Association of Gambling Regulators (IAGR). They had an online responsibility there sub-group which was doing some very good work in starting to look at is no excuse for common technical standards. “It is a very complicated task but at least they regulators not to are on the right road. Nevada is leading that,” he said. come together However, the European Regulatory with something Platform (ERP) was the newest and “scariest” gang, according to Mr sensible,” Hawkswood, consisting of protectionist states, largely led by Belgium. Their raison d’être was to be like a Trade Association representing Regulators in Brussels “to counter the efforts of the online gambling industry,” said Mr Hawkswood. The reason to be cautious about this group was that their fundamental position was to achieve regulatory cooperation in order to close their markets. “What’s at the top of their agenda is if I have a licensee in my jurisdiction then I must prevent offering services into their jurisdiction,” he said. What was now probably shaping up in the EU and beyond were two blocks, he predicted; one that was truly protectionist, the other that was predominantly international and cooperative. “It’s very much up in the air as to who is going to come out on top,” he cautioned. Areas that would benefit from cooperation The first was information sharing, he said. It helped the licensing process even if it just meant sharing due diligence with other regulators. It would greatly speed up the process. It would be a huge step forward if progress could be made over technical standards and training issues, he emphasised. Sharing good practice would help build-up trust and relationships. People shouldn’t forget what regulation was primarily for - consumer protection. “There are good minimum standards out there and certainly on social responsibility there is no excuse for regulators not to come together with something sensible,” he said; “likewise with crime prevention.”

14 Who oversees this picture? if they’ve had an existing relationship on land based issues it wasn’t Returning to the school analogy, he Returning to the theme of children, Mr surprising that their first port of call said every school had inspectors; “the Hawkswood said they did grow up, albeit would be to a bordering jurisdiction. European Commission and European some quicker than others. “Most don’t This point was emphasised at a panel Court of Justice are paying the price destroy all their toys on the way and, at session at EIG in Milan involving six for sparing the rod and spoiling the least in our case, we have the ability to jurisdictions, he explained, where one child to the extent now that some of take away some of their toys if we are of the questions to the Chair was the kids around Europe are not just worried what they will do to them.” “when you were devising your ignoring them but openly laughing regulations, which jurisdictions did you Online gambling was a truly behind their backs.” look to?” Not one mentioned the UK, international industry and rational The European Court of Justice did the Isle of Man, Alderney or Gibraltar. people accepted that. “One of the have teeth but very rarely bared them. Italy said Spain and France. France problems in the EU is it’s not quite a “It was good at offering advice but, so said Spain and Italy and the rest you nationalist mentality but certainly an far, not much more than that,” he said. can guess. “It does show you what insular mentality and it’s not dissimilar we are up against,” said Mr if you talk to people in America. The After that, it was the responsibility of Hawkswood. EU does not have the monopoly on National Governments who, by good regulation. That would be definition, had national interests at In future, there would certainly be blindingly obvious to anyone who took heart and were risk averse. “When more bi-lateral cooperation because it the time to look,” he said. you add online, which they are made good sense. “What we hope is “Unfortunately, some of the schools nervous about, and gambling, which that if agreements have consistency, are still being run by the kids and they they have qualms about, it’s a there will be a lot of commonality and, think they know it all. Hopefully we worrying concoction. If I could clone as more and more of them build up, will gradually educate them.” Allan Bell and drop copies of him there will be a quantum, for it to around Europe I’d willingly do so. He is become an international agreement,” “We hear all the stories about just a rare breed when you speak to a he predicted. “There is always a risk of blocking mechanisms and advertising lot of politicians in these countries,” being disappointed about what’s bans. They only work to a limited said Mr Hawkswood. “The Isle of Man happening and forgetting how far degree. In our world the consumer is has shown itself to be an enlightened away from this we were a couple of king and it is a difficult concept for and very experienced jurisdiction but it years ago, so it is real progress and it regulators and Governments to accept. is just not speaking the same language will accelerate as more and more Whatever they want to do, the as a lot of these places and that’s jurisdictions license.” consumer can always find a way to get creating some of the problems.” what they want online,” he said. He said he couldn’t go without Denmark, meanwhile, had built into mentioning tax somewhere. “It is one The best way of making sure the their legislation the ability to have of our mantras to regulators and consumer was protected whilst MOUs and understandings and governments: please do not consider accepting they could move around agreements with other jurisdictions. regulation in isolation from tax. The freely was by ensuring international That was still rare, he admitted, but he two must go together.” regulatory cooperation was in place. expected the UK Gambling You also needed to have a viable The way Europe and other jurisdictions Commission to enter into something industry that could offer the right were going was running the risk of similar with Denmark very shortly. “If products in a safe environment, in a dual taxation. “This needs to be we could bring into that the so-called way that Government could take their addressed now before it gets out of ‘white-list’ jurisdictions and Gibraltar, tax and where operators could make hand,” he urged. Consumption tax that would certainly be a step money at the same time. was likely to be the picture around forward,” he said, although he Europe, he said. “What we don’t want “If I was to leave you with a single stressed that the key battleground and simply can’t afford is a situation message it is that industry was around which way places like where you are having to pay twice on experienced jurisdictions like the Isle Spain would jump. the same bet or transaction.” of Man have a responsibility and In conclusion, he said the EU clearly an interest to educate the more He said there were reasons to end on regulators’ view of the Isle of Man unruly kids and to teach them to a positive note. The eGaming industry was favourable and they did behave sensibly in a grown up was there for the long haul. The acknowledge best practice. However, manner. If we can do that, it will be to industry was not new anymore, it was regulators looked instinctively at what their benefit as well as ours.” serious and established. their near neighbours were doing and

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 15 (“KPMG International”), a Swiss entity. All rights reserved. “Most don’t destroy all their toys on the way and, at least in our case, we have the ability to take away some of their toys if we are worried what they will do to them.”

16 Europe and the USA

Warwick Bartlett Chief Executive Global Betting and Gaming Consultants Warwick Bartlett founded Global businesses had been holding up. “It is code on tax and law had come to the Betting and Gaming Consultants Europe which has gone from a following conclusion on gambling: (GBGC) in 1998. Originally from an borderless market place to a “The Gambling of some people is operational background, he now has fragmented national market place. In punished for the purpose of over 40 years’ experience in the the old world, we had one licence to maintaining public morality and the gaming industry and continues to operate continent wide and in the new gambling of others is legalised for the chair and present at numerous UK world we have one licence per purpose of obtaining public revenue. and international gambling country,” he explained. Previously, This contradiction is sharpened by the conferences. He is regarded as one operators had little or no gambling tax very form of the monopoly; for the of the industry’s top experts. and they had now moved to a new monopoly unites, in the person of the environment of prohibitively high State, the agency which is called on to Mr Bartlett spoke on the gambling taxes. “In the old world combat the vice, with the one which fragmentation of Europe and the there were negligible compliance derives profit from it.” Mr Bartlett said potential closing or opening of the costs, now there are high compliance those words were written in 1936! United States. costs. We have gone from very little “That has pretty much held good for He said we were living in the midst of operational restrictions to a diverse set the whole of Europe for 70 years,” he difficult economic times. The last 12 of operational restrictions.” suggested. But Government had now months had been challenging and changed. They had moved from He depicted the old world as being pretty problematic, “Yet the growth questioning people’s morality. one of limited marketing opportunities story for internet gambling is still in because people were trading in grey The new mantra, he said, was public play.” There was greater access to the areas, whereas in the new world there health. “Gambling, we are told, will internet, increased take up of tablets were more opportunities to market. damage your health.” However the facts and smart phones and the great The UK was a good example of suggested otherwise. Prevalent studies innovative product was in-play betting. somewhere you could advertise on TV. indicated that less than 1% of people There were now Wi-Fi access points “In the old world there was a high were affected by addiction, leaving 99% throughout Europe and super fast entry barrier to equity markets, of people treating gambling as a broadband. “And yet in spite of all this, whereas there is now a lower barrier mainstream leisure pursuit. gambling stocks have been down entry to equity markets because around 30 or 40% for most of the year. As far as Europe was concerned, in the people are licensed in proper There has been a change in sentiment past, gambling taxes had been used to jurisdictions, they are paying tax and from investors,” he cautioned. limit the growth of gambling. In Italy’s that should, theoretically, carry a case, they were used to reduce the Comparing the old world higher valuation for the business,” deficit. “Their press has no mention of and the new reasoned Mr Bartlett. addiction. They don’t want to spoil the The answer was not the economy, Mr He quoted the words of an Italian game because the yearly tax intake Bartlett said, because land based economist who, when writing the civil from betting and gaming went from

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 17 (“KPMG International”), a Swiss entity. All rights reserved. “The Gambling of some people is punished for the purpose of maintaining public morality and the gambling of others is legalised for the purpose of obtaining public revenue...”

€3.5bn in 2003 to €9.9bn in 2010, with Gambling taxation, he said, was once Government to get it back. For this an estimated revenue collection of seen as a way of controlling immorality reason, European Governments were €11.1bn (US$14.2bn) for 2011.” and vice. “Governments always seemed likely to proceed slowly. to say that gambling led to crime, even How soon will growth return to Where is the market heading? though there has never been any internet gambling in Europe at evidence to suggest so,” he said. This Mr Bartlett said France had admitted its least? stance had shifted. “Now, Governments law was not working, “It’s not fit for The main driver for change was the EU are seeing it differently. They see it as a purpose, but change is not on the cards competition authority, he said. way of generating revenue, of because the Government is facing an Progress was slow but had a lasting diversification in the economy and election and gambling can be made into long term effect. In support were the balancing the budget.” a political hot potato”. If there was a gambling operators and companies change of Government, you could write Regeneration who were challenging states in the off the first year because Presidents courts. “But, only one company Super-casinos were perceived as and Prime Ministers use that time to seems capable of winning and that is being entirely beneficial, said Mr select their Cabinet and make decisions Stanleybet International. A lot of the Bartlett, who revealed that two on their legislative process. These days, other gambling companies, I’m afraid, casinos in Singapore had added gambling was not top of the agenda. lose,” said Mr Bartlett. He commented dramatically to tourism and to the “So year two is often the year for action that when Stanleybet won, they won Government’s tax revenue. The same on gambling matters,” he advised. big and it had a lasting effect. Finally, applied in Macau. He said the same In Europe “we are slowly moving there was the political process in each would happen in the UK “if they were towards a more liberal regime where of the member states. This took to grant a casino licence for a super taxes are high for the time being, but immediate precedent and was often casino because they employ 3000 have the potential to come down later contrary to EU competition rulings. “I people,” said Mr Bartlett. “In the equation between the social cost of when politicians see that gambling is suspect that the EU will move towards gambling and the gain, Governments no longer the threat it once was,” he a single policy on gambling, with have now decided that the gain is suggested. suggested rates of tax in the form of much higher.” bands, as we have with VAT. But you Meanwhile, in the Spanish general can’t take anything for granted in This new stance created an election, the Popular Party had been Europe.” opportunity. Gambling was slowly returned by a landslide. Mr Bartlett said being lifted from something that was that, in opposition, the leader of the PP The previous week had seen support “morally reprehensible to a was “obstructive to the online process. from the European Parliament who had mainstream leisure activity but firmly “However, the PP spokesman on voted and agreed on a resolution in under Government control,” said Mr Gaming issues has said the PP would support of EU law which would Bartlett. But once control was lower gaming taxes. He didn’t say supercede those of member states. relinquished it was very difficult for

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 18 “If disposable whether he meant land based or online, is complete, we expect them to turn in but industry sources have said he is in earnest to internet gambling and in income falls 3 to 4% favour of implementing a 10% tax on particular the offshore situation,” he gross gaming yield for online gaming, said. It was muted that those taking a in 2012, a lot of which is currently muted at 25%. But bet from British citizens would have to he will slow down further license in the UK, which carried a tax companies will fail or implementation of the Gaming Act,” implication, he told the Summit. It had Mr Bartlett predicted. also been suggested that UK bookmakers offshore would return to leave the market” As far as Italy was concerned, he the UK if the incentives were strong doubted whether the technocrats enough for them to do so. would be too concerned about gambling as they had other priorities. In In the United States, there had been GBGC‘s view, the previous Italian many false dawns but companies and Government had stimulated supply and operators alike were betting the demand and it had the making of a market would open up, Mr Bartlett bubble. “If disposable income falls 3 to said. He explained that William Hill had 4% in 2012, a lot of companies will fail acquired a number of Nevada sports or leave the market,” he cautioned. books. 888 had a long standing deal with Caesars, as had Bwin Party with Elsewhere, the coalition Government in MGM. Meanwhile, Paddy Power had Greece was still very supportive of the applied for a licence, but no deal had monopoly provider OPAP. It appeared been announced. Station Casinos had that OPAP had acquired all the VLT bought Cyber arts Software and licences for €934m, Mr Bartlett Playtech had a JV with Scientific revealed. The Greeks were still in the Gaming. “So the operators are betting process of finalising online gambling with money that the market will one law. Tax had been decided at 30% day open up,” he said. although there were still issues with the EEC which had to be resolved. In summary, he said Europe was starting to liberalise on a state by state Turning to how the Greek economy basis which would increase operator had affected gambling businesses, he costs but the multiples applied to said the nine land-based casinos eGaming companies should be higher posted a gross gaming yield showing due to those being able to trade in an 18.4% fall in the first nine months legitimate licensed markets. “The US of 2011. The national lottery gross will happen one day but you need a gaming yield was down 18.6% in the perfect storm of a Democratic first six months. This was measured President and a Democratic Congress against a fall in GDP of 4.5%, with for the legislation to pass within two household income down 14%. “So years of an election.” you can equate that to every 1% drop in GDP it equals a 4% drop in GGY. However, he said the really good story Gambling is therefore clearly not to tell was what was happening in recession proof. What happens to the Asia. There were 3.8bn people, a economy affects what people can higher propensity to gamble, there was spend on gambling,” he concluded. growing use of internet and smart phones, growing GDP per capita and a In Germany, the present Government love of sports like football, cricket and had until 2013 but the gambling issue golf. “Macau based business now was being discussed by individual outstrips Nevada, not Vegas, on states and not by the Federal revenue basis by 120%,” he disclosed. Government. “So what would “Two casinos in Singapore will eventually transpire would come about overtake the Vegas strip this year.” because of EU intervention, as was the case in Italy,” he predicted. “Thanks to the advice that I gave the Government and Garth Kimber’s He said the UK had seen the DCMS superb work, the Isle of Man has trying to extricate itself from the horse become the best offshore centre to race betting levy. “When that process service this Asian market.”

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 19 (“KPMG International”), a Swiss entity. All rights reserved. 20 Panel Session 1 – Can the Isle of Man ever be a rival to Gibraltar and Malta? The first panel session was moderated by David Parsons of KPMG and included Steve Brennan (GSC), Mike Camburn (Indirect Tax Partner, KPMG), Malcolm Couch (Isle of Man Assessor of Tax), Juan Kelly (Chief Executive Conister Bank) and Clive Hawkswood (RGA).

In view of the latest announcement that the Isle of Man had signed a licensing agreement with Denmark, Mr Parsons asked Clive Hawkswood if he saw MOU’s as the way forward in Europe.

Clive Hawkswood agreed but he thought that the title of the as those that were now in place with the UK and Denmark. session about comparing the Isle of Man with Malta and He saw this as a stepping stone to further ad hoc Gibraltar was curious. “I wonder whether they are the most arrangements. “It is something we will be working on going obvious ones for the Isle of Man to be comparing itself forward with other EU regulators.” But there was a world with,” he questioned. Malta, in particular, would struggle to beyond Europe. “To have a good regulatory environment, hold its position. “Europe is closing around it now and how you have to look beyond those borders. The bilateral, ad long its model will be sustainable is open to serious hoc agreement is what we need to look at for any question,” he ventured. jurisdiction looking for a licence to offer games to its players,” said Mr Brennan. Steve Brennan believed the way forward for the Isle of Man was for MOU’s and cross border bilateral agreements such

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 21 (“KPMG International”), a Swiss entity. All rights reserved. With gaming duty being capped in Malta, Gibraltar and Alderney but not in the Isle of Man and looking at the likelihood of a UK consumption tax, Mike Camburn was asked if it was relevant for the Isle of Man to cap gaming duty when other jurisdictions were moving towards gaming taxation.

Mr Camburn stated that, ultimately, it was not. changing,” said Mr Camburn. There was talk about the Economically, the introduction of a form of consumption tax regulatory battles that needed to be won to allow operators or other levies would have a very damaging impact across into Europe. “But catching up behind that is taxation, I’m the industry as a whole. But he wasn’t sure how prepared afraid.” The impact of a sales tax or consumption tax would the industry was for this. “In discussions I’ve had with have a much greater impact than duties, which could operators there is a lack of preparedness that the world is always be capped at a local level, he said.

Mr Parsons asked Steve Brennan “what percentage tax would Denmark gain from player revenue and would the Isle of Man take a percentage for hosting the licence?”

Mr Brennan said that as a regulator, rather than a tax man, suggested. “The operators would need to have that he wasn’t entirely sure what the duty rates were. It was for discussion with Customs but if we are going down this road those operators taking a Danish licence to take their own of bilateral agreements, I am sure there will be Government position. Whether that duty would be relieved against any support for some concession in the duty rates and the duty Manx duty was a question for Customs and Excise, he position,” he said.

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 22 Mr Parsons asked Mr Brennan, “what was the regulator doing to make it easier for gaming companies to bank on the island?”

Mr Brennan admitted it was “hard work” with the current Ultimately, it is for the banks to determine what business level of banking facilities available. There had been talks they are prepared to take. Banking is absolutely crucial for a with banks in the past with some becoming more receptive number of reasons but we are here for consumer protection to banking gambling business as they started to understand and the easiest way to protect the consumer from a fund the eGaming sector. However, he added: “Unfortunately I protection viewpoint is by having banking facilities on the can only offer my understanding and perspective.” island,” was his stark assessment.

Mr Parsons asked Mr Kelly to comment on this from Conister’s perspective.

Mr Kelly agreed the eGaming sector had been underserved a fiduciary service or conduit for eGaming companies to historically. “I think it’s time for the banking sector here on deposit those funds with well-known banks in the UK. This the island to step up to the plate,” he said. Conister were will be fully compliant with the regulatory and legislative launching a product on the day of the Summit aimed background,” he explained. Mr Kelly stressed he would precisely at the eGaming sector on the island. There were welcome banking competition, which would be good for two strands to this, he said: “One was our ability to take the eGaming sector, and suggested Conister could even act funds on our own balance sheet and the other is to provide as a conduit for other banks to come on board. Mr Parsons asked Malcolm Couch if, when he was negotiating tax information exchange agreements around the world, did eGaming ever crop up? Was there scope for extending the remit beyond the narrow tax world that we lived in?

Mr Couch said that, to date, it hadn’t come up. However, The second area was more difficult, said Mr Couch. He he’d had outline discussions with the Gambling Supervision negotiated taxation agreements with Finance Ministries and Commission, so it was a live topic. It needed to be broken tax administrations and they often found it difficult, if not down into two areas. Firstly, when he negotiated with other impossible, to talk about areas in other government Governments, issues such as shipping and aircraft, double departments and this would probably be the case with taxation agreements were often covered as an adjunct and eGaming. He thought it could be a challenge. “But if it was so eGaming taxation agreements could be discussed at the about regulator to regulator linking, we could maybe help to same time as “issues around double taxation, which are open doors for the GSC. I think there is a great opportunity becoming of the moment and will have to be discussed and it’s something we should explore,” he said. fairly soon.” Mr Parsons asked the panel whether the Isle of Man could ever be a rival to Alderney.

Mr Hawkswood said there was no reason to think that the Isle of Man. “I’d answer that with a question: Why do Alderney was actually in a better or stronger position than people think it isn’t already?” he countered. The session was then opened to questioning from the floor. The panel was asked whether there was anything that the Isle of Man could do to become a technological hub for gaming innovation, like Silicon Valley.

Mr Brennan said there was now a critical mass of not just the island which wouldn’t necessarily attract a licence, but operators but supporting businesses such as marketing was aligned to and supported the online gaming world,” he affiliates, software developers and gaming analysts setting said. The Government hadn’t made a concerted push for up in the Island. This was precisely why the GSC had this business as it had done for the online business but introduced the exclusion regulations. “The rationale was to there was legislation now in place to support these make that clear division between what we consider to be peripheral sectors. licensable activity and what sort of activity we could bring to

What was the Isle of Man’s current share of the global gaming market?

Mr Brennan said although there were no actual statistics said, had 38 operators, which included the world’s biggest published, a recent EU Green Paper had identified 14000 poker operator, Pokerstars. “But in terms of our total share illegal sites that were targeting Europe. The Isle of Man, he of gambling sites out there, it’s a drop in the ocean.”

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 24 A delegate congratulated Juan Kelly on the Conister banking initiative. As an operator in the eGaming payments sector, he said the biggest single challenge new operators coming to the island faced was finding any bank that was willing to work with them. He asked Mr Kelly what were “the commercial and compliance drivers that allowed” Conister to launch their banking product and what would their main considerations be when approached by eGaming operators? Would they discriminate in favour of established operators over start-ups, for instance?

Mr Kelly said one key factor was that Conister was based different space to us,” he said. Conister wasn’t in the habit on the island. Decisions were made on the island and the of discriminating. “We’re open for business and we have a bank’s success was linked to the island’s success. That two pronged approach to this. One is the commercial side was very different to other banks for whom the Isle of Man and the other is being responsible citizens to the Isle of was a very small part. “When they are weighing up risks or Man to ensure success,” he said. benefits of a particular decision on the island, they work in a

The Moderator asked whether the Regulator was giving any thought to gaming companies being based in the Cloud and what sort of Cloud environment would the Regulator be happy with?

Mr Brennan said the Regulator had given it thought and Mike Camburn said that many of his clients from outside had commenced some research into how the concept the eGaming sector had been operating in the Cloud for a might fit into the regulated online world. He added that this number of years. “If you drill down into the detail as to matter was a much discussed topic at a recent International what people are actually doing, there is a lot of virtualisation Regulators Conference. Commercial operators invited to that is already going on, in terms of outsourced services speak to regulators wanted to take advantage of the being provided, such as payment services. You’d probably benefits of operating in the Cloud, he explained. He said be surprised, when you examine operations in detail, that operating in the Cloud would also be discussed at a quite a lot of it is already in the Cloud,” he said. The key forthcoming IAGA forum when considering common issues were around privacy, data protection and security. technical standards. Security was a particular issue of He explained that there was now a piece of legislation in concern from a regulatory viewpoint, he said. “Whatever the US, the Patriot Act, which he believed “technically gives the Cloud environment we would be looking at, we would the US Government the right to go into private databases be interested in the security in place around that to ensure here in the EU and get all the names and data out of that. regulatory standards, in particular consumer protection How we deal with that, or the impact upon that vis a vis our standards, that what we expect from our gaming operators own rules around data protection, I’m sure the lawyers will is going to be upheld,” he advised. He conceded there get some answers.”However, he added that although were still many questions to bottom-out around this topic, Cloud had been around for a while, true virtualisation in the not least legal matters - if you had no idea where the Cloud gaming environment would take time to happen. The was, what would be the legal implications? Would data regulatory framework was there and was very strong in the protection principles currently applied by the Regulator also Isle of Man, as in other jurisdictions. “Until those apply to the data, wherever that had gone? There were also jurisdictions are under pressure to change significantly, if it questions for operators. “The hosting of online games on ain’t broke we don’t necessarily need to fix it,” was his servers is legal in some jurisdictions but not in others. So to assessment. where does that Cloud foot-print extend?” he ventured. “We need to talk to the operators to find out what it is they are trying to do in the Cloud, so that whatever framework we do come up with is going to fit the business need.”

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 25 (“KPMG International”), a Swiss entity. All rights reserved.

Introduction to the Afternoon Session

Archie Watt Senior Manager: Advisory KPMG Isle of Man

As one of the industry’s foremost IT was a major development because it their site was safe and secure for experts, Archie Watt joined KPMG would affect how everyone in the poker players and how, as an operator, Isle of Man in July 2010 from KPMG industry operated,” said Mr Watt. they combated fraudulent behaviour. London, where he was working as “Would it just be for gaming or other “If something goes wrong and players an IT Advisory Director for the sectors as well? If it is, what is going to have been cheated, it’s only right that Information, Communication and be the impact on how we calculate tax players get reimbursed. The Entertainment practice, with a and how is that going to affect the rest regulations on the Isle of Man can particular focus on online gaming of taxation as well?” he questioned. ensure that this island is a safe place clients. He has worked for KPMG to play,” Mr Watt underlined. The session on Talent Management since 2006 and before that with BDO was also important, he said. “The A third panel session would then look at in London, where he worked on the eGaming sector can only grow if the economic outlook for gaming. He public listings of 888, Playtech and we’ve got a well trained pool of said regarding the fall in gaming PartyGaming amongst others. He people. Maintaining and keeping those revenues in Greece, which had been recently authored the KPMG report people in the sector is going to be flagged up in an earlier presentation by ‘Online Gaming: A Gamble or a absolutely fundamental here,” he Warwick Bartlett of GBGC, and given Sure Bet?’ declared, adding that it was that the rest of Europe was looking at Mr Watt opened the afternoon uneconomic to import a thousand zero growth, would that mean zero session, which focused on the future people to the island in support of the growth for the gaming sector in the of the sector, locally and globally. gaming sector. “We must train people future? And would the Isle of Man be here on island and they must be the insulated against this to some extent Describing the last year as “an people we keep on island to keep the “because we have a large number of incredible rollercoaster for the sector growing. If we don’t, we are operators who target the Asian industry”, he told the Summit that he going to lose out to other places market?” had spent the last 10 years working where it is going to be easier to recruit with the online gaming sector and had Mr Watt ended by saying that he was and retain staff,” he warned. come to the island to head up KPMG’s very grateful to the Isle of Man Minister eGaming operation. He had been He then turned to the live session on for Economic Development John responsible for putting together the mobile. He said mobile had been “the Shimmin MHK for agreeing to formally speakers at both Conferences to date coming platform for 12 years since I’ve close the 2011 eGaming Summit . and thanked them all for agreeing to been in the sector.” Mr Watt said it take time out for today’s Summit. had now come of age and was delivering benefits to businesses that He said that the objective should be for had embraced mobile technology. “It the Isle of Man to remain a gaming will bring home to you how mobile has centre, one that led the world in changed over the last two or three innovation but where safe play and safe years, let alone the last 12,” he added. betting was paramount. “That’s how we approached pulling together this A second panel session on hosting and afternoon’s programme”, he said the future for hosting would then take before outlining the speakers. KPMG place before a presentation on Safe Indirect Tax Partner Mike Camburn Betting by Isle of Man based would focus on Consumption Tax. This PokerStars, who would explain why

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 27 (“KPMG International”), a Swiss entity. All rights reserved. “Despite all the challenges facing the online gaming industry, I remain more upbeat today than ever before,”

28 Taxation on a Consumption Basis

Mike Camburn Partner: Indirect Tax Mike Camburn KPMG LLP (UK)

Mike Camburn has over 18 years The Failure of Remote Gaming Duty “So it is disappointing from that Indirect Tax experience, including perspective that Remote Gaming Duty The UK is, from a taxation perspective, having previously worked with simply has not worked”. “a relatively sophisticated market Deloitte as well as Ryan Inc (US Firm) when it comes to betting & gaming”. Regulation or Deregulation? as the London Managing Director. He There is a multiplicity of taxes that is a regular speaker at conferences Regarding taxation and regulation, the apply across a range of different and has published a number of world, and Europe in particular, has sectors, which have developed over articles in relation to VAT. changed significantly over the previous the past 30 or 40 years; driven firstly three or four years. “It has regulated Primarily he advises companies in the by regulation with taxation following or deregulated depending on your media, telecommunications and betting closely behind. point of view. What has become & gaming industries and has extensive The move towards a Consumption Tax apparent is that, following closely experience of VAT planning and regime has come about as a result of behind deregulation, there have been structuring in the betting & gaming the failure of Remote Gaming Duty to changes in the taxation regimes”. sector. He has worked on several ‘off- achieve many of its intended aims. shoring projects’, helping clients to The UK Treasury and DCMS have select the most appropriate jurisdictions Prior to Remote Gaming Duty being recognised this and, in line with the from a tax and regulatory perspective. introduced in 2007, many offshore and 2005 Gambling Act, have taken the online operators were reasonably opportunity to step back and review At the conference, he spoke about the positive and interested in knowing what Remote Gaming Duty and how it is UK’s intentions for online gaming it would mean for their business. applied. “What they have headlined is taxes as well as commenting on Remote Gaming Duty was supposed to that a move towards a Consumption taxation in the rest of Europe. Mike have done for the UK economy what Tax is likely to happen sometime in the focused on the looming potential Silicon Valley had done for the US near future,” he told the Summit. changes to remote gaming, including economy in terms of attracting assessing the UK’s intention to Consumption Tax investment, development opportunities introduce a form of Consumption Tax and research, and essentially making The principle underpinning a potential which, if it were to be introduced, the UK a ‘centre of excellence’ for new Consumption Tax is that it would would probably take effect sometime online gambling. However, it was “a be based on the place of consumption around 2014. He also provided some huge anti-climax for those who had i.e. where the customer is based, as conclusions from the European been working to introduce it because opposed to the place where the actual Indirect Tax Betting & Gaming Survey “disappointingly, the rate that people underlying service was provided from carried out by his London based team. thought Remote Gaming Duty would i.e. where the operator is based. This Mike also provided some commentary be introduced at, namely something means that the UK customer would be in respect of the general review of around a rate of 2% or 3%, was blown liable to some form of levy, which VAT exemptions to be carried out in totally out of the water with the would need to be collected by the 2015 at an EU Level, stating that: announcement of a 15% rate, which operator and remitted to HMRC. “This “There is potentially a very large essentially removed any incentive to should provide predictability and elephant in the room, which may be remain or return to the UK.” simplicity,” he said, adding that from lurking on the horizon. At this stage, I discussions with the UK Treasury, it “At the end of the day, it was don’t want to be alarmist but, seemed likely that they would take the recognised that marrying up the potentially, it could have a significant Remote Gaming Duty framework and domestic taxation regime with an impact upon the manner in which adapt it to meet the need of a online regime had proved impossible operators provide their services within Consumption Tax. to do, especially from the perspective the EU and potentially elsewhere.” of establishing similar rates between “It should also help in avoiding double the two”.

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 29 (“KPMG International”), a Swiss entity. All rights reserved. “I can understand that sports-book transactions are relatively easy to tax in the grand scheme of things. But when you look at poker and other games played on a player to player basis, determining the place of taxation and what ought to be taxed, becomes lot more difficult” taxation whereby there should be 2014. “That timescale could change, of a terrestrial environment. some dual tax treaties in order to course, depending upon your feedback. Regulation and Taxation relieve certain situations where a The point I make around poker and the double tax may apply in certain calculation mechanism is a significant Mr Camburn said that ideally jurisdictions,” he added. In terms of one and it can’t be understated,” Mr regulation and taxation should go timescales, there was now a formal Camburn stressed. hand-in-hand, but regrettably in Europe review process which officially closed they didn’t. “It is apparent that, within The European Position at the end of November 2011 or the Commission, the regulators sit on slightly later. “I hope a large number of When looking at VAT, theoretically, one side of the corridor and the tax you in this room have applied and there should be the same taxation guys on the other and rarely do they taken part in that particular process”. system across all 27 EU member tend to cross from one side to the states. “At a local level, however, that is other”. He wanted to see cross- Of the 12 questions in the review, Mr simply not the case,” he declared, industry harmonisation that was Camburn said most were revealing that KPMG had commissioned simple and could be applied on a straightforward but some stood out. a survey in early 2011, across all 27 consistent basis but conceded the He highlighted two in particular. member states as well as some states prospects were slim. Question 4: Do specific products outside of the EU, looking at the require special consideration? and A Consumption Tax is likely to be application of betting & gaming taxes. It Question 5: What evidence would you applied in the UK at some stage in the had shown that there was a multiplicity expect to use when ascertaining future. “In a sense, it could be quite of taxes. The EC had recently issued whether you are transacting with a UK popular from a revenue raising another White Paper into how VAT customer? He said in both cases; the perspective. It closely mirrors what is operated and within that, Mr Camburn devil was in the detail. “I can happening in different parts of Europe said, they were specifically looking at understand that sports-book at the moment and there seems to be how exemptions applied. transactions are relatively easy to tax real political will for this to come true,” in the grand scheme of things. But “The big elephant that I referred to in said Mr Camburn. Its introduction, he when you look at poker and other the room is VAT,” he declared. “At the added, would clearly have a critical games played on a player-to-player moment, European legislation typically impact upon operators’ business basis, determining the place of relieves any betting & gaming from models. As for rates, it was impossible taxation and what ought to be taxed, VAT. It is exempt, which broadly is a to say at this stage and any decision becomes lot more difficult,” he said. good thing.” will be made late in the legislative What the Government now wanted to process. He predicted the earliest it But, he explained, in 2015 there are do was to have a form of taxation that would be known would be around the going to be some significant changes worked and that was effective and 2013 Budget. in how B2C taxation is operated. This efficient. “Therefore, it is critically too was moving towards a He said the UK tended to set the important that you as an audience take consumption basis. “Now this has standard in relation to regulation and part in this review, because once the given cause for the Commission to taxation. “So don’t be surprised if stable door has closed and the horse take a look at how VAT applies and other EU members states decide to do has bolted, I suspect there will be very whether or not this exemption should something very similar to what is little we can do in relation to this”. continue to apply.” Although he said happening in the UK at the moment.” He said he anticipated a timeline which he thought change was unlikely in this In respect of the VAT changes, it is would lead to an initial announcement particular situation, he warned it would conceivable that VAT could be applied around the March 2012 Budget, when be dangerous for any operator not to and other forms of betting taxation the Government would announce be prepared. “Clearly there wouldn’t might disappear as a consequence. “If whether or not it will be going to go be any appetite for that situation it was revenue neutral, then that ahead. There will then be another formal within this room,” he ventured. But he would solve a lot of technical issues period of consultation and legislation suggested that some UK operators which in 2015 we as VAT practitioners would be released in 2012 with Royal would happily see VAT applied across face for a number of our clients in this Assent in 2013 and the potential for a number of betting & gaming taxes, particular environment,” he concluded. implementation by the beginning of especially those operating primarily in

Lawrence Hoover has extensive experience in both writing and delivering Lawrence Hoover training courses in the eGaming sector. People Dimensions and He has held senior Training and Learning & Development positions with “3” eGaming Training and Logica plc and written and managed various courses and programmes that include: Global Orientation, Corporate Culture & Values and Product and Function Orientation.

Micky Swindale trained with Arthur Andersen in Manchester before joining Micky Swindale KPMG Isle of Man in 1997. Associate Director: Advisory With a particular interest in People and Performance Management, she is responsible for the operation of KPMG’s online remuneration and benefits survey KPMG Isle of Man across a number of jurisdictions and sectors. She has delivered performance management and business development skills training to a number of boards and management teams locally and in other offshore jurisdictions.

They spoke on aspects of talent when Christopher Bailey was asked in management and retention for the a recent interview how Burberry had maturing eGaming industry. managed to get so far ahead of the curve in its use of technology, his To kick-off the presentation, Lawrence response was that they had recruited Hoover warned the maturing industry all of their IT people from online against the dangers of being gaming companies. complacent about people management. This would result in the Talent Retention and the HR Role loss of star performers, a dearth of Having thus highlighted the potential well-trained and motivated staff and competition for the industry’s talent, would increase recruitment and Micky turned to the theme of talent redundancy costs. A lack of innovation retention in the eGaming sector. She and management inefficiency would said that, as an accountant with an also develop. interest in Human Resources, she saw The Summit was then shown a video that, certainly in comparison to clip of Christopher Bailey, the Chief Finance, HR often struggled to find a Creative Officer of the iconic clothes voice at board level. Analysing company Burberry, who said they now research into the relationship between looked at every available platform for HR and shareholder value; she said marketing their fashion shows, which although this was positive, investment were no longer merely for the catwalk in HR didn’t always lead to the same audience. A million had watched their value creation in a business. fashion shows in the previous year, By putting the basics of HR in place, either at home on a computer or on a such as paying people properly, having mobile device, he explained, and good recruitment processes and customers watching the show online complying with employment were able to click and buy any of the legislation, the investment shows a items of clothing even while the models clear initial return. But, after that initial were still sashaying down the catwalk. stage of maturity when best practice This was relevant to the eGaming was reached, further positive returns sector, Micky Swindale said, because in HR value were much more gradual,

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 31 (“KPMG International”), a Swiss entity. All rights reserved. Micky Swindale Lawrence Hoover

she asserted. The danger was that, at culture outperformed those who did catch up with other industries where Board level, interest in HR investment not by more than two thirds,” Ms management training is paramount.” could start to dwindle once they Swindale revealed. Soft Skills started to focus on the latest people The focus then turned to two areas fad or buzzword. This included communicating clearly that impacted on the attraction, and effectively, creating strong teams For HR to optimise its value for the development and retention of staff, that got results, living the company business, it needed to focus on learning and development, and values genuinely to create a good initiatives which were connected to compensation management. place to work, effective planning, and business performance, she said. “Core Learning & Development – eGaming managing to ensure high performance business issues like customer Industry Myths and good staff retention. Targets retention, innovation, market share as should be set that are achievable and well as talent management, are right Mr Hoover said the way to develop realistic. “All this has to be constantly up there and what we are going to employees was by using soft skills, reinforced,” he said. focus on today.” even if the term “had got a bad rep.” But for such skills to be effective in He added that it was important to Talent, according to the definition of the the eGaming sector, first certain identify what you needed before you Chartered Institute of Personnel industry sector myths had to be dealt identified what you wanted; to create Development, was best described as: with, he cautioned. The industry had a a timeframe for implementation before “Those individuals who can make a view of itself that the sector was measuring results and making any difference to organisational special, that normal business rules necessary adjustments. performance, either through their didn’t apply, that hard skills were immediate contribution or in the longer Compensation Management tangible, measurable and valuable and term by demonstrating the highest that soft skills were intangible and Ms Swindale then looked at the early levels of potential.” Talent management immeasurable. Training, furthermore, days of remuneration within the gaming was about the attraction, identification, was seen merely as an expense, Mr sector, particularly in the Isle of Man development, retention and deployment Hoover asserted. and Gibraltar. In both jurisdictions, the of those highly valued and talented gaming sector had started around the people, Ms Swindale added. “The reality is that eGaming same time and had grown to be a businesses must be well run to This wasn’t simply about senior significant part of the economy. achieve optimal results, that necessary executive level staff, she said. It was skills for any business are hired, Initially, the sector had very high about the search for talent throughout bought or trained, that soft skills are remuneration levels compared to the the business, in planning and finding vital and can be measured and that local market. This wasn’t just when long-term potential. training is not the vestigial tail of the recruiting people with specialist sector She explained that Jackson Samuel, HR Dept and does make money,” said skills or existing eGaming expertise, the talent management specialists, Mr Hoover. Staff weren’t productive if she said. High salaries were also paid had researched the subject thoroughly, they weren’t motivated. Planning to finance, HR and admin staff. “Even looking especially at the FTSE 100 and before action was also important. “If if those people were from other areas a number of other companies at how you don’t have the skills to plan well of the economy with no sector-specific they incorporated talent management before you act, it is often a disaster.” skills, they were still rewarded into their strategy. They concluded significantly ahead of the market,” Management responsibility should that where Chief Executives took a she explained. never be seen as a bolt-on to a lead in talent management, those person’s “real job,” he said. This was understandable for gaming businesses returned significantly “Management responsibilities are your companies setting up in the IOM and better value returns to shareholders. primary job. What you are good at, is Gibraltar. “They were places with a “Companies that fitted talent secondary. You have to be that good as limited local workforce, with very low management into their organisational a manager. In this industry you have to unemployment levels and arguably a

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 32 “Companies that fitted talent management into their organisational culture outperformed those who did not by more than two thirds,”

33 shortage of skills across all sectors and time, Ms Swindale said a new sector including the UK, Malta and Alderney, all functions.” In addition, globally, had been added to KPMG’s standard reflecting their need to recruit from there was a huge amount of offshore product. New roles had had further afield. competition for staff in such a fast to be drafted into the survey to take She then highlighted certain areas of growing sector. The desire was to into account the sector’s high compensation management delegates attract the best people and recruit remuneration levels and so the gaming might want to consider in future, if them quickly. This had a knock-on to sector could benchmark purely against they hadn’t already. These included remuneration and this was less of an other gaming companies. providing share schemes, which issue for a sector whose high margins The initial drive for gaming specific weren’t just tied to performance but could support a larger than average remuneration data was more from also helped staff retention. Deferred salary bill. “Potentially, also, you were Gibraltar than the IOM, she said, remuneration was now much in compensating people for a perceived which she felt was mainly because a vogue, particularly in the banking higher risk. If you recruited somebody large number of the Gibraltar sector, she said. Consideration should from a big high-street bank, they were companies, like William Hill, had been also be given to tailoring a flexible leaving behind job security, good in existence for many years in land remuneration and benefits package to promotion prospects and a final salary based form and were therefore further individuals, rather than a one-size fits pension scheme and moving to a up the HR maturity scale than all policy. For those companies running sector that wasn’t clearly understood companies who had launched straight multi jurisdictional operations with the or accepted at that time. They were into the online gaming world. need for staff relocation, it was also being compensated for having to important to ensure remuneration was fend for themselves, compared to a Survey Development fair, consistent and well-planned locally large corporate environment, in terms Survey development, she explained, and globally. of direction, motivation, development including the painful process of and recognition.” Ms Swindale said she was astonished drafting gaming specific roles, was by the number of companies who But times had changed dramatically done in Gibraltar with various focus dealt with compensation on entirely since then, said Ms Swindale. The groups made up of gaming company different systems when all elements finance sector was no longer a safe HR and senior executives. As an of compensation should be integrated. haven nor retained the moral high example, she said, when drafting Above all, for effective talent ground. “Gaming has grown, sector specific roles such as sports management, she said, there had to consolidated and gained books, games, VIP and affiliate be a meaningful link between reward respectability,” she said. Ten year management, the triplicate of poker, and performance. “This is something anniversaries were being celebrated casino and bingo all went under the KPMG is very focused on. If it’s not and the virtues of good regulation had heading of games. “But as the survey already in place, that needs to be your been proven in the most public of grows, with sufficient participants in starting point,” she advised. arenas in the last 12 months. “Not each of those separate areas, we will surprisingly, we have started to see be able to segregate these.” Likewise In conclusion, Mr Hoover reminded more order developing over the past with retention staff, customer service delegates that eGaming was a five years.” Compensation and benefit staff and CRM, although the VIP predatory sector in terms of staff specialists had appeared in larger section was always stand alone to retention. “Prominent in your mind is gaming companies. There was now recognise the greater level of skills and what you have to do to keep them,” less willingness to pay above market remuneration in that area, she said. he said. There was a definite rates and a desire for sector specific relationship between HR and She said there was a real willingness, market data about remuneration and shareholder value and between talent particularly with HR people in the benefits. This was where KPMG came management and shareholder value. eGaming industry, to share ideas, in, as a provider of remuneration Training mattered in eGaming information and best practice. “In the surveys to the offshore jurisdictions companies, especially people focus groups, we quickly found the since the mid nineties, she explained. development training, and it was conversation moved on from beyond important for eGaming companies to Until this year, however, participants remuneration to all sorts of areas of compensate their staff intelligently. were classified and reports were HR.” The groups were less jurisdiction issued for five sector groups, none focused and more interested in eGaming specific. Now, for the first benchmarking across jurisdictions

Darach Ennis Chief Solutions Architect Push Technology

Darach Ennis is responsible for broken down into two parts; the first thanks to bandwidth and infrastructure working with the world’s leading was a day in the life of the real time improvements, Mr Bowen revealed. “It gaming, gambling, casino, media web and the second was about how was cost effective and enabled them to and capital markets firms to design Push solved key challenges and the offer more markets and to match more and implement large-scale, real-time benefits it could deliver. bets, which meant revenue generation solutions based on Push for them.” Everyone wanted a real-time Technology. He has a background in experience, the video explained, but Oddschecker, the odds comparison low and ultra-low latency high- often there were challenges about site, was a different story, he said. For frequency trading systems design, sending mass data from different big events like Cheltenham and the using distributed event processing connections to an array of different Grand National, which produced huge and compute acceleration and large devices. Smart companies were now peaks in betting activity, their challenge web scale systems. using diffusion to deliver superfast data was how to handle those levels of Together with his colleague Sean to any device and it was this that was scalability. “Our product diffusion Bowen, CEO of Push Technology, reshaping markets. As an example, enabled them to scale up on those and Archie Watt of KPMG, he when the US credit rating was days,” said Mr Bowen. “The key for explored the challenges and downgraded, sparking an explosion of eGaming and eBetting companies is to possibilities of real-time service trading data, Push Technology had be able to deliver a good in play service. diffusion for the mobile user today helped banks handle this activity with When you are an odds comparison site, and for all web-enabled devices ease. not only have you got to get your prices tomorrow. The presentation out quickly to the web browser and to Push technology helped send any feed included a live demonstration of mobile, you also have to get prices into to any device while reducing financial trading using mobile Oddschecker quickly,” he said. architecture and costs, all with no to technology. low latency. Customers could push any Highlighting Push’s performance Archie Watt set the scene, explaining content over the internet quickly and delivery over the internet, he said the that Push Technology would provide a the technology also offered scalability, process of moving a price from a full presentation about what it meant the video concluded. bookmaker to Oddschecker and then to operate in an online environment. out on to the web could all be done in A natural fit for eGaming Mobile in its wider sense, he said, had milliseconds. The other client he been talked about for ten to twelve Mr Bowen said Push had been focused on was Racing Post. They had years. Delivering content to people on delivering a real time internet had a very successful year with their the move and getting products and experience since 2006. The company iPhone App, which had been hugely content out to consumers so they was born out of the financial services successful on iTunes and Push helped could interact and do business is of industry, building trading systems. them deliver real-time prices to the key interest. “We have got the “eGaming was a natural fit for us when mobile as well as real-time technology here. Now is the time for the emergence of in-play arrived,” he commentary. He explained that when mobile,” he said. said. It was about being able to offer you worked in a mobile space it was an prices quickly over the internet to an uncontrolled line. The service couldn’t All about the Last Mile end user and give them accurate prices be guaranteed to the devices being Sean Bowen began by admitting that so when they hit “bet” they were pushed to. You had to have technology Push Technology was probably a getting that price delivered to them, Mr that could tune and change the way it company that most delegates wouldn’t Bowen explained. worked so you could depend on the have heard of. “Our core focus is all line or service you were dealing with, Push customers included Bet365, who about the last mile – whether it’s Mr Bowen explained. had asked the company for help mobile, internet or TV, people want to delivering financial prices to their “Our key strength is how we focus on be connected in an uncontrolled website. By putting their technology the last mile, on the kind of environment,” he said. He then into the Bet365 infrastructure, it had communication channels you wouldn’t showed a video of how the company improved performance and had have expected before,” he said. operated in this environment. It was unlocked significant operational savings

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 35 (“KPMG International”), a Swiss entity. All rights reserved. “The web is now at the stage where the analogue to digital conversion in handsets was 10 years ago,”

Darach Ennis

He then handed over to Darach Ennis He said times had moved from old Handing the phone round to delegates who talked more about the technology style mobile handsets with basic text Mr Ennis said the demonstration had itself. Regardless of the type of mobile function. We had gone from analogue shown real time connectivity between device you used, everyone wanted to digital, moving from voice to voice the mobile world and the connected good connectivity, he said. Part of the to a system whereby we could send world. vision was “to deliver seamless and receive text messages via the Returning to the Cheltenham scenario, connectivity, even if the network mobile. This was made possible he said Push realised there were connection is bad. You still want good through a little keyboard on the phone limitations to the bandwidth available seamless conversion between the which we used instead of picking on the phone network. He said what website and the platform,” he said. them up and talking to each other. “So Push provided was “smart latency.” we are still having this conversation on In-play Experience The technology realised the fidelity of the phone or on the device, whether the connection, how congested the Providing an example of the in-play it’s an imbedded piece of hardware, network was and adapted the amount experience, he asked the audience to machine to machine or it is interactive of prices or data it sent in real time to picture themselves at the Cheltenham over the web,” he said. the limits and constraints on the horse racing festival. “You’ve got the He said Push enabled you to have this connection being used, he explained. best latency and you’ve got line of sight conversation bi-directionally over the “So whether you are on a good to the race,” he said. But as the race web. “The web is now at the stage internet connection or a mobile, we started, you were still unclear which of where the analogue to digital will send you a different rate of prices the two favourites to back. You had a conversion in handsets was 10 years as befits the network you are real-time feed on your phone and, ago,” he said. “It’s now becoming connecting over, but we give you based on the odds you were receiving, social, interactive, and you can interact guarantees on the ‘up-to-datedness’ or you decided to wait until half-way with it in a much more conversational how responsive those messages are,” through the race before committing way. You can deliver more impactful he said. your bet, he suggested. “But at this services to your clients and have a point it’s your round and you need to go Mr Ennis explained that if you tracked better experience with your to the bar and buy the drinks. It is these the mobile phone and the tracked the engagement in this virtual world,” said interruptions which really separate old prices on the internet, you would be Mr Ennis. school, traditional ways of thinking and able to see they were in synch, even the internet or web,” said Mr Ennis. He said Push reduced the barrier of though they were going over networks Modern communication should be entry into these types of environment. with different capabilities and different seamless, he declared, more akin to a “Whether you’ve got an iPhone, Android qualities of service. conversation on Facebook or Twitter, or Blackberry, we can take advantage of Delivering services in eGaming either for business or social interaction. the platform limitations and deliver a real time experience to you.” Giving poker as an example of the type At this stage, he went on, you had of service delivery Push could provide reached the bar. “You have your Live Demonstration for the eGaming sector in the future, phone and the IP TV feed in front of The pair then demonstrated Push he said if you had someone new to you, which is streaming odds in real- Technology’s ability to make a live playing live poker and someone who time, so you keep tabs on the action. trade. The Summit was shown a simple was very good at winning, you could You get your pints, the odds move FX Trading System on the screen fed match them up so you had a back in your favour, you select the from a laptop computer. A mobile mentor/mentee relationship. “For second favourite and arrive back device was used to enter the trade. someone very good who wants to outside just in time to see him win.” Explaining the process, Mr Ennis said deliver those skills to other people, But he said that while this was the the trade instruction went over the they are providing a service and it vision, there was a problem. Mobile Manx Telecom network, through a BT keeps them all interested in dealing internet connected devices lived on commodity line in Maidenhead and with your website, “ he said, adding the edge of connectivity, they had then into the Push server. The server that it was not simply about playing variable connectivity and variable matched this and then sent a trade poker but also the social interaction fidelity. “You want the conversation to notification back which could be seen and the friends you make on the site. continue, you don’t want it to stop as on the big screen in the trading console “That’s where the next generation is,” if you were in the real world,” he said. running from the laptop. he concluded.

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 36 Panel Session 2 – The Future of Hosting The second panel session was moderated by Archie Watt of KPMG Isle of Man. The panel consisted of Tim Cass (Netcetera), Stephen Kane (Cable & Wireless), Nick Nally (Continent 8 Technologies), Stuart Paul (Manx Telecom) and Andy Swearman (Domicilium).

Archie Watt asked if the true public Cloud ever worked in a well-regulated environment.

Andy Swearman said the short answer was yes. “Cloud Stuart Paul said Cloud was “the most confusing aspect of now encompasses everything from Amazon to someone hosting that we have to deal with.” Regarding eGaming, who has put last year’s server in a broom cupboard and is there was a need to understand that the potential client trying to flog space on it,” he commented. Companies wanted hosting in the Cloud. It would be the customer’s should work with their product provider to build a service that decision but regulations would have to be complied with. met their own regulatory requirement. The main concern “We have regulatory requirements as well, so it’s a was data protection, particularly if there weren’t guarantees partnership going forward if we are to use the public Cloud about where data was running. PCI compliance was a in eGaming,” he said. problem that had been overcome. But any challenges were solvable, he said. It was a case of ‘buyer beware’.

Are your clients asking for Cloud Solutions in the Gaming sector?

Andy Swearman said they were. Domicilium was currently servers, the aim was to create burst servers, only paying for testing the concept of a hybrid Cloud, where the client had them during the duration of the event. “Gaming is great for their own private Cloud but for certain major events, like big us because it tends to innovate through necessity.” race days where it was necessary to go from 100 to 200

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 37 (“KPMG International”), a Swiss entity. All rights reserved. As an operator in multiple jurisdictions, are clients asking Continent 8 for Cloud?

Nick Nally said clients were all asking for the same things. Stuart Paul said, in hosting, security was the single biggest “We are only focused on Gaming so this is slightly more risk with Cloud. He mentioned that in a recent American difficult for us to do because 10 sports betting companies survey of businesses using the Cloud, 61% said their are all going to tell you they want peaks at the same time. company didn’t have a Cloud server firewall. “I know the There are elements of an eGaming company business that eGaming industry would have that covered,” he said, “but could go to the public Cloud such as web front end and even so, Cloud is developing all the time. There are more testing and development, but the rest would have to be in a and more attributes to it from an innovation perspective that private Cloud environment,” he said. needed to be understood very quickly.” Andy Swearman said ultimately it came down to delivering Andy Swearman said technically it was possible to build specific guarantees that were custom built for gaming and anything in a virtual environment that could be built other sectors. “We try not to replicate Amazon in any shape traditionally. Security was becoming increasingly important or form,” he said, adding that Domicilium had spent 18 to customers but customers needed to put in the same months working with clients on Cloud technology. “We are amount of work and due diligence with a virtual platform as now on to the third version of our Cloud platform.” People they did with a traditional one. There needed to be the were still more comfortable with the concept of a private same rigorous testing of security and performance with Cloud but it might be possible to have a mixture of a Cloud, including external auditing and security reviews. private, hybrid and public Cloud. It would be driven by cost and perceived benefit, he said.

The panel was asked: if a company was participating in a public Cloud, were there any additional vulnerabilities surrounding a distributed denial of service attack directed at another user? Would this provide an overhead for the general community on the Cloud?

Andy Swearman said Domicilium’s DDoS monitoring and opt out of the DDoS service then this could potentially cleaning regime operated as effectively with their Cloud threaten other clients. The whole Cloud platform is therefore platform as with traditional hosting. If a client was allowed to protected at Domicilium.

38 Archie Watt asked Tim Cass his view on extra security measures that would need to be built in to the Cloud environment.

In terms of PCI and the regulatory environment, security had needs. Every solution would have to apply the same rules already been met, said Tim Cass . It depended on specific but it was perfectly possible to deliver those solutions.

Why is it so much more expensive to buy hosting space and bandwidth on the Isle of Man compared to the UK and Ireland?

Tim Cass said, from a bandwidth perspective, there was differential had reduced year on year. He said it was more always going to be a cost for having such “excellent relevant to question how the Isle of Man compared to other bandwidth connections” here. Competition over the previous offshore jurisdictions. In all the benchmarking they had 12 months had had a positive effect on bandwidth pricing. done, and in every survey and study they had seen, the Isle “We don’t see the cost of hosting as a significant difficulty of Man was “by far the cheapest. The great news is we from our perspective; Netcetera hosting pricing is globally compare very favourably with every other offshore competitive. It’s provision of bandwidth which is important. ” jurisdiction in terms of quality, connectivity and pricing.” Stuart Paul said Manx Telecom had spent £100m over ten Nick Nally said volume drove pricing. He said ten years ago, years on the island’s infrastructure. “From an eGaming Ireland suffered major problems with not being able to attract perspective, you need reliability around your bandwidth,” inward investment. The Irish Government then invested he said. There were three main components; power, £78m into a submarine fibre-optic system. “Overnight, prices security and bandwidth. “Lose one of those and you’ve got dropped by a massive amount,” he said. The knock-on nothing,” he told the Summit. Bandwidth investment was effects were huge, attracting companies like Amazon, an insurance against risk. It was expensive but the industry Google and Microsoft, he said. ”The telecoms quality of the needed reliability. “Without that you don’t have a Isle of Man are far and away better than some of the other business,” he said. jurisdictions and pricing is a lot less than Malta or Gibraltar.” Bandwidth pricing was not the critical item, he said, adding Andy Swearman said the island had a fantastic fibre that the Isle of Man was not expensive on rack space and network which stacked up against anyone else’s. There power costs compared to London or other tier-one cities. would always be a differential with the UK because of going over water before reaching an IXP connection. But that

What are the hosting providers here doing to extend the services they provide and what will the cost be?

Stuart Paul said it was impossible to answer without Tim Cass said providing a suite of services around the knowing the customer’s specific requirements, but he theme of a managed hosting platform was essential for wanted Manx Telecom to do more in the managed service hosting companies. There were great opportunities to field. He said eGaming customers had very professional IT demonstrate a managed Cloud platform that provided an departments but that it was possible to further support those infrastructure which would enable clients to focus on their businesses from a managed service perspective. “There is a core business. synergy going forward commercially and we need to leverage on that,” he said.

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 39 (“KPMG International”), a Swiss entity. All rights reserved. Are we taking for granted some of the services you are already providing?

Nick Nally said Continent 8 was totally in tune with the innovative. There were opportunities for data centres to gaming sector and concentrated on providing as many integrate into traditional rack-and-stack managed services services as possible to that one vertical. The company had through partnership or innovation, extending product ranges offered managed services for five years to some very large to include software testing services and telephony services. corporations. These included shared services, management These could be sold directly to clients utilising Cloud systems, data storage and others. DDoS had been offered environments, he said. for six or seven years, including considerable investment in Regarding bandwidth costs and especially electricity supply, a new Arbor network platform, which had foiled several Bill Mummery commented from the floor that although it major security attacks in recent weeks. “These are was necessary to control and reduce pricing over time, it extremely important services, especially for the eGaming mustn’t be at the expense of reducing quality. “Bandwidth sector,” he said. and the MEA are our lifeblood and I’d be nervous of overt Andy Swearman said every data centre provided some downward pressure on things like MEA supply because form of managed service. The key was not to offer a one those are two things that set us apart from other size fits all service. It was necessary to configure something jurisdictions,” he said. that was relevant to each individual business and to be

Regarding hosting, what is happening elsewhere that I should be aware of?

Nick Nally said it was a lot easier to work in the Isle of Man Stuart Paul said one of the advantages the Isle of Man had than some other jurisdictions. Continent 8 offered the same over the UK and Europe was it was not a signatory to the services everywhere from seven data-centres worldwide. European Code of Conduct. From April 2012, this required “We find customers will entrust more to you if you can any data centre using 6GW hours of power a year to pay an provide the service and support they deserve. There might additional “onerous” tax. That could only be redeemed be a primary solution handled in one data centre and through a complex credit system, he said. Hosting disaster recovery in another, but all across a private businesses had to constantly deal with innovation. He backbone,” he said. intended to set up at Manx Telecom an innovation team to review new products on a monthly basis as they came to Andy Swearman said in everything he’d seen, the Isle of market and to use the ones that had an application benefit. Man stacked up very favourably. “In terms of products and “We will train people to deliver those products, so that’s services, I don’t see anything revolutionary in any of the more investment from us.” jurisdictions I go into that isn’t available here. We sell services to other data centres because we innovate more The session closed and Archie Watt said he looked forward than they do,” he said. to seeing the future evolution of hosting. Tim Cass said regarding what was available in the hosting environment, the Isle of Man was not wanting.

Mr Winter joined PokerStars on the Collusion Stephen Winter Isle of Man in 2007 as the Head of Collusion is when two or more players Game Security, although in 2009-10 work together to gain an advantage Director of Game Security he was also Director of Customer against other players, Mr Winter Support. Due to PokerStars’ policy explained. “That’s what the bulk of my PokerStars of continued investment in the key team works in combating. This is what field of Game Security, his tenure new players and potential new has seen the department grow from customers are most worried about: six in January 2007 to the present people sharing cards and gaining an day 65 personnel. He was previously advantage.” Head of Security at PartyGaming in Gibraltar. Before that, he worked in Prohibited software “The question now both the UK’s retail and online Prohibited software, including Poker sports betting industry with Robots, was the topic of the moment is after our initial Ladbrokes, Joe Jennings and Coral. and PokerStars kept a check on advice of some two Mr Winter talked about fraud websites where they were being prevention and detection techniques discussed. and why players can feel safe with years ago, where Account Sharing reputable providers. This is where players use multiple does the online He began by declaring that Poker was accounts. “Players who play in a subject close to his heart. “I was a anonymity can gain an advantage by industry stand semi professional player initially and I using an account that’s not their own,” like the game to be safe. That’s my said Mr Winter. today?” passion,” said Mr Winter. To combat these issues, PokerStars PokerStars, he explained, had two had dedicated teams of specialists security teams. Game Security dealt looking at specific areas of harmful with fraud that occurred within the activity. Ex poker players looked at game, where players harmed other collusion, technical teams checked players by gaining an unfair advantage. prohibited software and bots; and a The second team, named Security, further team with a broad range of handled compliance, responsible skills covered issues like IP locations. gaming and losses against PokerStars, such as credit card fraud. Two types of cases were dealt with; one was player allegations of fraud. The Security department verified “We look into every single email we customers’ credentials, investigated get and investigate every case cash outs and looked at bonus abuse thoroughly,” he said. The second type to save the company money from was flagged up by PokerStars’ own people farming bonuses. Game proactive detection systems. “We Security looked at everything within have invested a lot of money and the game, such as account sharing, resources into these systems and they prohibited software (known as bots) set us apart from the competition.” and collusion. From the player’s side, the Mr Winter then provided a brief investigation process was very overview of the issues his Game transparent, he said. If a player was Security team look at. found to be undertaking suspicious

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 41 (“KPMG International”), a Swiss entity. All rights reserved. Stephen Winter activity, he would be written to and people who had shared resources, Bots asked for an explanation. “We are not such as location, hardware or had A bot is defined as software that in the business of being judge and jury transferred funds between each other. advises players how to play, or plays without some communication first A scoring system was applied which entirely for them automatically. with the player,” he said. If action was ensured that, if two players were Research on poker bots which have taken to close an account, a second closely connected, they would not be been detected reveals that they only pair of eyes would always look at the able to sit at a table together. “It stops played very low limits of poker and case first. opportunistic cheating.” tended to win very slowly, or break If a player was found guilty, funds Education even and rely for profit on VIP or rake- were confiscated and redistributed to Mr Winter revealed that the company back schemes. The advantage for victims, he said, although they would had a large number of new player sign- developers of low win rate bots was still have access to a full appeal ups every day. Many of these new they could play long hours. “They procedure either with an internal players didn’t know the rules in full. don’t get tired, they don’t make “tilt” investigations manager or to a They wouldn’t necessarily know that a plays where they get annoyed regulatory body, normally the Isle of soft play with a friend was the wrong because they’ve lost a hand and play Man GSC. thing to do. If they were detected at the next one badly,” he said, adding an early stage, PokerStars’ policy was that PokerStars wanted bots He then outlined what investigators to educate them, he said. If it was completely eradicated from play. looked at when a suspicious play deemed non-malicious, PokerStars emerged on PokerStars internal He said player allegations of bots were would make sure they couldn’t play systems or where players reported poor indicators of guilt. They were not together again and money won would suspicious activity. All suspicious be refunded to victims. But research good at identifying bots. They were hands were replayed with all the cards showed first time non-malicious best detected from PokerStars’ face up, Mr Winter explained “The offenders often became good and backend systems and how players poker players we employ will be able honest customers in future. interacted with PokerStars software. to see any patterns of suspicious “We record the mouse movements of activity. As an example, he said if he He said with the detection systems every player,” he said. was playing unfairly with a partner currently in place, over 70% of PokerStars also recorded and analysed where he had a pair of kings and his colluders were detected by PokerStars every action with respect to where partner had a pair of aces, that own systems, with less than 30% players clicked on the buttons. “This is information would be shared and the reported by other players. “I always what every responsible operator kings would be folded pre-flop want to drive that percentage up should be doing,” he said. There were because it was known the partner had because I always want to find systems whereby they could send the better hand. This was an unsubtle colluders before other players find tests to someone who was playing example of collusion and was easy for them - and the quicker the better,” said Mr Winter. live, which could slightly change PokerStars’ software to spot. “The something on their computer screen granularity in our systems picks up To collude with somebody, you need hardly visible to the naked eye, but anything unusual, from the subtle to to play with them a lot, he said. He usually enough to stop a bot playing. the very blatant,” said Mr Winter. “We explained if you wanted to play 25 “That gives us a way of exonerating have hired ex pro players to do this cents, no limit hold’em, there could be people, or perhaps proving bot use task. They look at poker hands all day around 100 tables of that game going because the account timed out on all in a replayer and spot suspicious at any one time. With six or nine their tables during a test,” said Mr activity very quickly.” players per table, the chances of ending up against the same person Winter. Prevention would be low. “So if we see The company worked hard to educate Before a player sat at a table with a heightened frequency of play between players on prohibited software. ‘Out of potential colluder, PokerStars had a players, it’s the first indication there the box’ commercially available poker prevention system which identified could be suspicious activity,” he said bot software was primitive and lost

“The granularity in our systems picks up anything unusual, from the subtle to the very blatant”

money. Players sometimes fell for who had finished with the high money poker industry a bad name. misleading advertising and bought in these tournaments. They looked for A questioner from the floor asked what them for a trial period but they were people with suspicious registration percentage of overall illegal behaviour easily detected by PokerStars through patterns, for location jumps and hand- was detected and sanctioned. The aim their software signature. Players using offs. A hand-off could occur where an was to set the bar so high, to make the this kind of software were sent pop- average player was running really well detection system so good, that players ups pointing them to PokerStars and had plenty of chips. Then didn’t need to report cases of collusion, prohibited software page. If they someone they knew who was a very he said. Anything bad going on was reoffended, their accounts were good player would offer them a sum of very subtle, poker was good at self- frozen. People usually got the money to take over the account and policing and players did report message the first time and no harm finish the tournament. If people did incidents. Seven years ago, PokerStars was done. that, there would be a shift in their didn’t have the systems it had now. hardware and a change in their IP 99% of bots were detected by the Although around a quarter of all proven address, he said. “We’ve seen people, company, he said. On one of the rare colluder activity was reported by for instance, jumping location from occasions a player found one before players, in 75% of these cases, no Australia to the UK.” PokerStars paid PokerStars, he was hired by the collusion had taken place. The close attention to this type of offence company! PokerStars system mirror-imaged this; because it was a big priority for they uncovered around 75% of all Account Sharing legitimate tournament players. proven colluder incidents, of which only This was arguably the most difficult Summary a quarter were found to be innocent. aspect of detection and prevention if He said there was a return on Mr Winter was asked what happened people were trying to play investment in PokerStars game to players who had lost money as a anonymously by sharing an account. It security. “Reputation is everything, result of colluding. He said the aim was very difficult to detect who was especially when it comes to poker, and was to refund players who had been actually driving the mouse, he said. giving the players confidence that they harmed. If the offence was picked up Any abuse of this nature would are playing with a company that cares quickly enough, PokerStars froze the normally happen in high stakes games. about game integrity gives us a account before any winnings were As a basic example of abuse, competitive edge,” said Mr Winter. taken out and victims were refunded. someone might think they were up Preventing big cheating scandals was If not, the company refunded wronged against a useless player when a really a good investment for protecting the players from its own funds. good player was sharing that account. brand and the industry as a whole. Poker is a game whereby part of the He also said PokerStars was robustly skill is to know your opponent’s Challenges protected against any potential internal idiosyncrasies. This is why PokerStars security scandals whereby employees He said one of his biggest current takes seriously the need to prevent might be able to see player’s ‘hole challenges was the regulatory players sharing accounts. cards’. When the PokerStars server environment in Italy where PokerStars was first built ten years ago, it was Using the bot detection system was not allowed to offer a full made in such a way that the hole software to fingerprint players and compensation policy to Italian based cards were never visible to anyone how they interacted with the client players. This weakened the standard of other than when transmitted to the was sometimes a helpful indicator for game integrity there. We are not player’s own computer. “If there is a knowing who was driving the mouse, providing as good a service to our site crash in the middle of a hand, we he said. players in Italy because of the way the don’t have any server record of that regulatory environment is. With Signature Tournament Reviews hand. Complete records of such hands regulation, we should be very mindful of only exist in the log files saved to the Mr Winter said a large percentage of protecting players from other players, player’s own computer. The person prize money paid out on PokerStars’ not just from operators,” he said. who programmed the PokerStars site tournaments was on the big 15 weekly There was also the threat of rogue or had the foresight not to write the hole tournaments, like the Sunday Million. unregulated operators who provided cards to the internal server disk until It was the sole job of one Game no game protection and gave the the pot was awarded,” he said. Security sub-team to review players

The first panel session was moderated by Russell Kelly of KPMG and included Warwick Bartlett (GBGC), Stephen Heeney (IBM), Garth Kimber (Head of eGaming, DED, Isle of Man Government), Bill Mummery (Celton Manx) and Roger Raatgever (Microgaming).

Russell Kelly asked Warwick Bartlett where he saw technology heading in the next 12 months so that operators could generate more profits.

Mr Bartlett said the eGaming industry’s great asset was exiting the French market because tax was too high. He that it was innovative and cutting-edge. Up to 60% of said licensing conditions across Europe would make things transactions on some soccer matches was now being very tough for the next couple of years. GDP per capita in conducted through smart phone technology. In-play betting Italy, Spain and Portugal was falling and in the UK personal was a positive development. But there was a downside, he and Government debt was about 136% of GDP. It was, said, exemplified by GBGC research into Greece, where therefore, very sensible for the DED to concentrate on Asia gross gaming yield was down by 18% as a result of their and Latin America, where there was consistent growth. “In June 2011 austerity budget. future, you have to go where the markets are most buoyant, where there is growth in GDP,” he concluded. European tax rates imposed on the gaming industry were also having a detrimental effect, he said. Operators were

Bill Mummery was asked if betting behaviour was still computer based or more driven by smart phone technology.

He said many quoted plcs had squandered technological 70% in betting levels for an average weekend of English opportunities. The cost of not being able to effectively premier league soccer being achieved by his own company. participate in running betting was crippling them, he said. “As an industry, in terms of managing change, we operate Even though they were quoting figures from in-betting in dog years,” he said. “But we benefit as a business by soccer revenues at 49%, that was still way down on the responding to changes quickly and effectively.”

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 45 (“KPMG International”), a Swiss entity. All rights reserved. Roger Raatgever was asked if it was a challenge for technology companies and software providers to keep pace with the constantly changing media through which people were betting.

Mr Raatgever said there are four nodes of growth: He explained that the main area for growth is technology. markets, customers, technology and games. There is the “We are seeing triple-digit growth, not only in mobile but growth of eCommerce, which has become increasingly devices. We see technology driving the device field for the understood and trusted; Monday 21st November 2011 was next 18 months,” he said. Microgaming has been making a quoted in Retail Gazette as being Manic Monday online - significant investment in this platform and there are some the busiest online shopping day of the year for the build-up real opportunities ahead, not just in technology but also in to Christmas. There are the obvious technological advances software with applications such as Flash and HTML 5. with bandwidth and Wifi that were driving the eGaming industry further. As for markets, he commented “we haven’t scratched the surface in Europe, never mind looking to Asia and South America.” Steve Heeney was asked how he saw the growth of the Cloud and how it might help some of the spikes now being seen in sports betting, especially with the proliferation of mobile devices.

Mr Heeney said Cloud was one of IBM’s key growth areas. Mr Raatgever said the Cloud had been successfully used Cloud, as a technology sector, was growing at about 25% by Microgaming in the eGaming industry since 1996. per annum whereas traditional IT was at only 3 or 4%. Players had used shared infrastructure servers all that time. Much of the activity was in private clouds with clients But he said there was still a huge commercial opportunity building large infrastructures which they owned and proposition for the Isle of Man to set itself up as the pre- managed behind their own firewalls and security protocols. eminent eGaming and even eCommerce Cloud. He said there was clearly concern about public clouds, In eGaming Clouds, latency was key, especially for sports which had been raised earlier in the day, primarily betting and live sports betting, said Bill Mummery . The surrounding data integrity in a multi-tenancy environment. way forward was to have the customer facing delivery “Does your data have absolute integrity and what is the closer to the geographical markets to optimise the player’s actual guaranteed uptime? What were the repercussions of experience. From a regulatory standpoint, it was only an operator not meeting that uptime?” he questioned. delivering the platform and the interface, with data being He said the Patriot Act was an interesting piece of passed back to the jurisdiction of licence. “If, as a starting legislation. It allowed the US Government to make a carte point, you use Cloud to regionalise and localise the speed of blanche request for data from any database held within the service to your players, then that in itself is a major US. Although there had not been a test case yet, the Act benefit,” said Mr Mummery. implied that for a US based company with a wholly owned Regarding bandwidth capacity, Mr Heeney said there was a overseas subsidiary, the same rule of law would apply. He “dynamic provision” for major sporting events like said Microsoft had said that for any data sitting on a Wimbledon; the aim being to provide burst capacity when Microsoft Cloud, even if that Cloud was in Ireland or tournament interest peaked, such as when there was elsewhere in Europe, in theory the US Department of specific British interest. Every industry had burst capacities, Justice could ask for that data. Many people looking at he said, in gaming particularly around key sports events. cloud had almost abdicated responsibility by saying it was “We are looking at out Public Cloud to provide a lot of that the problem of the Cloud provider. “No it’s not. It’s your IP, burst capacity,” he said. look after it,” was his view.

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 46 Mr Kelly asked Garth Kimber: following the work the DED had put in this year assessing new markets in Asia and Latin America, would growth continue from specific sectors in these parts of the world or was it across all game sectors?

Mr Kimber said there was growth in every sector. But from He said he had taken heed of what was said about the the island’s viewpoint, Europe was still a very important peripheral sector. “From our viewpoint, the more operators market, with 60% of business coming to the Isle of Man we have got here, the more support services they will need. with a European or UK focus. Asia also offered enormous We have been quite successful at growing the peripheral growth to the operators and was also important whilst South part of the sector and that needs to continue,” he said. America was longer term, he said. But, with so much growth potential, it was a case of looking at the best use of your resources and “to future-proof yourself and look for the easier wins.”

Warwick Bartlett was asked whether he saw more land and online convergence in Asia or whether they would go down separate routes.

Mr Bartlett said in Asia there were powerful monopoly work,” he said, so people would only license in jurisdictions businesses that understandably did not want their revenues where the tax rate was lower. He said China was a difficult cannibalised by the online business. The all-powerful Hong place for westerners to do business. “But there are Kong Jockey Club, for example, would want to retain its operators like Celton Manx, 188 Bet and 12Bet that do monopoly over horseracing, the lottery and sports betting. make a lot of money in the Asian markets.” For the time However, even they have recently acknowledged that they being at least, online would remain separate from the land may consider moving their online operation offshore. In based business but eventually as broadband and smart Macau, he said, there was talk of having online legislation phones become commonplace the two will ultimately but the casinos wanted the same tax rate for online as merge. It is, however, difficult to put a time frame on when offline. “40% of GGY in the online model, just doesn’t this will happen.

Mr Bartlett was asked if he saw a threat from any larger internet based businesses coming into the gaming market like Zynga, Facebook and Google and taking market share off traditional gaming companies.

Zynga had recently declared it had no intention of tempt a lot of companies to look at the sector. “That would converting its site to gambling and was content with the add a new dimension of competition. Their database is way it was running, Mr Bartlett revealed. But he said much huge and would have an immediate take-up of customers,” depended upon American federal legislation, which would he predicted.

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 47 (“KPMG International”), a Swiss entity. All rights reserved. Garth Kimber was asked: what was the Isle of Man’s absolute priority for the next 12 – 18 months?

Although there were many priorities, he singled out the the Philippines had done a fantastic job, political instability announcement by the GSC’s Steve Brennan that the and unfriendly climates ultimately threatened businesses, island’s agreement with Denmark had been finalised. He he said. For this reason, Celton Manx had made the said agreements with one or two more major EU countries decision to relocate to the Isle of Man in 2008. “Three years would “do more than open access there. It would send out later, we have now made the obvious statement and the right message,” said Mr Kimbe r. Tax information and commitment that this is our corporate global HQ and just exchange agreements had been excellent for the island’s about everything relating to our business over the next reputation across other sectors, because they showed that couple of years will come here,” he said. the Isle of Man wanted to work with other countries and be In part, this was down to the quality of the jurisdiction, he open to them. Further eGaming related agreements “would said, but VAT was also a fundamental factor in the decision. not only bear dividends for us in the big European market “If you come to the island but almost 90% of your market is but, when other countries start growing up reputationally, out with the EU and, in future, that proportion is likely to we can be looking at even greater cross border increase, then VAT is not the problem it is for others,” he cooperation,” he said. said, although for them it would be pointless spending a Mr Mummer y said there needed to be a balance. The great deal of time and effort focussing on mainland Europe success on the island amongst the Asian companies should only to become a late entrant and fringe player. So Asia was not be an overt focus. Ten years ago, he said the types of one niche to be grown but it was not a substitute, he said. business he was associated with in the Far East were massively cash regenerative. But although jurisdictions like

Mr Kelly asked Roger Raatgever, as Microgaming had been on the island from the origins of eGaming, what did he see as the way forward and areas for the island to focus on?

Mr Raatgever said it was important to celebrate success. Mr Kelly then thanked the panel for their great insights into Just four years ago there were only 12 licensees on the the way forward. They had helped put the Island in the island and now that figure stands at 38. He said the favourable position it now found itself in, he said. “There is peripheral sector of CSPs, marketing, hosting and no doubt, with the people and companies we have here, processing companies should be encouraged. “The island we will have a good crack at most of the challenges we lends itself to those professional services, he said. The hub- face,” said Mr Kelly. and-spoke model and further milestone achievements like the Denmark agreement would be “absolutely invaluable,” he remarked. “My biggest comment would be to focus on what we have here. We have the cream of the crop and many of the best companies in the world right now. The rest will follow. I see a bright outlook,” said Mr Raatgever.

John Shimmin

John Shimmin is Minister for the Department of Economic Development John Shimmin (DED) whose task is to promote and encourage the creation of a successful and diversified economy offering employment opportunities for all. MHK He entered politics in 1996 and in 1999 became Chairman of the Isle of Man Post Office before becoming Minister for Transport in 2002. In 2005, he swapped to Home Affairs. He was appointed Local Government and Environment Minister in 2006 and prior to his appointment as Minister for DED, Mr Shimmin was Minister for Environment, Food and Agriculture.

eGaming Sector is a Beacon for the Optimism for the Future “You are the sector Island The innovation and technology provided that has been the Mr Shimmin said he was grateful for by the island’s eGaming based the opportunity to address the Summit, companies, together with the support lifeline which has explaining that although he had only services coming from the peripheral been in his current role as Minister for sector, meant the island could look maintained our Economic Development for a matter of forward to “a really optimistic and rosy weeks, his involvement with eGaming future,” Mr Shimmin declared. dated back to 1997. Then, as now, he economic growth” Recognising the significance of the worked with Chief Minister Allan Bell Conister banking initiative, which had just as the sector was starting out on been announced earlier in the day, he the island. “We are both still keen on stressed: “This has been something we eGaming and I want to reiterate the have been looking for in Government confidence the Government has with for some time, so I congratulate the sector,” said Mr Shimmin. Conister and I urge people to support He said the Government had a lot of this initiative.” gratitude “for all the people in the Meanwhile, following the different areas of eGaming represented announcement earlier in the day that today. “ He accepted that it had been they would be leaving their current “a difficult financial time for the island positions in the sector, Mr Shimmin and elsewhere” but that the eGaming extended a special thanks to Garth industry had been a beacon of Kimber and Lisa Underwood at the DED optimism. “You are the sector that has for all the work they had done for the been the lifeline which has maintained island over the years in developing the our economic growth,” he said. “We eGaming industry. “We wish them the have depended upon you in the last best of luck in their new endeavours two years but I am delighted to hear with our gratitude,” he told the Summit. some of the comments today about the ongoing growth and optimism in the He also recognised the widespread sector. The growth and innovation that support of the event sponsors, panellists will be created by people and and speakers, which showed the companies represented in this room industry was united and for KPMG’s role will stand the island in good stead.” in bringing the whole Summit together. Mr Shimmin highlighted comments “As an industry, you are a tremendous made at one of the earlier panel asset to the Isle of Man Government. sessions about the Isle of Man being What you are doing is vital to our the cream of the crop. “Yes, we success, not just for the area of believe it, but it’s great to hear the eGaming but in the wider context of all industry saying it themselves, rather the ICT skills that we can bring to the than politicians believing their own island. This is building on the success publicity,” he said. you have created,” he concluded.

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 49 (“KPMG International”), a Swiss entity. All rights reserved. © 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG LLC Heritage Court 41 Athol Street Douglas Isle of Man Tel: (01624) 681010 Fax: (01624) 681098 www.kpmg.co.im

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