Minister of Justice Nigel Feetham Discusses Gibraltar’s Gambling Past and Possible Future in GI Q&A

As Minister for Justice, Trade and Industry, HM Government of Gibraltar, Nigel Feetham is responsible for regulating and growing the burgeoning online gambling business in the British Overseas Territory at the tip of the Iberian Peninsula.

Part of the future of that endeavor, he believes, centers around the licensing of prediction markets, which have so far received a tepid reception from many nations on the European Continent. Gambling Insider spoke with Feetham in an exclusive interview discussing the future of a digital gambling economy in Gibraltar and how prediction markets factor.

Gambling Insider: What’s the gambling history of Gibraltar?

Nigel Feetham: In 1993, Ladbrokes was probably the leading UK gaming company of its time. They decided that they wanted to transfer their telebetting business offshore. The UK had very high rates of betting duty. It was almost 9% betting duty. Betting duty is a tax on revenue, rather than a tax on profit. So it was very difficult for gaming companies to be profitable in that regime. So we saw an exodus of companies from the UK establishing operations in Gibraltar.

Then we had other gaming companies being established in Gibraltar. The ones that obviously come to mind at the time is BetVictor, then known as Victor Chandler. We had quite a number of big brands based in the UK that established a presence in Gibraltar. That has meant that we have developed an ecosystem in Gibraltar which is very heavy in innovation, underpinned by a large proportion of the labor pool in Gibraltar working in these sectors. There are over 3,400 people that are working in the gaming industry alone.

GI: How does Gibraltar’s licensing system work?

Feetham: The reason why we can act so quickly in the gaming sector is that the way that we’ve structured our gaming regulation in Gibraltar, the gaming framework, we distinguish between licensing, regulation and supervision.

We’ve taken the policy view that the licensing decision on the advice of the gambling commissioner – in other words, the regulator – should be taken by the minister with responsibility for gambling. So, in my case, as the minister with responsibility for gaming in Gibraltar, I am the licensing authority. That means that I can act as quickly as I wish to act for the purposes of advancing the macroeconomic interests of Gibraltar.

That is important because it allows us to move much quicker than an independent financial services regulator would be capable of acting. If you look at financial services in particular, this is not a criticism of any financial services regulator, financial services regulators historically have been adverse to [making] decisions regarding innovation.

GI: What’s the benefit of being a first mover?

Feetham: Gibraltar was the first jurisdiction in the world to develop a regulatory framework for the licensing and regulation of [distributed ledger technology], blockchain technology. What we have seen is that the first-mover advantage is important. 

You’ve got to be the first jurisdiction that develops the framework, and simply because of that fact, the fact that you have a regulatory framework in place, we see and we’ve seen it on many occasions, and I have seen it during my time as a leading lawyer in my jurisdiction, that the reality is that companies come to a jurisdiction looking to be regulated, because regulation gives them that credibility.

As long as the regulatory framework is flexible enough, and companies are able to have an open access to the regulator – and this is the difference between a large jurisdiction and a small jurisdiction, such as Gibraltar – as a small jurisdiction, as minister, I have an open-door policy, which means that I engage regularly, not just with my licensees and local operators, but indeed potential investors.

GI: What do you say to the criticism that the approval of Predictstreet was too fast?

Feetham: Let me say that we pride ourselves in being a jurisdiction that values speed to market.

In other words, the most important thing that a jurisdiction has to be able to underpin economic growth is that ability to make decisions in a manner which large jurisdictions are unable to do. We’re very agile. And without specifically going into the details of the application, which is very much in the public record, the license was issued to Predictstreet.

We engaged with them intensely over a significant period of time. This was not a decision that was taken on the back of a cigarette packet.

We worked intensely with them with a view, obviously, of being able to take an informed decision, which we did. And we’re proud of the fact that we were able to deliver at the speed in which we delivered. It wasn’t the first time, in fact, that we had done so.

GI: How did the expansion of the fintech and the gambling industry economies become a focus for Gibraltar? 

Feetham: I think that the word that describes the reason why we’ve developed in the way that we’ve developed is digital. In other words, it’s all around digital technology. The world has gone digital, and it really has gone digital probably over the last, certainly over the last 10 years.

So insurance companies, for example, undertake the large majority of their business online, and through the application of digital technology in the gaming sector, we’ve seen a movement from the 90s, in the early days when we licensed and regulated gaming companies in Gibraltar, that was very much focused on telebetting, telephone betting. That has now moved almost entirely online as well.

In other words, digital.

Once you create a digital infrastructure of the sort that we’ve seen over the last 15 years in these particular sectors, then you create and grow an ecosystem. And the ecosystem that we now have, it’s easy to plug in other components of the innovation and evolution that we’re seeing in the financial services and indeed in the crypto space. So there’s a lot of fluidity at the moment.

So if a company wishes, for example, to talk to us about the licensing, let’s go and reference prediction markets, the discussion might turn into, well, how do we set up a blockchain functionality to allow us to have a crypto component to it? We’ve got a massive ecosystem in Gibraltar. You cannot develop an economy in the way that we’ve developed an economy in Gibraltar without having that. You need that ecosystem.

GI: How did the increase on UK gambling duty taxation impact this process?

Feetham: Taxation, either you get it right or you mess it up badly. Most jurisdictions will mess it up badly. That’s the problem.

If you get a tax strategy wrong, the first thing you’ll see is that companies will leave the jurisdiction. It will be very controversial. And instead of growing the economy, you do the exact reverse.

I implemented and executed a national tax strategy in Gibraltar that in my first full budget saw me increasing tax revenues by almost 40%. If you take the base figure of what I inherited in the corporate tax field, the tax space, you will see that in my second full budget, I doubled that.

Unfortunately, of course, the UK government [made] a decision to increase the rate of betting duty, which meant that my tax revenues would take a significant hit, in Gibraltar, in the current financial year, because the UK betting duty came into effect on the first of April this year. So I expect to see a significant impact on my own tax revenues towards the end of this year.

And the reason why that is the case is because gaming companies that are offering their services in the UK are required to be licensed in the UK. And as part of that responsibility, they also have to pay betting duty in the UK. Betting duty is a top line tax.

In other words, it’s not a tax on profit, it’s a tax on revenue. So when the UK government almost doubled the rate of gaming duty, it has a disproportionate impact on us because they will take the top line revenue, whatever that number is, and it leaves a significant reduction in the profits of the company, which then means that my tax revenues will decline consequentially. That is why when they took the decision that they took, and we lobbied very hard in the UK, we lobbied the UK Treasury very hard, and it was not just a question of pointing out to the UK Treasury what the impact would be economically on Gibraltar.

I made it a point of articulating the arguments very clearly to them, that potentially what would happen if they did this was that their own tax revenues would suffer and that you would see a huge exodus of legitimate business, which was being placed with gaming companies in Gibraltar, going into the black market. In other words, the black market are companies that are not regulated, licensed in the UK and paying taxes in the UK, not because they don’t have a legal obligation to do it, but they just simply do not respect the laws and the requirements in the UK. That is exactly what we’ve seen.

When we then regrouped as a ministry, we took the view that we needed to accelerate the levels of economic growth in Gibraltar to compensate for the shortfall that we would see at the end of this year as a result of the budgetary decision which the UK Government had taken.

GI: Does UK Parliament have any say in Gibraltar pursuing a course to license prediction markets?

Feetham: No, they don’t. They absolutely don’t. Gibraltar is a jurisdiction that as a legal system is separate from the UK, in other words the UK government does not legislate for Gibraltar.

We have our independent Parliament, we have our own Parliament, so our government, the government of which I am a member, has a majority in Parliament. We legislate and we pass legislation according to our own view of what is in the macroeconomic best interest of our jurisdiction.