One Year Later: Malta's New Gambling Law

Introduction

Malta is a primary jurisdiction for online gambling businesses in Europe and beyond. In addition to hosting most of Europe's online gambling operators, over the past 12 months, Malta has attracted several large online gambling operators and suppliers based in Gibraltar; the other European online gambling hub which, owing to it being a British territory, is now plagued by the uncertainty surrounding Brexit.

Just over a year ago, Malta overhauled its gaming and gambling laws in what was billed as a measure to “future proof” the regulation of gaming and gambling in light of constant technology developments, as well as changes in the regulation of gambling in Europe and elsewhere. Gaming and gambling are often used interchangeably in Malta due to a propensity locally to refer to online gambling as online “gaming,” to the fact that Maltese legislation regulating gambling also governs the provision of certain games of skill which consumers can play online, for money, and, in no small part, to the primary piece of legislation governing this sector being called the Gaming Act.

In this article, we explore the background to Malta's overhaul of its gaming and gambling laws and its impact, with a focus on online gambling and with the benefit of a year's hindsight.

Background

In 2001, Malta enacted the Lotteries and Other Games Act (LOGA) ¹ making provision for online gambling. In 2004, it became the very first European Union (EU) member state to adopt detailed regulations for online gambling: the now superseded Remote Gaming Regulations (RGR). ² In 2012, several key stakeholders in the gambling industry, including operators based in Malta, industry representative organizations, and experienced Maltese gambling lawyers, started to voice their concerns on the need to update Malta's gambling laws, particularly the RGR, if Malta wanted to not only keep up with the times, but to stay ahead of the curve. The Lotteries and Gaming Authority (as the Malta Gaming Authority, the MGA, was then known) understood the need. It also made a case for this reform with the Maltese government, in its capacity as an advisor to the government, but little to no traction was achieved until early 2014.

In 2014, with the MGA and other key stakeholders all firmly advocating the need for reform, the Maltese government started to indicate that it would be prepared to take the matter to Parliament. The two main arguments brought forward for reform were: 1.

On the online gambling front, the RGR had served Malta and the industry well, helping to channel operators hitherto operating in a wildly unregulated market to a structured and supervised environment. But technology and the adoption of sector specific regulation in many other European countries quickly risked making them now seem somewhat outdated.

Nonetheless, it was not until July 2017 that the MGA published “A White Paper to Future Proof Malta's Gaming Legal Framework.” ⁴ The MGA's thrust, driven in large part by then MGA Executive Chairman Joseph Cuschieri, was that the time had come to look at the gambling industry holistically and that reform efforts should result in the introduction of “future proof” regulation. ⁵

A new law, the Gaming Act, ⁶ was adopted by Malta's unicameral Parliament on May 8, 2018, following a unanimous vote in favor. It came into force, together with a number of regulations adopted by ministerial decree and directives published by the MGA, on August 1, 2018, superseding and replacing the previous legal framework.

The result is a tiered framework: an act of Parliament, buttressed by subsidiary legislation (regulations) and other binding (directives and rulings) and non-binding guidance (instruments notes). This type of regulatory set-up provides increased flexibility in the application of the law, following fundamental principles set out in the principal legislation (i.e., the Gaming Act). Rules, processes, and requirements applicable to gambling operators are laid down in subsidiary legislation, made by ministerial decree, and in instruments published by the MGA allowing for the more technical requirements applicable to the sector—and which are most susceptible to change—to be amended in response to societal changes and technological advancements, without requiring renewed parliamentary assent.

Licensing Under the Gaming Act

The “multi-license” system which applied under the LOGA and the RGR (i.e., four license classes representing different gaming verticals ⁷ ), was replaced with a more streamlined license categorization, which divides licenses into two classes: a “Critical Gaming Supply license,” a business-to-business (B2B) license to provide or carry out a critical gaming supply; and a “Gaming Service license,” a business-to-customer (B2C) license to operate a consumer facing gaming service. These two license classes apply to both remote and land-based businesses and cover the provision of the different gaming service types across multiple distribution channels.

A second level of authorization is then required for approval of each specific gaming vertical (e.g., casino, lottery, bingo, and sports betting) across each individual distribution channel (e.g., land-based and/or online) proposed to be used under the license. An upshot of this license simplification has been that operators can take new games to market far more quickly and efficiently.

Operators are required to notify the MGA of minor changes in their operations, such as the addition of new games which fall within the gaming vertical of their license and the addition of a URL for the provision of their gaming service(s). On the other hand, MGA authorization is required for proposed changes which are likely to cause a significant modification to the licensee's risk profile, such as the addition of a new gaming vertical or a new distribution channel.

The reduction of license categories has resulted in a natural decrease in the number of active licenses and new license applications received by the MGA. It brought about a mostly “one operator one license” scenario, with the exception of operators who offer both B2C and B2B services and those who choose to have different group companies hold separate B2C and/or B2B licenses.

The extension of the license validity period from five years under LOGA, to ten years under the Gaming Act is also noteworthy.

Games of Skill

The Gaming Act defines “gaming” as participation in a game, the offering of a gaming service, or the making of a gaming supply. ⁸ “Game” covers both games of chance and skill. “Game of skill” refers to an activity, the outcome of which is determined by the use of skill alone or predominantly by the use of skill, but excludes a sports event, unless otherwise established by the Gaming Act. ⁹ The MGA has the power to determine a game's classification on the basis of a number of factors laid down in the law, which include looking into the game structure and the number of variables built into a contest to subvert the elements of chance. ¹⁰

In the case of skill games, the burden of proving that the activity is such rests on the person operating or promoting the activity. The MGA also has the power to issue a ruling or other binding instrument to determine whether a game is a controlled skill game, the only type of licensable “game of skill” under Maltese law. ¹¹ On the contrary, a game of skill which is not subject to such a ruling is not subject to the requirement to acquire a license, with regards to both B2C offerings of such games to end users, or the supply thereof in a B2B capacity. As of the date of this article, the MGA has issued only one ruling on controlled skill games: the Controlled Skill Games Ruling in respect of Fantasy Sports. ¹² Consequently, an operator of fantasy sports must obtain authorization to provide a Type 4 gaming service. ¹³

To date, the MGA has issued 25 licenses to online fantasy sports operators. There seem to be no deliberations for the MGA to issue any further rulings to regulate other games of skill.

New Licensable Activities

Certain suppliers of B2C operators, such as providers of risk and fraud management software, player identification and customer due diligence services, and co-location services, may now apply for a special type of authorization from the MGA referred to as a Material Supply Certificate. ¹⁴ While this type of authorization follows a somewhat “lighter touch” in view of its voluntary nature (as opposed to the mandatory licensing requirement applicable to gaming service suppliers), it is intended to facilitate dealings between suppliers and operators, by allowing for the MGA to approve suppliers a priori, therefore shortening the time period required for license applications to be reviewed and also providing regulatory comfort for operators and suppliers alike. As of yet, we have not seen much interest in this type of authorization and the MGA has not issued any Material Supply Certificates.

There is probably little knowledge or understanding of the benefits that such certificates bring with them. Our view is that from a supplier's viewpoint, voluntarily committing to direct regulatory oversight, compliance obligations, and resulting expenses is not something that stakeholders would appreciate unless there is a compelling business case to do so. That business case can be built only if operators value Material Supply Certificates, and such value will only be attributed to these certificates if they save the operator time when integrating that supplier with its gaming service. Perhaps a simple information campaign by the MGA would not be amiss at this stage as the system must work as thought-out in principle for the Material Supply Certificate to not be condemned as being of mere academic interest.

Player Protection

Player protection is a foremost policy concern of the Maltese government and the MGA. This comes through very clearly in the Gaming Act, subsidiary legislation, and the MGA's directives, specifically in the Player Protection Regulations ¹⁵ and the Player Protection Directive. ¹⁶ Amongst other things, these provide increased protection for player funds. Further player protection safeguards are to be found in the rules on commercial advertising which supplement the conditions imposed by Malta's Consumer Affairs Act. ¹⁷

The MGA continues to run its player assistance hotline service with a view to assisting players in an instance where the MGA licensee is responsible for a regulatory breach. A new development introduced with the Gaming Act is the Alternative Dispute Resolution (ADR) Directive of 2018, ¹⁸ which dictates that B2C licensees are to make ADR processes readily available to their players. Such a procedure is aimed at facilitating resolution of disputes which are purely private matters between MGA licensed operators and their players.

A rather recent development is the MGA's proposal for a “Unified Self-Exclusion System for the Gaming Industry” in Malta, as described in a consultation document published by the MGA on February 27, 2019. ¹⁹ This follows the MGA's successful creation of a unified self-exclusion system (USES) for land-based operators which was upgraded during the first quarter of 2018. The creation and implementation of a USES will provide players with the possibility to self-exclude across all licensed gambling channels, be it land-based or remote. It should serve to fill the gap which currently exists in the protections which remote gambling operators are obliged to offer. Notwithstanding an operator's obligation to offer self-exclusion tools to its players, there is no unified system that ensures a self-excluded player is equally prevented from seeking the services of another MGA licensed operator.

Over the years, remote gambling operators have implemented various responsible gambling measures. We feel that, in principle, the creation of a USES for the remote gambling industry will be well received by operators, although the real key to its success will be the ease of technical integration and real-life use of such a system.

Changes in License Fees

The Gaming Act brought with it not only a change to the license categories, but changes to license fees and gaming taxes, too. ²⁰ The 2018 Gaming License Fees Regulations provide for: (1) a fixed license fee payable by operators yearly in advance and (2) a monthly variable fee (known as the “Compliance Contribution”) payable only by B2C operators. In addition, B2C operators are liable to pay a five percent tax on gross revenue generated from Malta-based players. The latter is considered to not have posed a significant burden on licensed operators as the Maltese player market is actually very small. On the other hand, a noteworthy change has been introduced through the calculation of the Compliance Contribution.

Pre-2018, B2C operators were required to pay a fixed monthly fee for every games supplier they used, while the Compliance Contribution necessitates the payment of a monthly variable fee which is calculated according to the gross gaming revenue generated by the operator in question for operations undertaken through the Maltese license. This means that the costs for larger B2C operators which make use of several games suppliers has decreased, while creating an obstacle for smaller operators to be able to enter the market. Nevertheless, the latter has been significantly curtailed through the possibility of the MGA classifying an operator as a “start-up,” for which a moratorium for the payment of Compliance Contribution for its first six months of operations will apply. ²¹ This has been very well received by start-ups since it eases their financial burden during the time in which they need to invest significant funds to set up their business and start to compete.

AML Obligations Applicable to Gambling Operators

The EU's Fourth Anti-Money Laundering Directive (4AMLD) classified gambling operators as “subject persons,” necessitating their compliance with stringent reporting and procedural obligations. ²² The 4AMLD was transposed into Maltese law and gambling operators became subject to risk-based AML obligations as of August 1, 2018. ²³ As the 4AMLD takes the form of a minimum harmonization directive, it sets out minimum standards which must be met by transposing national legislation, while affording member states the option to exceed this standard and vary in the implementation thereof. In fact, while the 4AMLD lays down an obligation for B2C operators to apply customer due diligence measures for single transactions amounting to €2,000 or more, Malta applies this threshold on the basis of a rolling period of 180 days.

The MGA is deemed to be an agent of the Financial Intelligence Analysis Unit (FIAU), a government agency established under the Prevention of Money Laundering Act, ²⁴ primarily responsible for the collection, collation, processing, analysis, and dissemination of information for the purpose of combating money laundering and funding of terrorism. Further to the transposition of the 4AMLD, an Anti-Money Laundering Unit was in fact set up within the MGA, with the purpose of conducting AML/CFT supervisory assessments of licensed operators through inspections carried out both on-site and off-site and then reporting any subsequent findings to the FIAU.

Throughout the past year, the MGA has interviewed persons holding the office of money laundering reporting officer with its licensees in order to ensure their suitability and competence.

Other Significant Changes

An MGA license can be applied for by a person established in any EU or European Economic Area (EEA) state. A group (or “corporate”) license can now also be obtained, in essence, a license held by a company, but which covers the activities of several of its group companies, so long as each of them is established in the EU or the EEA.

The requirement to appoint a person within the operator's organization to occupy the role of key official has been abolished. ²⁵ This role used to serve as the main point of contact between the licensee and the MGA and had to be performed by a Maltese resident director of the licensee. Under the Gaming Act, licensees must identify those persons within their organization responsible for the core management of the operator's business, known as “key persons.” ²⁶ They need not be resident in Malta but must be approved by the MGA and must be readily available to meet with the MGA when requested. ²⁷

A new type of authorization introduced under the Gaming Act is something called a Recognition Notice. ²⁸ The Gaming Act allows suppliers and operators established in Malta to operate under a license issued by a regulator in another member state of the EU or EEA, or a third country which is deemed by the MGA to offer safeguards largely equivalent to those under Maltese law. ²⁹ Once a Recognition Notice is issued by the MGA, that foreign license is given the same legal effect as an authorization issued by the MGA.

Although gambling services are not subject to harmonized legislation at the EU level and their legal status currently consists of a patchwork of national rules and regulations which differ from one member state to another, Malta unilaterally deems that a license issued by another EU or EEA member state should be subject to similar safeguards. Over the past months, over 40 Recognition Notices have been issued by the MGA, including to several B2B suppliers licensed in Great Britain and mainland Europe.

Cryptocurrencies and Cryptographic Tokens as a Means of Payment

The MGA launched a “Sandbox Test and Learn Live Environment” on January 1, 2019, which will last for a period of 10 months. ³⁰ When this live environment was first proposed by the MGA, the plan was to separate this into two stages: during the first stage, licensed operators would be permitted to accept cryptocurrencies and cryptographic tokens as a means of payment and, during the second phase, operators would be able to incorporate smart contracts in their gaming systems.

The restrictions which apply to participants of the Sandbox Test and Learn Live Environment were devised following a public consultation process where the MGA invited stakeholders to assist with shaping restrictions intended to address concerns associated with the use of cryptocurrencies, while ensuring that operator innovation was not stifled. Following its launch, it seems that there has been little to no uptake in participating in this sandbox environment. This can be attributed to the stringent confines of this test environment and the hefty requirements imposed upon participating operators.

The restrictions which apply include a deposit limit of €1,000 per month per player and the triggering of customer due diligence obligations upon cumulative deposits or wagers, as the case may be, of €150 or more in a rolling period of 180 days. The MGA was clearly warned by operators and payment providers during its consultation period on this matter that the extent of these restrictions would result in poor uptake and that poor uptake would not provide any reliable data during the “test” period.

The second phase of the originally proposed sandbox environment should be made available soon. Unfortunately, for those interested in innovation, it seems that the burden and costs of compliance associated with this second stage are also likely to be too onerous to make this a viable commercial endeavor, certainly for start-ups, which are those normally keenest to aggressively innovate and disrupt. If it is as we fear, then this initiative will have fallen victim to what we consider to be clear overzealousness in applying controls intended to minimize money laundering risks.

A controlled environment is not the same as an environment so stifled that there is no business case for it. We feel that Malta might still have a role to play in channeling a portion of the voluminous black-market crypto gambling taking place worldwide to a regulated environment where consumers are protected and public order is safeguarded.

Conclusion

With remote gaming being such a large contributor to Malta's gross domestic product, adjusting course was never going to be easy. Yet, building on experience and efforts expended during previous years, the Maltese legislators, with the MGA's support and that of key industry stakeholders, delivered a robust, logical, and technologically neutral basis upon which to regulate the gaming and gambling industries.

For this legal framework to yield the full extent of its potential on paper, the application of the law was always going to be critical. With high expectations, all pressure turned to the MGA, which over the past year has very much focused on enforcement, player protection, and anti-money laundering. It remains approachable and open to discussion, but it certainly has taken its increased powers and responsibilities very seriously. The MGA's current areas of focus certainly merit its attention. They are key areas for a regulator responsible for safeguarding public order. They also come at a time when, in Europe, there is an almost fantastical obsession with tax avoidance and money laundering issues, both of which are generally difficult for most Europeans to understand or palate.

However, as in every area which is driven to a large extent by technological innovation, it is equally important going forward that the MGA dedicates as much focus and attention to innovation and long-term sustainable growth. It is also imperative that the MGA finds the time and resources to continue to educate stakeholders on the Gaming Act and its regulatory instruments. Awareness of the possible utility of Material Supply Certificates is a case in point, but there are others too.

In conclusion, and with a year's hindsight, it would be unfair to say anything but that, overall, Malta's overhaul of its gambling laws has been a success. It achieved the policy direction clearly expressed by the Maltese government ahead of the overhaul, which can be summarized through the following drivers: (1) do not disrupt the industry; (2) create a more solid, streamlined legal framework; and (3) cater for emerging technologies.

The overhaul led, in part, to increased interest in Malta as a place to do business for online gambling operators and those supplying them, although somewhat assisted by Brexit. It empowered the MGA to act more directly and more authoritatively when it comes to enforcement. It reduced red tape whilst increasing the MGA's supervisory effectiveness.