The Isle of Man has deliberately and successfully positioned itself at the forefront of developments in blockchain and the island’s Gambling Supervision commission is front and centre in the debates regarding regulation of the digital currency sphere. The most recent news from the Commission has seen them issue new rules for the regulation of digital currencies, from bitcoin through to the money’s-worth items exchanged in eSports so GamCrowd took the opportunity to catch up with chief executive at the Commission, Steve Brennan, to go through the body’s opinions.
GamCrowd: Do you think that to a degree global gambling regulators need to try and get ahead of the curve when it comes to digital currencies in order to corral it better?
Steve Brennan: Yes – the decentralised nature of convertible virtual currency (CVC) and the fact that virtual goods are so integral to monetising social media and video gaming suggests to us that digital currency is here to stay, and both categories of digital currency bring challenges to gambling directly. Convertible virtual currencies pose challenges to anti-money laundering regimes and virtual currencies have demonstrated under-age gambling issues in unregulated secondary markets. Sites are already up-and-running in the unregulated space. We feel that it’s always better to regulate where there’s a risk – that at least gives us a chance to understand the dangers and implement controls. Simply outlawing digital currency gambling doesn’t manage the risk of criminal involvement or consumer harms.
GamCrowd: Do you think the regulation of digital currencies is necessary to answer some of the questions posed by the skins betting furore last year?
Steve Brennan: No, it’s not a necessity because the game developers that issue the virtual goods also administrate the accounts between which the virtual goods are exchanged. In theory they can implement restrictions on how those accounts are used and could, if necessary, prevent secondary markets from occurring. However, it’s recognised that virtual goods and the secondary gambling markets are very popular with players and no games developer wants to alienate its player base. We see regulated skin-betting sites as a very neat solution that allows the market to continue operating while excluding under-age players. We also recognise that game developers are unlikely to want to licence directly– the processes for verifying player identity and controlling gambling accounts and infrastructure isn’t their core business – so that’s something they’ll probably leave to dedicated licensees. Allowing third-parties to operate in this capacity using their IP also creates room for innovation and a gambling operator that creates a compelling offering using virtual goods only increases demand for virtual goods (which of course the developer sells). We can also see game developers building the technology to support affiliate networks if they become comfortable with licensed skin betting so that they can share in the revenue that’s essentially generated using their virtual goods.
GamCrowd: How did you weigh up you decision with regard to digital currencies? is there an element of discovery before you can make a decision, regarding technology and the checks and balances involved?
Steve Brennan: Yes – we did a lot of research before changing the regulations to permit digital currency and we benefitted from hosting a cryptocurrency conference which brought experts to the Island. With skin betting the issues are relatively straight forward in the sense they can be easily fixed by licensing. However, convertible virtual currencies come with a different set of challenges that aren’t so easily surmounted. The main challenge is getting a realistic sense of risk. Because of the revolutionary possibilities CVC offers, and because its short history includes some dark moments, the topic tends to polarise people into enthusiasts and critics so it can be difficult to predict the actual risk. For that reason, we’ve decided not to create digital currency regulations just yet but rather to implement a much more flexible policy on digital currency in licence conditions. It will start as fairly tightly-controlled framework, forbidding some things like CVC-in-fiat-out transactions and controlling the protection of player property. As the technology matures and the true risk becomes clear, we’ll relax the licence conditions as appropriate until we’re happy we’ve got the right set of parameters. It’s likely we’ll then create digital currency regulations.
GamCrowd: Do you think that the UK's FCA is actually somewhat pushing the pace here with its attitude to potentially licensing digital currencies and will this help the cause of gambling regulators?
Steve Brennan: It will undoubtedly help. The biggest challenge for a gambling licensee looking to operate using convertible virtual currencies is obtaining or retaining banking. If the FCA makes it safe for banks to operate in this area by offering guidance and setting a positive tone then the banks will hopefully offer their services more readily. That change might help gambling regulators in some ways but we believe that it will be more helpful for regulators if we share our ongoing experience with them. The Isle of Man co-chairs the international gambling working group on money-laundering and terrorist financing – that’s an active group with participants keen to share learning and that group also makes contributions to the Gambling Regulators European Forum’s e-gaming working group. I can see our fellow regulators being interested in our progress, particularly as our first skin betting operator is close to obtaining the GSC’s approval.