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Skill game regulations promise an explosion in demand

Alan Alden, CEO at Kyte Consultants

After ten years of assisting iGaming licence applicants, Alan Alden of Kyte Consultants remains optimistic about the future of Malta as a gaming centre and anticipates that skill gaming regulations will further strengthen the country’s position.

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You celebrated your 10th anniversary in 2016. Can you tell us more about the roots of Kyte Consultants and your operations?

From the very beginning, our focus was on iGaming but we also had plans in place to get involved in the payment card industry. In 2007 we applied to the Payment Card Industry Security Standards Council in the US to become a Qualified Security Assessor (QSA) company. This actually meant that payment gateways, processors and merchants no longer needed to acquire the services of an overseas firm to be certified as being Payment Card Industry Data Security Standard (PCI DSS) compliant. Insurance requirements proved hard to satisfy but even that was eventually sorted. To this day, we are still the only QSA on the island. But the Maltese market is too small to justify the costs associated with such an accreditation, so we have also expanded into Europe, Middle East, Africa, and Ukraine. On the iGaming front, we were practically the first to be accredited by the Malta Gaming Authority to carry out reviews of gaming operations. We also offer full licensing assistance to those wishing to obtain a Maltese license.

What would you highlight as the most remarkable trends and developments of 2016?

At the beginning of 2016 we were hardly receiving any new licencing requests. However, from October 2016, demand picked up substantially. While some of our clients applied for additional licences, we have also seen a lot of new interest from Asia, South America, Greece and Cyprus. We have also seen clients coming from Mexico and China. They are particularly interested in the licensing of fantasy sports and other skill games. Malta’s new skill game regulation will probably come into force during the first quarter of this year, and I am certain that it will create a lot of interest. Skill game operators, as well as skill gaming platforms, are keen to receive a licence in Malta as they are handling player funds and need some sort of recognisable rubber stamp of approval.

What is the value of the Maltese licence as more European states start introducing their own regulations?

I must admit that I have been proved wrong in saying that the days of the Maltese licence are probably over. Despite the fact that more member states started regulating this industry, we are still receiving new licence requests and it took a while to understand why. The applicants obviously saw a value that I could not see. I realised that the Maltese licence is the only licence in the EU that does not restrict the licensees to the particular jurisdiction of the licence. It allows an operator to exploit white and grey areas in the rest of the world. We also contend that other EU countries are going against the EU treaty by not accepting operators holding a Maltese licence. This is not a fight that we intend giving up on.

What are your thoughts on the new Anti-Money Laundering (AML) Directive that will be implemented in 2017 and what advice would you give to operators?

There is a lot of speculation and discussion, but until we know what the Financial Intelligence Analysis Unit (FIAU) is going to demand from the operators, we cannot form a concrete opinion and can only speculate. The FIAU must handle this transition very carefully because any mismanagement can literally destroy the iGaming industry. The fact that the exact requirements are still unknown is already a big challenge. Most operators want to become obliged entities since they are already following AML procedures, but they want to make sure that the Directive is implemented in a sensible manner. What most people do not comprehend is that while gaming companies transact in millions of euro, the value of the individual transactions are fairly small. Most customers are depositing between €20 and €100 monthly. Does that mean that an operator with 50,000 customers each depositing €20 a month is exposed to a high risk of money laundering? My advice to an operator would be to watch their VIPs. They need to make sure the money they are gambling with is not stolen, and therefore they need to establish the source of their wealth.

 

"Many believe AML is just about verifying the identity of the players, without understanding that they also have an obligation to monitor the activity of the player." 

 

How well are the iGaming operators prepared to comply with the new AML Directive?

We know that every operator is going to need a Money Laundering Reporting Officer (MLRO). The MLRO must be registered with the FIAU, he/she will need to submit annual reports and attend training, as will all relevant staff. These things will be an additional cost and overall compliance overhead to the operators. Furthermore, operators will also have to understand what a suspicious transaction report is, and make sure that there are controls in place to be able to monitor accounts on an ongoing basis. Many believe AML is just about verifying the identity of the players, without understanding that they also have an obligation to monitor the activity of the player. In those cases where large amounts are involved, operators are obliged to identify the source of these funds. Due diligence will become continuous, and not a one-time procedure. Another misconception among operators is that if the source is a bank or a credit card, the money can be considered clean.

Malta has always emphasised that the Remote Gaming Regulations are both game and technology neutral. Why, in your opinion, was the need felt to develop a new regulatory framework?

The technology and game neutrality of the Remote Gaming Regulations has been key to Malta’s success as a gaming jurisdiction. However, the regulations were designed for the systems and products at that time. There is no doubt that there are some updates and additions required for Malta to retain its position as the iGaming world leader, but many times I also notice that certain demands imposed by the MGA are not required by the Remote Gaming Regulations. These are practices and procedures that have just evolved over time. For instance, the regulations do not state that an operator needs to have a separate licence for each gaming system. In theory, I can get a class one (casino) licence and have 10 gaming systems operating under that class one licence. Current practices are that an operator needs to have a separate class one licence for each casino product they want to offer. Then they need a system audit and a compliance audit for each licence. It has become a bit too much compliance work and effort without any further assurance provided to the Authority. New regulations have now become urgent and overdue.

There has been talk of licencing referral companies like affiliates, what are your thoughts on that?

Affiliates are truly unregulated. There is no official code of conduct or code of ethics they are obliged to follow. However, we should not overregulate. Regulation for affiliates should not be compulsory. The MGA could perform a due diligence test and issue a quality label for approved affiliates. Anyone dealing with affiliates lacking this accreditation will do so at their own risk.

Looking to the future, what are your expectations for the coming few years?

I expect fantasy sports and eSports to be the next big things. I actually anticipate an explosion in demand for skill games similar to the boom in online poker that we experienced in the years between 2005 and 2013.

Alan Alden began his career at a bank in 1979 and later developed into an Information Systems Auditor. In 2000 he left to join Deloitte. In the same year, he also began assisting and advising the first remote gaming companies arriving in Malta. In 2006, he and another co-founder launched Kyte Consultants Ltd, specialising in remote gaming and the payment card industry. In 2016, Kyte celebrated their 10th anniversary. Alan is also the current General Secretary of the Malta Remote Gaming Council.

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