The nation of Malta has led the way with its blockchain regulations and has encouraged its other major authorities to embrace the technology. The Malta Gaming Authority is a leading regulator of online and land-based gambling and has recently published its guidelines to move towards accepting virtual financial assets and distributed ledger technology within the gaming industry.
The Malta Gaming Authority announced in March 2018 that they would be creating methods of welcoming distributed ledger technology and cryptocurrencies into the gaming industry. They announced that a licensing system would be established alongside methods of using wallets of digital currency at gaming websites and a way of calculating exchange rates. It was at this time that the Malta Gaming Authority announced their plans to create a sandbox testing environment in which developers could test their games to see if they are in line with the upcoming regulations of the Malta Gaming Authority.
In October 2018, the Malta Gaming Authority released its guidelines for the framework that they had created to assist the budding technology in the gaming industry.
The Malta Gaming Authority releases its sandbox framework
The announcement detailed the two phases of the framework. Phase one is set to commence on the 1st of January 2019, at which point the Malta Gaming Authority will be accepting applications from bodies within the gaming industry looking to allow the use of virtual financial assets and virtual tokens as a means of payment. In phase two, their framework will be extended to allow for applications from those looking to use innovative technology arrangements, such as distributed ledger technology, within the key technical equipment of licensees: this is to coincide with further developments made by the established Malta Digital Innovation Authority. The Malta Gaming Authority is expecting the sandbox framework to continue until October 2019, but the paper is to be considered as a live document so that the regulatory requirements initially envisioned can be changed to adapt to technological and regulatory developments if necessary.
Even if an applicant fully complies with the Maltese blockchain legislation, they must still obtain a license from the MFSA before being granted access to the sandbox framework. Furthermore, applicants can apply for the inclusion of their testnet within the sandbox framework should their live environment go live within the three months following their approval by the Malta Gaming Authority.
The Malta Gaming Authority have established criteria as to how to define virtual assets and the steps required to use assets from distributed ledger technology. Prior to the involvement of the Malta Gaming Authority, an operator shall need to undergo a Financial Instrument Test that is issued by the Malta Financial Services Authority to be able to determine the nature of the distributed ledger technology asset, be it a virtual financial asset or a virtual token. Once this has been established, the operator shall submit the Malta Financial Service Authority’s findings with other appropriate documentation to the Malta Gaming Authority as a stage of the application process to be approved for the sandbox.
Regulating the use of virtual financial assets
If the asset is deemed to be a virtual financial asset, it adheres to established statutes of Maltese law. Operators can then use virtual financial assets that are overseen by the Malta Financial Services Authority in accordance with the Virtual Financial Assets Act. Those deemed to be financial instruments, per the Investment Services Act, or electronic money, per the Financial Institutions Act, can only be accepted as a method of payment if they are specifically approved by the Malta Gaming Authority, which shall be decided on a case-by-case basis at the Authority’s discretion.
When users sign-up to gaming websites with the intent to use virtual financial assets, only wallet addresses that are specifically tied to the individual will be permitted within the gaming ecosystem. Once the wallet has been recognised, for a deposit of virtual financial assets to be successful, the operator must verify the individual’s details and their wallet. Once verification is complete, players receive their gaming funds. Withdrawals can only be performed to verified wallets, and if a pending transaction does not match the player’s verified wallet address, funds will be returned to their point of origin or shall be frozen.
The operator must clearly identify and forewarn all players to withdrawal and deposit transaction fees should these exist on their platform. Within the operator’s ecosystem, virtual financial assets and fiat currencies shall be treated as separate entities, with an exchange between the two not permitted. For the sandbox framework, the exchange rate applied shall adhere to that of the virtual financial asset exchange declared to the Malta Gaming Authority by the operator. The exchange rate shall be taken for the virtual financial assets permitted against the Euro (€) at the time of 12:00 Central European Time on the last day of the reporting month with the taken exchange rate unable to change throughout that same reporting month. However, exchange rates can change from reporting month to reporting month. Operators shall enforce a maximum deposit to the value of €1000 in virtual financial assets per month.
Regulating the use of virtual tokens
The use of virtual tokens shall also be decided on a case-by-case basis by the Malta Gaming Authority: a decision which is guided by their distributed ledger technology economics criteria as well as an evaluation of token’s technology, the company’s structure, human resources, market applications, and security. Registered players can acquire virtual tokens from the operator on the operator’s platform for use on the platform. Virtual tokens can purchased with the use of fiat money as long as withdrawals following the use of the virtual tokens can also be made in fiat currency at the same rate of exchange as they were initially acquired.
Regulating the use of innovative technology arrangements
During the operation of the sandbox framework, the Malta Gaming Authority shall be accepting games and components of games that are fully or partially hosted in a distributed ledger environment, but these technologies shall also be subject to an audit. Other essential components hosted on distributed ledger technology will also be accepted if the Malta Gaming Authority is satisfied by the technology’s compliance with regulation and is successful in an audit.
Approval from the Malta Gaming Authority and inclusion within the sandbox framework is required of any operator seeking to make use of innovative technology arrangements as a part of its key equipment, and each element of innovative technology arrangements shall be audited by registered auditors of the Malta Digital Innovation Authority. The technology is only accepted if the audit report concludes with a positive outcome and the Malta Gaming Authority is satisfied that its regulatory requirements will be adhered to by the operator.
Smart contracts will only be permitted if: the smart contract’s code is reviewed by an audit; necessary amendments are made following the results of the audit; necessary safeguards are put in place to protect the transferred assets; revocation of a smart contract can occur should a flaw generated in the code be discovered; and wallet verification is part of the player’s identity. The main focus of the Malta Gaming Authority, with regards to smart contracts, is where the funds placed in escrow during a contract are held by the smart contract.
According to the Malta Gaming Authority’s Guidelines on Technical Infrastructure Hosting Gaming and Control systems, hosting architecture must be located within the nation of Malta, a European Union member state, or a member of the European Economic Area to ensure that the same principles are upheld, which would seemingly exclude the use of public distributed ledger technology platforms. But applications to the sandbox framework using such technology will not be scrutinised for not abiding by these guidelines. To gain a license, however, the operator of this technology will need to establish a node in Malta to adhere to requirements.
Once approved by the Malta Gaming Authority, the licensee will be rewarded with a dynamic seal, acknowledging that they are a participant of the sandbox framework.
A valid licence issued by the State Commission on Gambling Bulgaria explicitly stating the type of game that will be organised, and an evaluation report by an approved gaming laboratory (approved by the State Commission on Gambling Bulgaria) to confirm the compliance of the software or devices that will be used, is required in order to operate a gaming company in the territory of Bulgaria.
The global need for Distributed Ledger Technology (DLT) Regulations
There are two primary reasons behind the governments around the world being rather coy about establishing legally binding regulations for distributed ledger technology and the resulting debate as to the legitimacy of such regulations: a lack of knowledge concerning the function, application, and potential of the new industry; the perception that regulations negate the goals of the blockchain.
Many governing bodies have taken the ‘wait and see’ approach to distributed ledger technology, allowing more data to be revealed before they fully analyse what needs to be regulated and how they will go about applying regulation. However, this has left the affected businesses in a state of limbo, not knowing if they are acting illegally, or if their activities will soon be deemed illegal, in certain countries where the topic is debated but not regulated. The problem for many blockchain purists with the regulation of distributed ledger technology is that it contradicts the original purpose of the technology. The Bitcoin blockchain was designed and implemented to be self-governing and eradicate the need for government control and regulations, leaving hesitance within the community to submit themselves to laws and regulations enacted.
Creating the legal framework and regulations for distributed ledger technology presents many unique challenges, including establishing accountability; the application of contract law to smart contracts; the area of regulation; and the security of personal data in the case that blockchains can be decrypted in the future. Due to the rapid growth and application of the still budding technology, there has not been enough time to see all of the main issues emerge. On the 11th of May 2017, members of the European Parliament met to discuss the future of blockchain regulation and if governments should begin to intervene. Due to the lack of clarity as to the consequences of the new technology, possible issues that may arise, and a need for it to have the freedom to develop, governments quelled their desire to apply regulation.
On the 4th of July 2018, Malta became the pioneer of Distributed Ledger Technology Regulation, dismissing the ambiguity that blockchain companies had been coping with in the years prior.
Malta becomes the ‘Blockchain Island’
Malta made history by enacting regulatory bills concerning distributed ledger technology, blockchain-based businesses, cryptocurrencies and initial coin offerings, and blockchain-based service providers. The Maltese Parliament brought three laws into power in order to establish a governing body, create a system of registration and certification of distributed ledger technologies, and to regulate initial coin offerings.
The Malta Digital Innovation Authority Act established the Malta Digital Innovation Authority (MDIA) as the governing body to support the development and implementation of the guiding principles described in the Act and to promote consistent principles for the development of visions, skills, and other qualities relating to technology innovation, including distributed or decentralized technology, and to exercise regulatory functions regarding innovative technology, arrangements and related services and to make provision with respect to matters ancillary thereto. The primary aim of the MDIA is to promote the new technology and its innovations by developing and implementing key guiding principles. Regarding the regulation of such technologies, the Innovative Technology Arrangements and Services Act provides the MDIA with its regulatory functions, which includes providing technological arrangements for distributed ledger technology companies, as well as, the methods of certification and registration of such companies. The Virtual Financial Assets Act governs cryptocurrency wallets, cryptocurrency exchanges, and lays out clear criteria regarding the requirements for an initial coin offering.
The three acts established by Malta created the benchmark for governing bodies all over the world to follow, allowing for the expression of innovation while presenting clear regulations for the use of the developing technology. Many companies utilising distributed ledger technology were seeking legal clarification, which made Malta’s newly established regulations very desirable. Soon after the bills were enacted, a slew of high-profile companies announced their move to Malta. Binance is one such example, which opted to escape Asia’s purge on virtual currencies and move to the more open-minded regulations of the European island nation. Other cryptocurrency exchanges including OKEx and ZBX have followed suit.
Malta’s desire to adopt and grow the distributed ledger technology industry was demonstrated by their willingness to establish themselves as the ‘Blockchain Island’ in July 2018. However, the nation has surpassed this creation of the legal framework, with its other authorities integrating blockchain-friendly regulations into their respective industries. In March 2018, it was reported that the Malta Gaming Authority (MGA) aimed to create a licensing system for game developers seeking to accept cryptocurrency as a form of payment, establish a method of calculating exchange rates, and the use of digital currency wallets with games. To do this, the Authority was to engineer a sandbox testing environment to allow game developers to see if their games were in line with their new regulations of the use of cryptocurrencies.
Other distributed ledger technology authorities emerging
Malta made headlines by becoming the first official regulator of distributed ledger technology to forge the ‘Blockchain Island’. In December 2017, Gibraltar, announced its intention to launch the world’s first licensing procedure and regulations structure for firms using the new technology. On the 1st of January 2018, the Gibraltar Financial Services Commission was established to be the nation’s authority on distributed ledger technology, applying to all businesses using the technology in or from Gibraltar. On the 17th of October 2018, leading Bitcoin exchange Coinfloor became fully compliant with the regulations of the Gibraltar Financial Services Commission, meeting the standards required by their nine regulatory principles.
The European Parliament has recently begun to move towards establishing regulations for distributed ledger technologies by publishing a non-binding resolution. The resolution details an innovation-friendly approach to the new technology, and that instead of regulating the technology, the European Union should remove barriers currently restricting the implementation of distributed ledgers. A focus of any regulation to come from European Parliament will be towards standing European Union legislation, specifically the General Data Protection Regulation (GDPR), with the composition and process of current distributed ledger technology and blockchains seemingly making it difficult for someone to have their personal data and records removed. They stand by their previous comments concerning a lack of understanding as to the potential problems that can be associated with the technology, and so they will require more time to establish measures to counter the major issues that may arise. It is apparent that general understanding of the technology needs to be improved through the education of relevant parties and that doing so could help the European Union to become a world leader in the field of distributed ledger technology: a route that European Parliament intends to pursue. Resolutions set out by the European Parliament are often used as a tool to express intent to create regulations, but resolutions are not legally binding.
The world of cryptocurrencies and blockchain continues to expand from its humble beginnings to becoming buzzwords by the conclusion of 2017, to now, when more people and businesses understand the new technology, as well as, its range of applications. One common point of confusion that has arisen surrounds the frivolous nature in which some refer to the digital coins, such as Bitcoin, and tokens as the same entity. Tokens and coins are, in fact, very different aspects of blockchain technology and its ilk, offering different applications on the blockchain and when making transactions.
What are digital coins?
Digital coins, or cryptocurrencies, often have a sole function: to be used as a payment method. The original cryptocurrency, Bitcoin, was introduced with the sole purpose of eradicating fiat currencies with its trusted and immutable decentralised public ledger, known as the blockchain. The focus for Bitcoin and most other coins is on the speed, safety, and affordability of making payments while it primarily denotes value to be used to exchange for services and goods.
Each coin is an asset native to its blockchain, with their function and operation being solely on their specific blockchain. They are first introduced from the blockchain following an initial coin offering (ICO), which allows people to pay money to acquire the digital coins for use within the blockchain. Exchanges and trading platforms, such as Coinbase and Kraken, have emerged to cater to the fiat money and cryptocurrency exchange of digital coins for users who aim to make a profit on the rise in the value of coins. The most famous incident involving the price of a digital coin on the stock exchange was Bitcoin in December 2017, when its price soared to $19,343.04.
The use of coins is primarily as a payment method for services or goods on a blockchain. While some coins, such as Ethereum’s Ether, have other functions as well, the primary function of the coin is to denote value for a payment, with Bitcoin being the prime and most recognisable example.
What are digital tokens and how do they work?
The reason why coins and tokens are often mistaken as the same digital item is not only because the two terms are somewhat interchangeable in the physical world, but also because they both hold value within their specific blockchain. Tokens are created within decentralised apps (dApps) that are hosted by a blockchain that functions on smart contracts, such as Ethereum. By funding a smart contract with the blockchain’s native coin, the user receives an allocated amount of tokens which, in turn, allows the user to interact with the dApp. The dApp which received coin in exchange for its tokens will then further develop its service with the new capital. Tokens often represent some form of value for use within or concerning the dApp which released them and are used as a medium of exchange.
Anyone who operates a dApp can create and issue customised tokens for use within their dApp. To create these tokens, the developer must pay a fee in the form of the blockchain’s native coin, such as Ether on the Ethereum blockchain, to pay the miners who validate the tokens. Coins are also required to exchange the tokens from peer-to-peer. Those who have created a token model for their dApp will often set specific methods in which users can earn the tokens. If constructed well, users will perform these actions to gain the desired tokens to use on their favourite goods and services. If a token ecosystem is well-crafted, it can add another incentive for users to interact with the dApp’s offering, giving it more value than just monetary.
The benefit of developers employing the token model on an existing blockchain, thus being required to pay the coin fees for the creating and distribution of coins, is that the blockchain provides structure, upkeep, validations, and security through its vast network of computers.
There are four different forms of token according to the definitions of Swiss financial regulators FINMA, all of which have the goal of gaining capital from users spending coin on using the tokens for the dApp at hand. The four definitions of token are as follows:
• Utility Tokens: The utility tokens are used to gain access to a certain part of a dApp, such as a particular service or product offering. Due to their limited supply, utility tokens are often expected to increase in value.
• Payment Tokens: Similar to how coins function, but more specific in their usage, payment tokens have the sole use of payment for services or goods.
• Security/Asset Tokens: These are the tokens issued by the initial token sale (ITS), which people will invest their money in with the aim of making a profit.
• Equity Tokens: This is an uncommon form of token at this time, but equity tokens are those that represent equity or stock in a company.
Tokens in practice
Ethereum is a grand example of how tokens work within a blockchain. The Ethereum network operates on the issuing and completion of smart contracts with its coin, Ether, working as the ‘fuel’ and payment method of the smart contracts. Within the network, there are many dApps which function token-providing smart contracts which require Ether to fuel.
Many decentralised apps deploy tokenised models, and Golem is one of the most popular examples. Golem grants people remote access to its supercomputers for work in many different computing fields such as cryptography. To keep the Golem network working at optimum levels, it draws computing power from its users’ computers, servicing the processing needs. To incentivise this, Golem rewards tokens to those who allow the Golem software on their computer to aid the network, which users can then use on Golem services.
The Musicoin dApp issues tokens that can be purchased in exchange for coins which then allow the user to activate certain features of the Musicoin platform. With a token, users can stream and listen to music hosted by Musicoin, working as a digital version of the old jukeboxes which required customers to insert a specific token before being able to select the song that they wanted to be played.
Tokens are also being used as vessels that represent products and items of the physical world. While Ripple is a recognised coin service, providing fast and low commission transactions as well as its own coin, it utilises tokens within its network as representatives of monetary values. The Ripple token starts as a form of joker card which can represent almost any value of a transfer of cryptocurrency or fiat currency across the network. WePower works similarly, with users able to purchase and sell tokens which denote values of electricity on the WePower blockchain.
Coins versus Tokens
To state a rough coverall distinction between coins and tokens; the primary purpose of a coin is to make a payment or monetary exchange while tokens are put to use by consumers looking to activate features of a decentralised app within a blockchain that has a native coin and features smart contracts. However, coins can be multifunctional, such as Ethereum’s Ether coin which acts as fuel for smart contracts, and tokens take more forms than just granting users access to products and services offered by a dApp. Some tokens work as assets or equities, while others are also used for payments. The primary difference is that tokens tend to be dApp-specific, whereas coins are mostly used as money.
On 4 July 2018, Malta officially passed three bills into law which establishes it as one of the first countries to enact a regulatory framework for blockchain technologies and cryptocurrency. While other nations have decided to wait for a tried-and-tested legal framework to base their regulations on, Malta has pioneered legislation into the industry to make them the biggest name in blockchain and cryptocurrency technology. As shown by the new laws, this move has been made to make Malta a hotspot for the industry. It is a huge move from the small nation, earning it the title of the ‘World’s First Blockchain Island,’ and it is expected to have many repercussions in Malta and across the world.
A new age is dawning
Bitcoin, the world’s first cryptocurrency, found recognition among the general public in the second half of 2017 when its price ascended rapidly from close to $1000 to over $19,000. However, people have known of the cryptocurrency for a long time; and while some may not have bought into the ideology of a decentralised digital currency, experts saw the potential buried in Bitcoin’s foundations.
The blockchain, which is a public transaction ledger that is managed by a peer-to-peer network, records everything that happens in the Bitcoin network and stores the records in a way that cannot be copied or altered. It was built to stop the possibility of double-spending the cryptocurrency, and it also built unequivocal trust within the network without the need for a central authority. Blockchain technology may have first been used for Bitcoin, but its applications are far spreading beyond cryptocurrencies. It could allow the media industries to limit a single copy of a song or movie to a single purchaser, or be used in all forms of business in the form of Etherium’s self-executing contracts. If it is allowed to, blockchain technology could change the way that day-to-day activities are performed. But to do that, companies in the industry will need assurances.
Malta steps forth to inspire blockchain advances
Malta made history with the three bills that it enacted as the regulatory framework for cryptocurrency and blockchain technologies, becoming the first world jurisdiction to provide the industry with legal certainty. Other jurisdictions have passed laws on cryptocurrencies and blockchains, but Malta’s regulations are the most detailed and comprehensive, delivering true certainty. The EU member has been keen to innovate and govern online industries, with the Maltese Gaming Authority being one of the most trusted regulators in the online gaming industry. Now, Malta has become a regulated haven for companies in the industry.
The primary purposes of the three bills are three-fold: to provide legal certainty for the first time in the industry; to support the growth of the increasingly important industry; to guide the government on how to embrace blockchain and cryptocurrency technology and forge Malta into an industry hotspot.
Now in power and governing the industry’s actions in Malta are the Innovative Technology Arrangement and Services Act (ITAS), the Malta Digital Innovation Authority Act (MDIA), and the Virtual Financial Assets Act (VFA). Herein, blockchain technology is referred to as distributed ledger technology (DLT), while a cryptocurrency is termed as a DLT asset. The purposes of each bill are as follows:
ITAS: Primarily concerns the establishment of exchanges and companies based within the cryptocurrency market. It details the registration and certification of DLTs and provides technological arrangements for companies.
MDIA: This bill establishes the MDIA as the regulatory body and formalises the internal regulatory procedures for the industry. As the regulator, the MDIA is also tasked with providing legal certainty to potential DLT platform users.
VFA: The third bill regulates initial coin offerings, forcing new companies seeking to raise capital through an ICO to publish detailed white papers and make their financial history public. The VFA also governs cryptocurrency exchanges and wallet providers.
The three bills have been brought in by Malta to allow a safe place for the industry to grow, but they also ensure that potential users are protected under the new laws. The new legislation prohibits market manipulation, insider trading, and misleading white papers. ICOs in the industry have been accused of such foul play in the past, so Malta has decided to prohibit it without question. A person found guilty of such offences can face: a fine of up to $15,000,000 or three-times the losses avoided or profits made due to committing the offence, whichever is greater; incarceration for a term of up to six years; or suffer imprisonment and a fine. These staunch punishments will help Malta to legitimise the industry while also nurturing it as it grows to meet its immense potential.
The impact on Malta and the rest of the world
The desire to create the bills first was to help present Malta as a blockchain hotspot: the nation is already bearing the fruits of its bravery. Binance, the largest cryptocurrency exchange in the world, has already opened up an office in Malta, and OKEx has also followed suit. The Maltese government has investigated various ways to implement blockchain technology into public services, while the MGA sees the technology as a way to regulate online gaming services looking to accept cryptocurrency payments. They also plan to explore its applications alongside games, as it could provide transparency by proving the fairness of games via operators’ use of DLT.
Malta’s new regulations could also work as the much-desired framework for legislation in other nations. In the USA, investors have encountered frustration when trying to invest in certain ICOs, due to government accreditation being required for ICOs that offer securities. Malta’s VFA can assist with this issue as The Financial Instrument Test within the VFA details a three-step method to decipher whether an ICO’s asset could be deemed a virtual token.
Malta has opened as the world’s first regulated jurisdiction for blockchain and cryptocurrency technology. The favourable and clear-cut legislation will attract many of the biggest names in the industry to the island nation which will, in turn, provide a haven for the potentially world-changing industry to develop.
The lack of legal action has created uncertainty
Blockchain is being hailed as the greatest invention since the internet. Despite this, there is a great deal of variance in the regulation of the technology across the world. In the United States of America, blockchain technology has been mentioned as potentially being able to change how security is upheld during transactions online. Despite this, the US federal government has left the states to their own devices for regulating blockchain technology, which has resulted in at least eight states working on bills to accept or promote the use of the blockchain technology or the cryptocurrency Bitcoin, as of 2017.
In Europe, there is a more positive, active, and welcoming approach being taken to regulating blockchains and cryptocurrencies. Earlier in 2018, the European Commission revealed its planned vehicle to exchange expertise for the launch of blockchain applications across the European Union, known as the European Blockchain Partnership.
The issues that many jurisdictions have encountered when seeking to regulate the industry are defining the uses of blockchain, understanding what cryptocurrencies and blockchains are, and the willingness to commit and give the technology a stamp of approval. The industry has also come under scrutiny concerning the legality of cryptocurrencies. Some have disputed that cryptocurrency does not constitute legal tender, which brings about a lot of uncertainty in many areas of the world for the companies.
In research committed by Malta, one of the main concerns brought up by those in the industry was the legal uncertainty in many jurisdictions and the fear that their activities could be deemed unlawful at any time. The serious operators sought legal certainty above all else.
by Denitza Dimitrova
LL.B., LL.M., Mag.Jur.
On May 14, 2018, the Supreme Court of the United States overturned the Professional and Amateur Sports Protection Act (PASPA). This action was taken after the state of New Jersey sued PASPA in the case of Murphy v. National Collegiate Athletic Association, claiming that the law infringed the Tenth Amendment of the United States Constitution.
Following the revocation of PASPA by the Supreme Court, sports betting can now be legalised in the United States of America. Attention now turns to the individual states while they dictate as to whether or not betting on sports becomes an available and legalised activity under their jurisdiction.
Why was PASPA in breach?
The Professional and Amateur Sports Protection Act, enacted in 1992, did not make sports betting illegal as sports betting was already outlawed. With the exception of the state of Nevada as well as Delaware, Oregon, and Montana in part, PASPA stopped states from creating laws that regulated and taxed sports betting. Preventing states from making law infringes the Tenth Amendment; thus the Supreme Court opted to repeal PASPA following a six to three majority decision.
What does PASPA’s revocation mean?
With PASPA gone, states are now able to create laws that legalise and regulate sports betting. It does not automatically mean that betting on sports is now legal; PASPA’s repeal is merely the first step towards legalisation.
In the running to the Supreme Court’s decision, 18 states reportedly started to introduce legislation to legalise sports betting, including Delaware, New Jersey, and West Virginia. PASPA’s repeal only grants states the opportunity to legalise sports betting. As it is voluntary, not all states will create sports betting statutes immediately, or even at all. Thus, sports betting may never become a legalised activity throughout the USA, as is the case with the recreational and prescribed use of specific psychoactive drugs.
As for betting operators, a truly free market does not appear the way that states are heading. Although the markets are expected to be very lucrative, states that are making the first moves to legalise betting have proposed limited licensing structures.
It is estimated that around $150 billion was wagered on sports in the USA each year while PASPA was in power: 97 per cent of which was bet illegally. Now, estimates for a legalised sports betting market in the USA range between $57 billion and $400 billion per year.
As states will regulate which operators can offer betting services under their jurisdiction, potential bettors within those states will benefit from a protected betting environment that is safe, regulated, legal, and protects wagers. This safety net will increase the popularity of sports betting which, up until now, has been overruled by deviancy in the USA.
What does it mean for a state to legalise sports betting?
States passing legislation to legalise sports betting are expected to establish many regulations which operators must comply with before they can offer their services to the people of that state. Once operators comply, they will be able to offer their services within the state, but to no one outside of that state.
One of the most pertinent statutes stopping the USA from allowing all of its residents to engage in sports betting is the Interstate Wire Act of 1961. Also known as the Federal Wire Act, this law prohibits interstate sports wagering via telephone or the internet. The Federal Wire Act does, however, allow the placing of bets on a sporting event from a state where betting on sport is legal into a state where it is also legal. To avoid infringing this statue, operators may utilise geo-location technology to ensure that their services are not available to those residing outside of the confines of a legalised state.
As of June 5th, Delaware became the first new state to offer sports betting, with three locations open for business.
Other states like West Virginia and New Jersey seek to have a full-scale offering in place while Delaware will continue to grow from these three locations. The Diamond State already has the necessary legal and regulatory authority to build a full-scale gambling operation.
Potential bumps along the road
While the market is predicted to be very lucrative, some operators may choose to not enter into certain state markets due to the new laws and regulations enacted. A proposal in Pennsylvania penned a one-time license fee of as much as $10 million along with up to a 34 per cent tax on gross receipts. As the legalisation of sports betting is going to be regulated by each state individually, some states are expected to begin as hotspots for operators.
New federal legislation may also prove to be a problem as, in theory, federal law could step in to stop sports betting before it properly begins. One of the four authors of PASPA, Senator Orrin Hatch (R-Utah), has announced that he will introduce new legislation that will protect honesty and principle in the athletic arena. But, some predict that federal legislation will not arrive until after the mid-term elections.
Another potential issue is that the NBA and MLB are trying to claim a 1 per cent sports integrity fee from bookmakers. If this were to come to fruition, many operators would see the market as a non-starter. The majority of sportsbooks only keep around 5 per cent of wagers. This integrity fee would also limit the amount of tax revenue that states could earn. However, Nevada avoiding such a fee for decades should set a precedent.
It is still early in the story of the legalisation of sports betting in the USA, and much could infringe the popular gambling activity from establishing itself across the nation. While many states are embracing the chance to allow sports betting under their jurisdiction, with Delaware being the first new state to do so, it seems very unlikely that every state in the USA will legalise and host sports betting services anytime soon.
by Denitza Dimitrova
LL.B., LL.M., Mag.Jur.
Sweden has been a grey market in the modern age of online gambling, and yet the nation has spawned some of the biggest names in the industry. As of 1 January 2019, however, Sweden will become a fully regulated market following the aptly named bill ‘A Re-Regulated Gambling Market’ being approved by national legislature Riksdag.
In the past, Sweden has been staunchly against liberalising its market away from the state-owned monopoly, despite the numerous formal letters delivered by the European Council. Sweden now opts to make changes to its laws to not only comply with Article 49 of the European Commission Treaty, which guarantees the free movement of services, but to also regain control of its gaming market. It has been a long and hard-fought war between Sweden and the European Commission, but the new policies and systems being brought in with the new laws will see them ultimately win their crusade and maintain the principles that they have been trying to defend.
A tyrannous monopoly
Up until 1 January 2019, the two main statutes that have governed gambling in Sweden have been the Lotteries Act (1994) Lotterilagen and the Casinos Act (1999) Kasinolag. The Lotteries Act made it illegal to promote gambling services that had not been licensed by Sweden. The Gaming Board of Sweden has had the responsibility of licensing and suspending gambling services, as well as, monitoring compliance with the Casinos Act and Lotteries Act. Since 1997, Sweden’s gaming scene has been ruled by the state-owned monopoly of Svenska Spel and AB Trav och Galopp (ATG) as the only two operators to receive a license to offer gambling services.
Over the years, the Gaming Board of Sweden has upheld the two ruling statutes diligently, and the Swedish courts have also been staunch advocates at every turn. In 2005, the Swedish Supreme Administrative Court did not overturn the Swedish government’s decision not to approve Ladbrokes’ application to establish betting operations in the country. Ladbrokes also came under scrutiny following their placed advertisement in daily Swedish newspaper Aftonbladet, which the Gaming Board of Sweden reported to the police to have removed. In 2006, the Gaming Board of Sweden reported the editors of newspapers Metro and Expressen, as well as, editors at magazines Slitz and Spray for the publication of advertisements for unlicensed gambling operators.
Sweden’s resilience to the European Commission’s advances
In October 2004, the European Commission sent a formal notice stating that monopolies in the nation’s gambling market can only exist if they have the objective of limiting betting opportunities in the country and do so in a systematic manner. Sweden ultimately upheld their gambling laws to be in line with the European Commission. In June 2007, the European Commission sent a formal notice requesting Sweden to amend their gambling laws. Sweden ruled to refuse to grant non-Swedish operators a license to operate in Sweden in August 2007. It decided that it must uphold the nation’s law in order to counter criminal activity and maintain social security.
In June 2012, the Swedish National Audit Office reviewed the government’s gambling laws with a particular focus on whether or not they had achieved the goals originally used to rationalise the establishment of a monopoly. Sweden initially restricted private operators to maintain public order, prevent crime, and limit addiction. It was all put in place to promote the safety of the Swedish public via the use of Swedish-operated services. However, the Swedish National Audit Office found that Sweden was in danger of seeing a rise in pathological gambling. They called for more coherent legislation to take the place of the Lotteries Act and Casinos Act as well as introducing precise license terms and giving new powers to a regulatory authority.
The European Commission brought another action against Sweden in November 2013, stating that their exclusive right to offer services in the market does conflict with Article 49 of the European Commission Treaty. Sweden’s reactions to the Commission’s requests were not deemed to be satisfactory in October 2014, so the Commission referred Sweden to the Court of Justice of the European Union. Finally, on 24 September 2015, Sweden’s Minister of Public Administration Ardalan Shekarabi announced that the government would investigate the abolition of its gaming monopoly and in its place, introduce a Swedish licensing system.
2019: A new Swedish market
Following the acceptance of the bill ‘A Re-Regulated Gambling Market’, Sweden is set to have a liberalised gaming regime as of 1 January 2019, which will allow international operators to apply to offer their services in Sweden. The country shall be open for license applications to the Swedish Gaming Authority as of 1 August 2018.
Online sports betting, bingo, casino, and other digital products are open to those applicants who qualify for a license. Sweden does, however, reserve control over all land-based casinos, major lotteries, and gaming machines outside of land-based casinos. Operators can apply for a license of up to five years in longevity, and there will be an 18 per cent tax on gaming revenue. The operators must also have their servers based in Sweden, but exceptions can be made provided the operator commits to Sweden’s inspection policies, and the location is deemed acceptable.
The two primary focuses of the new statute are player safety and the punishment of unlicensed operators. To ensure customer protection, all online players must be required to set deposit limits and be able to block themselves from all gambling activities. Also, operators cannot offer players credit, nor can they offer bonus offers outside of the first-time new customer offer. The legal age of gambling at an online casino is 18-years-old. With this, operators are not allowed for their sponsorship of a sports team, such as a logo or slogan, to appear on products that are intended for minors, such as youth-sized football shirts.
The regulatory body Lotteriinspektionen can compel internet providers to mark unauthorised gambling websites, as well as, require financial institutions to block payments to and from websites. The Swedish Gambling Authority has been given sharper tools to deal with unlicensed operators. Unlicensed operators will be shut out of the market, and license holders must conduct their activities in accordance with the law, per Ardalan Shekarabi. Operators offering to Swedish players without a license, or anyone who promotes an unlicensed service, could face fines and prison terms of up to six years depending on the intent and severity of the case.
Swedish safety remains at the heart
Sweden has firmly stood by its gambling legislation and state-owned monopoly as the best methods by which they can protect the Swedish public and Swedish society from criminal activity and gambling addiction. However, Svenska Spel was only seen to have 19.7 per cent of the market. Swedish laws did not criminalise the use of unlicensed online casinos, and the government did not block their websites. So, due to the lack of offering on Svenska Spel’s behalf, many Swedish gamers sought other websites.
As noted by the Swedish National Audit Office in 2012, the monopolised state of Sweden’s gambling market was no longer helping them to achieve their goals of protecting the public. The new legislation certainly enables Sweden to take back control and even achieve their initial goals. Shekarabi states that the new laws strengthen consumer protection while limiting the negative effects of gambling while giving the Swedish Gambling Authority an enhanced ability to punish those who are in breach of the legislation. The ban on bonus offers, bar welcome offers, is a strong display of Sweden’s desire to limit the occurrence of gambling addiction as the wagering requirements often attached make players deposit more money if they wish to earn their bonus winnings.
At the heart of Sweden’s long-fought battle to maintain its gambling monopoly was the belief that the nation was doing what was best for its residents. However, the Lotteries Act (1994) and Casinos Act (1999) were created in a time when there was much uncertainty surrounding the internet and foreign gambling while ruling in Swedish courts have been unable to apply them in a way that is acceptable in the modern age. However, Sweden has found a far more powerful method of protecting its citizens by yielding to the European Commission’s demands and enforcing a comprehensive set of policies to govern a new, liberalised gaming market in Sweden.
by Denitza Dimitrova
LL.B., LL.M., Mag.Jur.
The Minister of Finance of Ireland, Michael Noonan, had made attempts to enact the Ireland’s Betting (Amendment) Bill to introduce a new tax rate for online bookmakers and betting exchanges. The Betting (Amendment) Bill introduces a legal basis for the regulation of gambling, estimating that it would generate an additional €25m in tax revenue, €6m of which, will be used to support the country’s greyhound and horse racing industry, with a further €5m allocated to maintaining Ireland’s racetracks.
The Betting (Amendment) Bill was submitted to the European Commission in July 2014, including amendments enforcing a ban on unlicensed operators. The amendments allow the Irish government to issue unlicensed operators with a compliance notice, asking them to shut down their operation by a set date, and allowing companies to appeal the notice.
The country’s Minister for Justice and Equality, Frances Fitzgerald TD, announced his intention of introducing a broader gambling control bill midway through 2015, providing a framework for the wider industry. The terms of the Act would include licensing and compliance powers, and would replace existing legislation: the Betting Act 1931 and the 1956 Gaming and Lotteries Act, as well as, amending the 2002 Finance Act.
The legislation has been delayed a number of times, and, after Malta has raised its concerns in relation to licensing laws for operators who are already licensed by another jurisdiction, the standstill period it is currently subject to has been extended into January 2015.
Once the standstill period ends, the Minister of Finance will still have to progress all remaining stages of the Bill through the Irish parliament. The new tax in Ireland will hit operators like Paddy Powers and bookmakers like Ladbrokes and William Hill, which already suffered additional tax and tighter regulation in the UK.
Ireland first announced plans to regulate online gambling in 2011 when a new Finance Act sought to extend a one percent tax on bets placed in shops to wagers made online over the telephone from customers based in Ireland, however, it has struggled to pass new legislation into law since.
by Denitza Dimitrova
LL.B., LL.M., Mag.Jur.
A new gambling legislation, the Government Emergency Ordinance (GEO 92/2014), is to enter into force in Romania on 13th February 2015, after the government approved amendments, right before the end of 2014, to the country’s main piece of legislation on gambling, Government Emergency Ordinance (GEO 77/2009). The amendments in the legislation seem like a revolution for the Romanian gambling industry, and more particularly, for online gaming. Following requests from the European Commission, as well as, foreign operators, Romanian Government is now ready to abandon the restrictive measures that it had previously adopted.
The new regulation amends the taxes payable by the gaming operators (taxes expressed in Euro currency), the payment methods, as well as, other aspects relating to the uniform taxation of all amounts of money collected by players from gambling organisers for all types of games of chance: mutual betting, fixed-odds betting, matched betting, games of chance specific to casinos, games of chance specific to poker clubs, slot-machine games, video lottery (VLT), online casino games, online fixed-odds betting, online mutual betting, online matched betting and online bingo.
The legislative act establishes the obligation of the gaming operators to actively engage, including financially, in activities intended to prevent gambling addiction and the participation of minors and gambling-addicted persons in games of chance, by creating a Foundation with the main objective of ensuring compliance with the measures regarding socially-responsible games of chance, adopted by the European Committee for Standardisation.
Amongst the most remarkable amendments in the new regulation, is the new taxation on gambling that removes the 25% tax on winnings that is applicable today with a three tier system: 1% tax for all players that generate revenues between €133 and €15,000, 16% tax on revenues between €15,000 and €100,000, and, 25% tax on revenues over €100,000.
With regard to players’ winnings, the amendment establishes a tax rate of 1% of all winnings by the players, collected at source, while for remote gaming, the regulation stipulates that the winnings by players from remote (online) games of chance and slot machines, received by natural persons, are not taxable at source.
One of the most important amendments relate to online gaming, which will enable online gaming operators to legalise their gaming operation in the jurisdiction.
For online gaming operations, the legislation proposes three classes of licence:
Class 1 licence is granted to operators organising remote games of chance, who have direct contracts with players. An annual licence fee based on turnover is applicable for Class 1 licensees, with the lowest fee of €6,000 applicable to turnover of not more than €500,000 a year. The licensing fee increases incrementally in accordance to the company’s turnover, to a maximum annual licence fee of €120,000 for operators with a turnover in excess of €10,000.001 a year.
Class 2 licence applies to companies involved in traditional or remote gambling, including businesses offering game platform management and hosting facilities, payment processors, companies producing and/or distributing specialised gambling software, testing labs, affiliates, and auditors. The applicable annual licensing fee is set at €6,000 per year.
Class 3 licences apply to operators of lottery games, which remain the exclusive monopoly of the National Lottery “Romanian Lottery S.A”.
In addition to the licence fees, the proposed amendments impose an annual authorisation fee equal to 16% of Gross Gaming Revenue (GGR) for remote operators. The amendments also introduce a special 2% of GGR fee for video lottery terminal (VLT) operators and 5% fee for televised bingo.
A change in the duration of the licences has also been implemented, whereby, the licences will be valid for 10 years, instead of the current duration of 5 years.
Another novelty is the possibility of a company legally established in an EU Member State, or the European Economic Area (EEA), or in the Swiss Confederation, of applying for an online gaming licence. Also, the applicant company has to hold a bank account in which to deposit players’ money and winnings payments, with a bank licensed in Romania, or with an authorised bank in another EU Member State or in the EEA, or in the Swiss Confederation, but which operates on the Romanian territory.
The legislation also contains detailed technical and operational requirements for the operation of a remote gaming company, such as:
(i) identical to the Bulgarian Gambling Act of 2014, the gaming operator’s central IT system has a system for recording and identifying participants in the game, as well as, a system whereby simultaneous gambling sessions, every participation fee paid by every player, and, the winnings paid out to every player are transmitted and saved in real time to a mirror server and a backup server in Romanian, both of which are made available to the National Office of Gambling (ONJN) free of charge. The central ICT system must automatically record every transaction, in real time, to the mirror server made available to the ONJN and transmits periodic summary reports to the backup server;
(ii) the game server and the mirror server store all data relating to the provision of remote gambling services, including records and identification of the players, the stakes placed and the winnings paid out. Information must be stored using data storage equipment (mirror server) situated on Romanian territory, in compliance with the procedure established under the application norms of GEO 92/2014. The data will be stored in the form in which it was created, for a period of five years;
(iii) the software used to run remote games of chance, as well as, any new software version used to run remote games of chance, has to be approved in advance by the ONJN on the basis of tests carried out by an authorised laboratory, in compliance with the list approved by the ONJN Monitoring Committee, as well as, under the conditions and in compliance with a procedure established under the applicable norms of GEO 92/2014;
(iv) the communication equipment records the geographical location of a player’s IP address, as well as, the date, time and duration of their game session, once they have registered as a participant in a game on the operator’s website. The data will be stored for a period of no less than five years from the date of its collection and processing;
(v) the communication equipment and the central location at which the operator’s central IT system is to be installed is Romania or on the territory of another EU Member State, or in the EEA, or in the Swiss Confederation;
(vi) similar to the Malta Remote Gaming Regulations 2004, there is the requirement for the existence of an authorised representative of the company who must be a resident in Romanian and has powers of representation to the extent that he/she is empowered to sign contracts in the name of the licensee and to represent the same before Romanian courts and State authorities.
Other amendments relate to sanctions relating to unlicensed gambling and marketing activities.
The new regulation is expected to come into force shortly after the end of the EC standstill period on February 12th, 2015.
by Denitza Dimitrova
LL.B., LL.M., Mag.Jur.
On Wednesday, February 24th, Romania’s Government has finalised and adopted detailed technical and operational regulations for the gambling industry regarding both online and land-based companies. The revamped legislation, published by ONJN (Oficiul Național pentru Jocuri de Noroc) on Monday, 29th February, sets the rules and regulations which operators must comply with in order to obtain a licence and authorisation and to ensure the good development of their remote or land-based operation.
Regarding remote gambling, the ONJN has stated that operators wishing to offer their services to Romanian gamblers must be residents of Romania, EU or EEA, they must obtain the relevant licences and authorisations from the ONJN, and they must appoint a local authorised representative to deal with the competent authorities in the country.
The gaming and iGaming licences are granted individually for a 10-year period, and they are non-transferable between operators. For temporary games, the licence and authorisation are granted for a period of 3 months. Once the certification has been obtained, it must be displayed either on the operators’ website or in their land-based venue.
There is also a requirement that the value of stakes, the prizes for games and the value of prizes for those games that need to have a minimum payout percentage out of the total gains, be clearly displayed in Romanian language in prominent places. The stakes and limits are established both for slot machines and for AWP (Amusement with Prizes) machines. Moreover, the normative document also establishes minimum win percentages for these games in order to assure gamblers of a certain benefit.
The decision mentions also clear timetables for the paying of taxes and obligations to the state budget, as well as payment options available to the companies. The sanctions applicable to operators who do not respect the regulations are also listed, the fines ranging from RON 10,000 to RON 50,000 (approximately EUR 2,000 to EUR 11,000) depending on the contravention and on the consequences thereof. Nonetheless, if such operators provide payment within 48 hours, they will only need to pay half of the fee. Depending on the seriousness of the act, other sanctions, such as temporary suspension of licence for up to 6 months, may also apply.
Reference is further being made to the blacklist which has been compiled, with more than 500 illegal online operators already on it. The Romanian internet service providers have the obligation to block access to all the names found on the blacklist. In what concerns land-based gambling, the ONJN has a centralised information system which allows it to monitor for example slots machines or betting operations at all times, making the organising of illicit activities practically impossible. This centralised information system for land-based venues, together with the blacklisting of illegal online operators is especially opportune as it helps create a transparent industry which will benefit both operators and gamblers.
One important point in the regulation is related to the promotional material operators are using to further their business. This must be done in strict compliance with the principles regarding the protection of minors. Thus, no adverts or other marketing material must be displayed nearby schools, socio-cultural or religious establishments and such material must specifically forbid the participation of minors in gambling activities.
Another important provision of the legislation mentions the initiative to establish a foundation for social responsibility and a fund for the prevention and combating of gambling addiction, this being an area that has received increased attention over the years. Important organisations such as The Slots Organisers’ Association ROMSLOT (Asociația Organizatorilor de Sloturi) and Romanian Bookmakers, which is the association of Romanian sports betting operators, already support the development of a similar programme „Joc Responsabil” (Responsible gambling), aimed at offering as much assistance and help as possible to those fighting with gambling addiction. The legal requirement that operators must support such foundations, as well as the demand that all gambling websites display their policy related to gambling addiction and allow access to a self-assessment tool, represent an important step further in modernising Romanian online gambling and changing the negative view that some still have of it.
The undergoing changes in legislation have been a direct consequence for the Romanian National Lottery’s decision of suspending pool betting services across the country. The National Lottery has announced on its official website that it will temporarily suspend its Pronosport and Prono_S services until the relevant licences and authorisations will be obtained as per the new amendments to OUG 77/2009. On the 29th February, The National Lottery has assured its customers that the necessary applications for the said licences have already been submitted to the ONJN so that they can continue offering its services to punters in the shortest time possible.
On the 1st of March, The Romanian National Lottery has apologised to customers for this delay and has officially declared that Pronosport and Prono_S will be resuming their games as of Monday, the 7th of March. They have also added that details regarding upcoming competitions can be found at the lottery agencies, on the official website www.loto.ro and in the “Loto Prono” magazine.