An Introduction to the Isle of Man s Online Gambling Industry

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1 ARTICLE An Introduction to the Isle of Man s Online Gambling Industry As originally appeared in Business Word February 2012 BY LAURA MONK Having tripled in size since 2006 and now employing over 400 people, the Isle of Man is fast becoming one of the most dynamic and reputable jurisdictions in the online gambling industry. As a Tier 1 jurisdiction with an array of excellent legal, accountancy and fiduciary firms to support their development, a growing network of online gambling businesses and software development companies are looking to the Isle of Man as the centre of their business operations. Laura Monk, Associate (Solicitor, England & Wales), discusses the emergence of online gambling on the Island and why it is fast becoming the jurisdiction of choice for licensed egaming companies. The Isle of Man Gambling Supervision Commission ( GSC ) The GSC is an independent statutory board established in 1962, responsible for the regulation of all forms of gambling (other than the National Lottery) in the Isle of Man, including both land based and online operations. The GSC is statutorily charged under the Gambling Supervision Act 2010 to ensure that gambling is conducted in a fair and open way; to protect the young and vulnerable; and to prevent gambling from being a source of crime or disorder or used to support crime. It undertakes due diligence on new applicants and also undertakes post licensing reviews; ensures that player protection mechanisms are appropriate; and investigates complaints from players. The GSC has a duty to protect the reputation of the Isle of Man but must also, where possible, ensure that the Island s online gambling companies can compete effectively throughout the world. The Isle of Man s Department of Economic Development is responsible for the promotion and development of online gambling on the Island and offers supplementary help and support regarding the

2 establishment of any online gambling business on the Island. industry in the Isle of Man is the Online Gambling Regulation Act 2001 ( OGRA ). The Jurisdiction of Choice Conducting online gambling business in any jurisdiction requires an excellent source of advisers and service providers so it is reassuring to potential online gambling companies that the Isle of Man is a Tier 1 jurisdiction with excellent legal, accountancy and fiduciary firms available. The Island s IT infrastructure is world-class with leading-edge fixed and mobile telecoms networks, numerous disaster recovery and hosting facilities and highly-resilient bandwidth connectivity. Furthermore, it offers a number of economic benefits, from a zero percent tax regime to structured financial assistance for relocating businesses. For 2010/2011 the corporate tax rate for non banking and non property related companies in the Isle of Man (including online gambling companies) is zero percent (although duty is payable for online gambling companies). There is no capital gains tax, no stamp duty, and no inheritance or succession tax on the Island. In addition, despite economic turmoil in the world, the Island has retained its triple-a rating from Moody's. The Isle of Man Government and the private sector have worked hard to ensure that the Island has a world class infrastructure and full range of support services in place for the gambling industry. The Island is innovative in the field of online gambling and is ahead of the European Union when it comes to online gambling, licensing and regulation. The primary legislation regulating the online gambling OGRA covers all online games, betting and lotteries that: use telecommunications (phones, internet, servers, etc.); and involve players betting money (or money s worth); and incorporate any element of randomness or chance. In addition to compliance with OGRA, operators who intend to establish in the Isle of Man must satisfy the following criteria: they must establish a Manx company; they must have at least two local directors, who must be individuals and not corporate entities; they must appoint at least one resident designated official, or where the designated official cannot reside in the Isle of Man, an operations manager; they must register players in the Isle of Man and their servers, where the bet is struck, must also be on the Island; and gambling and trading accounts should be with a bank in the Isle of Man. The GSC recognises the importance of having a clear licensing framework and clarity in relation to its law. Accordingly, in February 2010, new regulations were put in place which set out explicitly what actions amounted to licensable activity.

3 OGRA excludes certain established activities from its scope despite their possible connection with telecommunication-related gambling activity. The Online Gambling (Exclusions) Regulations 2010 make it legal for online gambling companies to locate their non-gambling related activities (such as marketing, administration, software downloads, customer support, and relay servers) on the Island without the need for an OGRA licence. Operators that are not licensed in the Isle of Man can also make use of the Island s premier IT infrastructure in relation to disaster recovery services under the terms of the Online Gambling (Disaster Recovery) (No. 2) Regulations A business undertaking licensable activities for the purposes of OGRA will need an OGRA licence which permits the full spectrum of gambling activities outlined in OGRA to be undertaken and comes with a set of conditions and other requirements, most of which are generic, some of which may be specific. A sub-licence can be obtained if the applicant wishes to operate exclusively with a technology provider with a full OGRA licence regulated by the GSC. Ahead of the Game The Isle of Man Government was one of the first jurisdictions in the world to introduce legislation specifically designed to regulate online gambling. Following further recent changes, the licensing and regulatory controls are now more responsive to the needs of the gambling and online gambling industries. The Online Gambling Regulations (Amendment) (Network Services) Regulations 2011 (the Regulations ), which came into effect in July 2011, introduced a further type of activity that can be conducted under licences granted by the GSC as they allow the operation of network gambling on Isle of Man infrastructure. A network services licence must be obtained if the operator wishes to allow one or more foreign registered player on to its Isle of Man server without re-registering the player details. All of the benefits of a full OGRA licence are available to the holder of a network services licence (for example, a network services licensee could offer games directly to the world market and offer sub-licensing opportunities for its business partners in addition to offering its networks to foreign operators). Operators who wish to include networks as part of their OGRA licence are required to operate their networks according to the relevant licence conditions imposed under the Regulations. The Isle of Man s online gambling system is now in three tiers: network services licence; standard licence; and sub-licence. The level of licence required is dictated by the type of business to business relationships a company intends to pursue and covers all gambling activities.

4 The creation of the network services licence demonstrates the Isle of Man s ability to keep pace with the dynamism of the online gambling industry without over complicating the licensing regime. Licensing and regulatory legislation in the Isle of Man continues to address changes and developments in the online gambling industry, while a whole range of advantageous factors have consolidated the Island s reputation as a stable and dynamic base for online gambling business. It is worth noting also that the Island has an adequacy finding by the European Commission in relation to data protection which aids the transfer of personal data in and out of the Island under the eighth data protection principle. The Island has its own data protection supervisor and its legislation (the Data Protection Act 2002) is based on Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data. The Isle of Man Government actively encourages the development of gambling and online gambling business on the Island. It remains committed to delivering a stable government and strong regulatory environment, supported by a wide range of attractive business benefits. The Isle of Man s Department of Trade and Industry and the GSC maintain a dialogue at all times on the changing needs of the online gambling industry and, if they find something inhibiting to growth, have the flexibility to change and amend regulations. Aware of being under the spotlight, the online gambling industry is compliant, co-operative and willing to embrace future developments. In addition, financial assistance is available through the Isle of Man s Department of Economic Development for online gambling companies that are creating economic value on the Island. The Isle of Man remains one of the countries named in the "white list" under the UK's Gambling Act 2005 and therefore Isle of Man operators are entitled to advertise their services in the UK. This means that the Isle of Man gambling jurisdiction meets the UK Government's regulatory requirements regarding the openness, fairness and security of the licensed online gambling operators. The UK Department of Culture, Media and Sport (UK DCMS) announced plans to reform the UK Gambling Act 2005 on 14 July The UK DCMS announced that all online gambling businesses that wish to continue operating in the British market will be required to obtain a licence from the UK Gambling Commission, with operators already in white listed jurisdictions receiving an automatic transitional licence. Much of the detail of the new arrangements has yet to be determined and the timescale for those discussions has yet to be announced. The UK and the Isle of Man enjoy an ongoing dialogue on gambling regulatory matters and the work to formalise the details of the new regime will simply be

5 an extension of that relationship going forward. The GSC has a good working relationship with gambling regulators throughout Europe and that relationship is important in ensuring that there is a comprehensive and constructive dialogue both at a regulatory and political level as more European jurisdictions look at regulating online gambling. It seems clear that regulation at the point of the consumer is the way the sector is moving and the Isle of Man can be instrumental in the formation of these policies by sharing its experience and practice with other regulators. LAURA MONK Associate (Solicitor, England & Wales) lmonk@applebyglobal.com This publication is intended only to provide a summary of the subject mattered covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. February 2012 Appleby

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