12 April, 2021

An Efficient Route To Compliance

Jaime Debono, MD of iGaming Academy, depicts an increasingly hazardous regulatory landscape, but shows compliance can still be achieved efficiently

The burden on operators is increasing as regulators strengthen compliance measures worldwide. Regulators are adopting an increasingly hard-line approach, motivated by a very public commitment to protect customers. “We are absolutely clear about our expectations of operators,” says Gambling Commission chief executive Neil McArthur. “Whatever type of gambling they offer they must know their customers. They must interact with them and check what they can afford to gamble with, stepping in when they see signs of harm.  Consumer safety is non-negotiable.”

The Malta Gaming Authority (MGA) recently revealed it cancelled seven licences during H1 2020. Under newly appointed CEO Carl Brincat (who features in this publication) the Authority is pursuing an agenda of increased regulatory standards and is “committed to ensuring we continue along this path”.

This trend can be seen across Europe. As countries such as Germany and the Netherlands begin to implement new igaming regulations, they are likely to compare themselves against ‘gold standard’ benchmarks seen in neighboring jurisdictions. Compliance departments within European operators certainly have their work cut out, both in terms of anticipating what’s ahead and in managing existing regulations.

In the year ahead, the industry is undoubtedly in the regulatory spotlight and operators will be expected – or indeed, required – to make significant changes in how they operate across many territories. The challenge will come in stepping up their performance (or as the MGA puts it “ensuring gaming is fair and transparent to the players, preventing crime, corruption and money laundering and by protecting minor and vulnerable players”) while retaining business performance.


The weakest links: common failings

Looking back at 2020 it is clear not only that regulators are becoming stricter, but also that there are key themes in activities which are frequently penalised. Analysing the MGA’s H1, for example, operators were falling foul of regulation 9 (1) of Malta’s Gaming Compliance and Enforcement Regulations. Some failed to follow regulatory obligations or ensure the integrity and availability of essential regulatory data, while others failed to submit completed compliance contribution calculators and player fund reports. The common theme across these, however, was failure to pay licence fees and taxes in a timely manner – something easily fixed with tighter management or staff training.

In H1 2020, the MGA conducted 16 compliance audits and 153 checks on online gaming operators. These resulted in the revocation of seven licences, suspension of two others, and nine fines, as well as 11 warnings and 20 further notices of breaches or sanctions. Many of the Authority’s checks focus on ensuring there are clear anti money-laundering (AML) and responsible gaming functions present within licensees’ business structures, and particularly that named individuals are accountable and equipped to oversee as required. Misleading advertising (particularly around Covid-19) resulted in warnings for 11 operators. At the extreme end of the scale, over €2.3m ($2.8m) was confiscated in H1 as proceeds made through unlicensed gaming activities.

Last year the Gambling Commission penalised UK operators along similarly common themes, issuing financial penalties amounting to tens of millions of pounds; inadequate AML practices and social responsibility failures were cited in a number of cases. Specific examples highlighted by the Commission included customers who had previously self-excluded but were then allowed to lose several hundred thousand pounds each. Others were permitted to gamble with stolen money. Some operators failed to properly screen VIP customers which, under the UK Money Laundering Regulations of 2017, they are obliged to do.

Two clear lessons can be learned from regulators’ increasing scrutiny. First, it’s vital that operators commit to achieving compliance with legislation to avoid highly damaging action like licence withdrawals or fines. Second, however, we can also learn that with such intense scrutiny it is vital operators work alongside regulators to establish trust and efficiency as checks are conducted.


Hidden costs of non-compliance

Regulators only issue fines and withdraw licences as a last resort, and there are many factors to consider when understanding compliance risks. Four ‘hidden costs’ beyond the headline action taken by regulators include:

Company image – Every time an operator makes major headlines for the wrong reasons, it damages not only their reputation, but also their bottom line. They risk losing customers and investment as public opinion moves towards companies seen as more reputable. According to a study by the World Economic Forum, on average, more than 25% of a company’s market value is directly attributable to its reputation.

Industry trust – Ensuring the positive perception of our industry in the public eye is in all our best interests. A survey conducted last July by polling company Survation indicated that 40% of people in Britain, for example, now favour a complete ban on online gambling. This is an extremely fine line on which we tread; only an industry that proves it can truly ‘play by the rules’ will win the public’s trust and support.

Government attention – There is only so far that the igaming industry can push before it attracts government attention. While the vast majority act in the best interests of customers, there will always be outliers that push boundaries and provide fuel for political agendas to bring about tougher regulation. The goal of industry must therefore be to prove an absolute commitment to develop best practice in protecting customers and a desire to self-regulate to as great an extentas possible.

Employee perception – Employees prefer to work for organisations that do things the right way, both from an ethical and a job security point of view. Our industry’s skills shortage – particularly in Malta – is well-known. Those with strong compliance credentials may be adding an all-important talent attraction factor to the mix.


Structuring for compliance efficiency

It makes incredibly good business sense to ensure maximum compliance with regulation for ethical, financial and reputational reasons, but it’s also essential to have an efficient plan for doing so. Three elements are critical to consider: policy, procedure and control. The policy sets out in a clear written statement how the company does things and sets out its commitment to meeting its compliance responsibilities. The procedure then maps that responsibility to a named individual employee. And the control measures assign management responsibility to include adequate monitoring.

At every level of an organisation, staff need to know their responsibilities and understand how to apply them to protect themselves, their company and the industry as a whole. Effective training is critical for achieving this in an efficient timescale. In the best cases, businesses can approach compliance in a way that truly supports core company values and becomes a central component of its culture.

There are efficient routes to managing compliance responsibilities that in fact create tangible benefits for business. Each of the ‘hidden costs’ highlighted above can be flipped to become ‘discovered benefits’: positive company image, favourable public support, strong political alignment and attractive recruitment brands. If operators approach their responsibilities efficiently and effectively, these benefits will remain well within reach.

Jaime Debono is managing director of iGaming Academy, which provides highly effective compliance training services for business in Malta, Europe and worldwide. igacademy.com