Despite the fact that many predicted a slowdown in activity, Malta continued to attract new gaming operators in 2016. What makes Malta so attractive and how do you explain the latest influx of gaming companies?
The figures for 2016 are indeed exceeding our initial predictions. Many within the iGaming industry have argued that the sector is saturated and will grow at a slower pace, however, new products, channels and business models are continuously being brought in. Companies from outside Europe are increasingly looking at establishing a presence in Europe, while the Brexit vote has also created a lot of uncertainty for companies established in Gibraltar. Malta, in this scenario, is attractive because we have developed a sophisticated eco-system with specialised corporate services, technical specialists, data centres and other service providers. Furthermore, Malta’s reputation and integrity as an online gaming jurisdiction, coupled with a transparent regulatory framework makes our jurisdiction attractive as a place of primary establishment. The sector has been developing over the past 12 to 15 years. Malta started regulating iGaming way back in 2004 at a time when it was a growing, novel economic activity, yet nomadic and largely unregulated, which required a more specific approach in order to address the risks usually associated with gambling. Our framework was designed to make Malta a remote gaming hub of repute, and we have put a lot of effort into promoting Malta internationally. Today we host gaming companies that are considered as top tier operators internationally. At the end of 2016, a total of 257 companies held 490 licences in Malta. The industry now contributes 12% of Malta’s total economic value added, while more than 6,000 people are directly employed in the industry.
The iGaming industry is eagerly awaiting the new regulatory framework. What are the main changes that you are proposing?
We are talking about a completely new Gaming Act, the first in 12 years. The law as it now stands imposes certain duplication of administrative requirements and compliance processes across gaming sectors both online and offline. We have many times announced that we will streamline our licensing structures under two main categories, namely, Business-to-Business (B2B) and Business-to-Consumer (B2C). This framework aims at simplifying pre- and post-licensing and compliance processes to eliminate any duplication of checks for the operator; while focusing compliance efforts, dependent on the risk profile, type of gaming products and business models at hand.
We are also proposing a new tax and administrative fee structure and are looking at extending the licence period from five to ten years. This, we believe, will create consistency between both sectors as well as give operators more certainty, eliminating any red tape in the interim. In addition, we are proposing to widen the scope of competence of the MGA, with a view towards regulating or monitoring developments on all types of games, depending on the risks posed to consumers, and whether such risks require regulatory intervention or codes of conduct. In the interim we have prepared a new skill games regulation, the first in the European Union, which will cater for daily fantasy sports and other forms of skill games we aim to supervise.
"The transition to the new regime will be completely seamless for the operators. While new licensees will obviously fall under the new regime, operators that are already licensed have nothing to worry about."
When, realistically, can the industry expect the new framework to be in place and how will the transition affect iGaming companies?
We have drafted the primary and subsidiary legislation and presented it to the responsible Minister - the Minister for Competitiveness and Digital, Maritime and Services Economy. The Ministry shall on its part present it to Government and follow other due procedures followed by public consultation. Should the public feedback unveil any issues or constructive proposals, these will be taken into account and addressed accordingly. Our aim is for the bill to be presented to the Maltese Parliament before the summer recess. However, we are also aware that the first six months of 2017 will be very busy for Malta due to the fact that Malta is chairing the EU presidency. Taking all these factors into consideration, I hope that the new legislation would be enacted and passed through Parliament by the end of 2017 at the very latest. The transition to the new regime will be completely seamless for the operators. While new licensees will obviously fall under the new regime, operators that are already licensed have nothing to worry about. There will be a transition period, and the change should not disrupt their operations. Paid fees will also be taken into account and absorbed in any new fee structure.
You scaled up the MGA’s resources quite significantly, with 150 people now employed by the authority. Many within the industry do not seem to see the need for so many people. Why is that?
In early 2013 the MGA was operating with a critically low level of internal resources which were by far insufficient to effectively supervise and monitor such a large sector, both land-based and remote. Hence the Board felt there was a need to ‘right size’ and strengthen the authority's organisational capacity, mainly in enforcement, compliance, authorisations and support services such as revenue assurance, finance, information management, legal and other administrative support. Furthermore, with the ambitious three-year strategy we laid out in early 2014, we needed adequate resources and technical capacity to execute and deliver on our mandate, reforms and targets.
Our jurisdiction aims for excellence and hence the ecosystem that exists in Malta has to be supported by an authority that strives for excellence and mirrors the industry’s competences. People from outside the organisation often don’t realise the amount of work that is involved in regulating the sector adequately and ensuring compliance with other related legal instruments. Also falling under our remit as a supervisory authority of this important sector is the eradication of crime such as money laundering, and suspicious betting linked to match fixing. Added to this the size of the sector, which has kept growing over the years, has been an influencing factor, along with the high level of service and customer experience we are thriving to achieve as a top tier regulator. One of the aims of the new legislation is to give the MGA more power and latitude than it had before. Hence, we need a strong organisation which can sustain such a dynamic sector in the long run. Today, the authority bites more than ever before. We are very strict on player complaints and disputes, as well as in taking enforcement actions. We scaled up our player support unit, with more developments yet to be announced on this front and it has become a very important source of information for us. Added to this, disputes are investigated in a timely manner as much as possible, and we give technical feedback. We are often asked why it takes so long to develop a new gaming framework. The reason is that I wanted to make sure that the new regulations are well thought out, innovative and future-proof, which of course takes time. We issued a number of consultation documents over these past two years, which are feeding into the framework we will present shortly. We also aimed at strengthening the authority ahead of the overhaul as part of the exercise. We needed to ensure that we have a strong enforcement and compliance culture and that we put risk management at the centre of everything we do.
"Malta can, and needs to be a thought leader in this regard."
Gaming is considered a high-risk sector by banks and other financial institutions. What is the MGA doing to ensure that the sector is free from crime, and what are the areas that you think could be improved?
We have made substantial investment in our processes and systems, and I am pretty confident that our due diligence process is robust enough to minimise the risks to the jurisdiction as much as possible. We have also established a thorough risk management system which helps us manage and assess risk on an on-going basis and not just at on-boarding stage. Furthermore, we are more efficient and effective in intelligence gathering with respect to individuals and companies, which gives us more information with which we can supervise our licensees. We closely collaborate with the Financial Intelligence Analysis Unit (FIAU) and the economic crimes unit, as well as the Malta Financial Services Authority (MFSA) and the banks. In fact, the criticism that we receive from operators is that we are going into a lot of detail prior to granting a licence or renewal. The new Enhanced Automated Reporting Platform (EARP) that we are currently implementing will also give us more information to facilitate and improve our processes in a timely fashion. One area that we can definitely improve is our consumer protection blueprint; I would like this to be world class. The MGA is ready to take the lead and work together with the industry in developing this further. Malta can, and needs to be a thought leader in this regard.
Many iGaming operators would like to use cryptocurrencies. What’s the MGA’s position on Bitcoin & Co, and what developments can we expect during 2017 in this regard?
While innovation is key, we always need to assess the risks involved in new developments prior to roll-out. Currently, we do not accept cryptocurrencies, although we have received a few requests from operators who are keen to use Bitcoin. There are many concerns surrounding the anonymity and stability of these systems. However, we are now actively exploring the opportunity and preparing an in-depth study on cryptocurrencies and blockchain in order to embrace technological advancements on this front. Furthermore, we are looking towards alignment with other authorities so that we adopt a national approach on digital currencies. The MGA is championing this initiative, but given that it’s a financial instrument, we are collaborating with the Central Bank, the FIAU and the MFSA. We need to know more about this technology and must cut through the hype about blockchain. Our decision needs to be based on a proper risk assessment, and we will probably make some key announcements in 2017.
eSports and Daily Fantasy Sports are becoming increasingly popular. When can the industry expect Malta’s new skill-gaming licence?
Under our current licensing system, we are already regulating the betting on eSports, but not eSports itself. We are of the opinion that when it comes to skill games, with or without a negligible element of chance, regulatory intervention should not go beyond what is necessary to ensure a safe and fair environment for consumers. Our new regulatory framework will account for this, as we believe that this is an exciting growth area for Malta. In August 2016, we also exempted daily fantasy sports operators from the requirement of obtaining a gambling licence. This actually allowed us to bring in a brand new set of skill-gaming regulations which are being rolled out. The skill-gaming package went live in January after following due process, including notification to the EU Commission and other Member States. However, it will also be included in the new regulatory package.
Finding a bank, as well as sufficient human resources, are the industry’s two biggest issues at the moment. What role can the MGA play in addressing these challenges?
We closely collaborate with the banks that are servicing the industry, so that we align with our respective obligations, which albeit being different in certain respects have common objectives in the economic and public interest. We explain our checks and due diligence processes and are actively working towards raising Malta’s jurisdictional profile. The industry would certainly welcome more banks moving into Malta. There could be an opportunity to set up a new bank specifically to service the digital economy in general, given that it makes up such a large chunk of our economy. However, this doesn’t fall under our remit, and while we can only advocate for it, we cannot realise it. When it comes to human resources, we are actively working on establishing the European Gaming Institute of Malta (EGIM), which will become an educational body in the years to come. Its aim will be to raise awareness of the industry’s ecosystem and to ensure that persons working in the gaming industry will have the necessary skills.
How do you expect the gaming industry to develop in Malta in the coming years?
A ‘do nothing approach is not an option’. We must therefore anticipate and prepare for the technological change and developments ahead, through technology-neutral regulation which will improve the effectiveness of decision making with flexibility for the regulator. Together with the possibilities of growing convergence between channels and cross-sectoral businesses, no matter how disruptive or challenging this may be.
The industry is on a healthy growth trajectory. Malta is the place to be for any start-up, as well as fully-fledged and operational gaming set ups. We have the know-how, the experience and the necessary regulatory logic to supervise, monitor and service such set ups. Malta is looked at as a jurisdiction of primary establishment, whereby operators choose to service their multinational operations in and from Mata. We recently carried out an economic impact assessment of the proposed regulatory package that shall be shortly published and the results look positive. The proposed new Gaming Act will play a major role in this regard, repositioning Malta at the forefront of gaming regulation. We hope that the measures we are taking now will ensure that the industry will continue to grow in Malta. Innovation is becoming critical mission and our thinking as a jurisdiction has always been more forward-looking than other European countries. The fact that many companies based here are expanding their operations, while new ones are moving in, is very positive. This is no coincidence, but is a result of the trust and integrity enjoyed by our jurisdiction, as well as the strategic repositioning rollout which has taken place over the last few years under my watch. Furthermore, government support and keenness for change with respect to the gaming industry, has motivated and strengthened the authority to aim for new heights and build on past successes. I remain confident that in spite of all challenges and risks, with the support of all stakeholders, Malta has a bright future ahead, not just as a place of establishment, but as a thought-leader and innovator in gaming regulation.
Joseph Cuschieri is the Executive Chairman of the Malta Gaming Authority. He is a certified public accountant and fellow member of the Malta Institute of Accountants, specialised in management and finance. Prior to joining the MGA, Mr Cuschieri was Chief Commercial Officer at Vodafone and senior consultant at Ernst & Young. He has also spent five years as Chief Operating Officer at the Malta Communications Authority. During his remit at the MGA, Mr Cuschieri has focused on making the authority more efficient and agile, streamlining processes, and strengthened enforcements with a keen eye for Malta’s reputational image as an iGaming jurisdiction.