The idea that the owners of a software supplier may be required to disclose detailed lists of their assets and liabilities and submit police checks and credit checks to a regulatory body may seem rather shocking. But if software suppliers want to play in the gambling industry, that is precisely what they may need to do.
Gambling software suppliers whose products are used in the British gambling market are about to undergo a fundamental change in the way they are regulated. The impending introduction of a new point-of-consumption regulatory regime in Great Britain will require remote gambling operators (eg Ladbrokes, William Hill, Paddy Power etc) who offer their services to British consumers to obtain a licence from the British Gambling Commission no matter where they are based; all of the three listed above are currently regulated, for their online businesses, ‘offshore’ currently.
Importantly, as part of the change, the obligation has been placed on such operators to ensure that their software providers are also licensed by the Commission. In many ways it makes sense – the regulation controlling the supply of gaming machines to the casino industry has played an integral part in the Commission’s stated aim of reducing criminal activity and improving the integrity of the industry. Is the supply of an online slot machine any different? These new changes underpin an increased appetite for regulation across the EU in view of the popularity of online gambling.
This article intends to highlight the pending changes to British gambling regulation and provides some basic information to assist businesses in determining if they might require any form of Commission licence. But we strongly recommend you obtain your own legal advice to ensure that you are appropriately licensed.
1. What is happening
From 1 October 2014, all remote gambling operators transacting with British players will need a licence from the Commission in order to do so. At the same time as introducing this new licensing regime, the Commission has updated its gambling regulations. One such amendment is the additional requirement to be imposed upon operators that they only use “gambling software” from suppliers who, themselves, hold the requisite supplier’s licence from the Commission.
As a result, remote gambling operators need to ensure that all the “gambling software” they use is developed, supplied and maintained by suppliers holding an appropriate licence from the Commission.
2. Who needs a licence?
If you are located in Great Britain, with limited exceptions, you need a licence from the Commission now if you are manufacturing, supplying, installing or adapting “gambling software” that is to be used by remote gambling operators. This is a requirement of the existing law and failure to obtain the requisite licence is a criminal offence.
When the change in law comes into force, the law will, in effect, have a wider jurisdictional impact in that operators need to ensure that their suppliers are adequately licensed, regardless of their location.
3. What is “gambling software”?
The Commission considers any software which is designed for use in connection with the provision of remote gambling potentially to be gambling software. This includes any gambling specific application, such as software used in virtual event web pages, virtual event control, bet capture / matching, bet settlement, Random number generation and gambling records.
Not all software used by a remote gambling operator is “gambling software”. Software that has a wider application than purely to remote gambling operations may not qualify. For example, the Commission does not intend to license companies that supply or install general Microsoft, Oracle or Apple applications.
Generally speaking, the purpose of gambling software licensing is to ensure that those manufacturing software which can impact on the fairness of remote gambling do so in a regulated environment. At its core this generally covers the software that accepts and records gambling transactions, determines the result, calculates and allocates any wins to the customer’s account.
The Commission has published guidance on what constitutes “gambling software” which can be accessed here.
4. Are there exceptions?
The Commission recognises that multiple parties may be involved in an overall development project, each developing a piece of gambling software that, in aggregate, create the ultimate gambling product. In such cases, the Commission focuses on where the ultimate control of the development of the product sits. It will seek to licence only those entities that exert any degree of control over the development process. When determining where “control” sits (and therefore who needs a licence) the Commission will assess who is responsible for the design and functionality of the software, who tests it and who should take responsibility for its compliance with regulatory requirements.
5. Ensuring your software is compliant
All gambling software supplied to remote gambling operators must meet the Commission’s Remote Technical Standards. Furthermore, gambling software must be tested in accordance with the Commission’s testing strategy prior to the game being made available for use.
6. Are there different types of licence?
Some software suppliers may operate equipment on which all or part of a gambling transaction may occur. If a supplier provides networked products or any element of a managed service for an operator, they may need a remote operating licence from the Commission, as well as a gambling software operating licence. The dividing line is not as obvious as it might first appear and, if you are in any doubt as to what kind of licence you need, you should seek legal advice.There are fundamental differences between a remote operating licence and a gambling software operating licence, not only in terms of regulatory requirements, but also in terms of timing.
Any supplier who needs a remote operating licence must apply for one by 16 September 2014.
Any suppliers who need a gambling software operating licence must hold one by 30 January 2015 and, in order to ensure their application is processed in time, should therefore be applying for one by no later than 31 October 2014.
Stephen Ketteley is a partner and Chris Elliott is a trainee solicitor in DLA Piper’s market-leading gaming team. They regularly advise many of the industry’s leading participants in all areas of their businesses. You can contact them both at roll@dlapiper.com
