Tackling the regulation of gambling innovation

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The recent moves from the UK’s Financial Conduct Authority (FCA) to enhance the prospects of fintech start-ups succeeding by giving them a regulatory sandbox in which to experiment with new ideas before having to jump through the full gamut of regulatory hurdles has a resonance for the gambling industry.

At the GamCrowd Studio session that took place as part of the Pitch ICE show in London in February, a significant complaint from many of the start-ups that took to the stage concerned the time and resources any company looking to enter the gambling space needs to devote to getting licensing from the UK Gambling Commission.

We know the Commission licensing process is rigorous for a reason. Like all jurisdictions, the UK authorities need to know that gambling activities are being carried out with the public interest in mind. The stated aims of the Commission are to ensure that gambling is crime free, fair and open, and that the vulnerable are protected.

In comparison, the FCA has subtle differences embedded within its remit. As it says in its introductory document that announced its plans for a regulatory sandbox in November last year, the financial regulator is committed to “promoting effective competition in regulated financial services in the interests of consumers”. Furthermore, it added that encouraging disruptive innovation was a “key part” of the body’s broad aims.

The Commission would likely rightly point out it is not in the business of acting as the facilitator for the industry in the same way. Yet in insisting that any start-up operator, supplier or developer goes through the full regulatory process, the Commission runs a number of risks that do perhaps threaten its own stated aims.

The danger is that innovation takes flight. If new ideas are stifled by onerous red tape in the UK and instead are adopted by offshore, unlicensed operators then UK licensees will be operating at a competitive disadvantage. The UK has avoided some of the more obvious pitfalls in designing its own regulatory regime by allowing all products (and by taxing them at a reasonable rate) but the regulator needs to be cognisant of the attractions of offshore gambling to the consumer if these sites offer a better product than the licensed operators.

Australia is arguably a good recent example of this type of regulatory failure. In fostering a system where there were obvious loopholes when it comes to in-play betting – allowable over the phone but not online – the Australian authorities opened the door to innovation and click-to-call was the result.

Now the Australian authorities obviously have the right to oversee their gambling market in any way they choose. But change without regulatory oversight is not good for anyone. It is neither in the interests of operators, regulators or ultimately consumers to have a product made available only for it to be withdrawn following further legislative intervention.

The click-to-call kerfuffle is far from a perfect example of how a regulator should view innovation. A sandbox approach for this particular product in Australia may still have hit the same legislative blocks and the operators may well have had no more success in pushing the in-play agenda forward than is currently the case. But a system which allowed for operators to put new ideas in front of the regulators would at the very least have been less confrontational and might have helped in the understanding of what each party felt was the spirit as well as the letter of the law.

As part of GamCrowd’s one-day conference that takes place as part of London Technology Week on June 21 at the Hippodrome Casino, a session will be dedicated to asking how the gambling industry can look to work with its regulators on fostering innovation.

Looking at what the FCA is doing might be a good place to start. A similarly-styled sandbox for the UK gambling industry could help both the regulator and the industry gain a greater understanding of their related aims. As a consequence, it might help foster a more vibrant space where new entrants can thrive.

The once vaunted aim of the UK providing a lead in online gambling regulation is now long forgotten. Yet, now might be the right time to look at resurrecting the idea that the UK can stand as an example of how a regulator and the industry it oversees can provide a safe environment in which consumers can gamble safely.

GamCrowd’s one-day contribution to London Technology Week takes place at the Hippodrome Casino in Leicester Square on June 21. Visit www.gamcrowd.com/events for more information.