What does the payments landscape look like today and what are the effects on iGaming companies?
It is a very difficult market. Despite being covered by two EU directives, payment companies are still having problems doing business across borders in Europe. One of the main reasons is that payment companies are working with banks, and many payment companies report that banks are refusing to give them bank accounts because they have iGaming customers. iGaming companies then, in turn, report problems trying to find payment partners.
Can you tell us a bit more about the bank servicing the iGaming sector in Gibraltar, and do you think Malta would need a similar set-up?
The Gibraltar International Bank was set up in response to a reduction in the number of banks in the jurisdiction, with even Barclays pulling out of the market. It became clear that this situation had to be addressed to ensure that Gibraltar's banking needs were still being met. Initially, Gibraltar’s politicians were focusing on the domestic market. They wanted to ensure that people were still being able to get mortgages. There wasn't an intention to have a bank purely focused on business. However, iGaming companies represent 25% of the GDP in Gibraltar, and the set-up of the Gibraltar International Bank provided more confidence in Gibraltar as a jurisdiction. Speaking of Malta, I think it would be beneficial if there were more banks servicing the iGaming sector, perhaps even a dedicated iGaming bank that would at least facilitate non-USD transactions.
The European regulatory landscape for iGaming is fragmented and not harmonised. iGaming companies, therefore, need to rely on Article 56 of the European Treaty in their crossborder activities.
How would you describe the iGaming landscape to a chief executive who might be coming to you interested in this business?
Unlike for financial services, the European laws for iGaming are not harmonised. The sector must be approached on a country-by-country basis. Article 56 of the European Treaty is very pertinent to understand. If a company is not licensed, it needs to rely on Article 56. One must understand that the iGaming industry has grown up in an environment that has been hostile towards it. We have even seen that some member states have decided to get a piece of the pie. This seems to happen in the absence of a European directive that would allow companies to passport their operations. Some of those countries that have prohibited iGaming completely have allowed local access with the condition that the company has a local presence or a local server. There are also some countries that don't want to see any iGaming activity and don't want to regulate it. Other countries are keen to regulate but are not successful due to the presence of a state monopoly. There is really an interesting dynamic going on.
What is the most important factor when deciding where to set up operations in your view?
A competitive tax rate is important, but that is not everything. It is also important to establish the company in a country which has a government that is backing the sector. This should be the most important point for any company in this sector as it ensures regulatory stability.
"If Germany could use AML to stop a regulated and harmonised payment sector, what is it going to do with iGaming?"
What does the industry got to do given the recourse in Europe to challenge those double standards?
The iGaming sector has been a wonderful boon to European lawyers and litigation firms. We have pioneered much of the case laws in the iGaming sector by continuing to take government support in a way that you do not see in other sectors. The hostility that the online gaming industry grew up with has also made iGaming companies much more aggressive in asserting their rights. There aren't many other sectors that are willing to go to the courts in the same way as iGaming companies did.
Germany is an interesting case for iGaming. Germany has implemented the second e-money directive, which actually meant to liberalise the segment. However, it was implemented in a way that reduced the market share of e-money. Germany knew it could not restrict the market with the payment laws, so instead, they did it with anti-money laundering (AML) laws. I think the iGaming sector has been slightly naïve when it comes to the 4th Anti-Money Laundering Directive.
The iGaming industry celebrates that it is now included in the directive, but the directive is actually giving them no rights and many responsibilities. My concern is that countries, which could not beat iGaming on article 56, will now restrict iGaming on AML grounds.
I hope that I am wrong, but, as I have said, I have seen it in the payment sector, and payment companies have a licence and the right to passport their services. I think AML rules will be the new battleground. If Germany could use AML rules to stop a regulated and harmonised payment sector, what is it going to do with iGaming?
What can the industry do if it cannot win this battle? Lobbying?
The industry needs to mature in its strategic outlook. The issue is the focus on revenue growth. We must realise that the strength of any business is their ability to influence politicians. If the industry is not thinking about how to influence politicians in this sector, then we are probably not really playing at a high enough level. We need to make sure that European member states do not see iGaming in a negative light and that politicians understand and endorse the industry's AML and compliance efforts.
Do you think that in the next five years we will see every country impose regulations so that there might be an enthusiasm to have some sort of harmonised regulation?
I think we are going to have a longer period of conversion on technical standards, consumer protection, marketing, capital requirements, and protection of funds. There is a lot of work needed before we will see harmonised legislation. Looking at developments over the past 10 years, it will probably take another 10 years until that point is reached.