Malta’s regulatory overhaul has made significant progress in recent months. After public consultation in 2017, the proposed bill has been passed on to parliament, and Malta’s new Gaming Act is expected to enter into force on 1st July 2018. The fact that the legislation is still making its way through parliament also means that there might be some small changes to the draft law consulted upon; the main points are reflected below.
- The Gaming Act
The MGA is proposing to replace the current legislation with a single primary act called the Gaming Act, which will be the governing framework legislation regulating all gaming services in and from Malta. It will be complemented with subsidiary legislation covering the main areas of regulation, as well as a series of directives, codes and guidelines.
- Risk-Based Approach
Risk-based regulation and supervision lie at the core of the regulatory proposals, which will see the MGA adopt different approaches to different categories of games, depending on the risk they pose to consumer protection and integrity of the games and the operation. The Gaming Act also brings about a shift from vertical to horizontal regulation and licensing. This reflects a change in the way specific sectors are thought of and dealt with by the public administration, and a willingness to embrace technology convergence across different channels of distribution of games.
- Two licences
The changes would include replacing the current multi-licence system with a two-licence system – a business-to consumer (B2C) licence and a business-to-business licence (B2B) – covering different types of activities across multiple distribution channels in order to cut through unnecessary bureaucracy. A second tier of approvals will address the systems, game types and channels used under one licence. Prior approval will only be required when the change or addition significantly changes the operation, such as the addition of a new game vertical which may change the risk profile of the operation.
- Licence Period
Licences issued by the MGA will no longer be limited to a 5-year period; the licence term has been extended up to 10 years. The regulations also provide for a licence with limited duration, leaving the term open for the Malta Gaming Authority to establish the gaming activities thereunder. This ‘limited duration licence’ is ideal to be used in a disaster recovery scenario.
- Taxation Model
Under the new law, all operators of licensable gaming services would need to pay gaming tax amounting to 5% of the Gross Gaming Revenue (GGR) generated from customers located in Malta. The proposal thus abolishes any gaming tax previously payable as a fixed fee. There is also a shift to a point of consumption model, and gaming operators are only required to pay tax in Malta on revenue from Maltese customers as defined by law. The financial provisions also cater for a compliance contribution, as per the recently published gaming licence fee regulations. Furthermore, B2B operators will be exempt, hence will only be paying the annual licence fee.
- Licence Fee
The new law proposes to introduce a fixed licence fee of €25,000 annually, together with a compliance contribution fee to be added to the fixed fee calculated on gaming revenue generated. The variable component of the licence fee includes a minimum payable fee of €15,000 or €25,000 (€5,000 for skill games), as well as a maximum capping of either €375,000, €500,000 or €600,000, depending on the type of games offered. The variable compliance contribution fee is payable monthly.
Providers of critical supplies are also subject to a licence fee, varying according to the service provided. Game providers are subject to a yearly licence fee ranging between €25,000 and €35,000, depending on the revenue generated by the provider. Providers of back-end services, or a control system whereby essential regulatory data is captured, stored or otherwise processed, shall be subject to a fee ranging between €3,000 and €5,000 annually. Given that the new regime is expected to enter into force in July, existing operators will be required to pay tax and fees in accordance with the current legislation until 30 June 2018. As of 1 July 2018, all operators will start paying gaming licence fees under the new regulations, and a true-up exercise will be conducted, to calculate the difference in taxes paid as from the 1st January 2018. Licensees who have paid more than what was due will receive tax credits equivalent to the excess amount paid. Licensees which have paid less, shall pay the difference accrued by September 2018.
- Key Official & Key Functions
Under the current regulations, the Key Official has developed into the key compliance person for Malta licensed operators, but that doesn’t always mirror reality. The new regime is proposing that key functions within licensed companies need to be notified to the MGA, with the Authority approving the person or persons conducting said functions. They should prove their competence through certification, relevant experience and continuing professional development. Persons holding these positions shall be required to have a sound understanding and knowledge of their obligations, as well as gaming operations compliance methodologies, attested by a certificate that can be obtained by following an accredited training programme. In terms of proving professional experience, the MGA is considering two years’ experience in the five years preceding the application as a legal, finance or compliance officer in a gaming or financial services company, as sufficient. The MGA is proposing that key functions must continuously keep themselves updated on developments in the regulatory and compliance areas, directly or indirectly affecting the gaming sector.
- Types of Games
The regulatory framework covers games of chance, games of chance and skill, as well as skill games. A list of criteria will guide the MGA in determining into which category a game falls. Another key change proposed is shifting from a prescriptive approach to one based more on regulatory objectives and principles. This should make it easier to deal with innovation in the gaming sector, and should give the MGA the ability to license new types of products and activities in the future, which today do not exist with flexibility and without the need to amend the law.
- Low-Risk Games
Non-profit games, tombolas and advertising lotteries will be classified under the new framework as Low Risk Games. Rather than requiring a licence, such games will be required to acquire a Low Risk Games Permit, and subject to the relevant parameters, will be exempt from paying gaming tax.
- Skill Games
Skill games were formally regulated in Malta by means of the Skill Games Regulations of 2016, which came into force in January 2017. Malta has recognised that several games, including fantasy sports, vary substantially both from pure skill games such as chess and also from games of chance. The new law embodies this approach and will supersede these Regulations.
- Operator Compliance & Monitoring by the MGA
The proposed legal framework grants the MGA extended monitoring and enforcement powers. In the future, greater emphasis will be placed on ongoing and transparent access by the MGA to operators’ regulatory data. First and foremost, a compliance review process has been formally introduced in order for the regulatory framework of the MGA to be more transparent to licensees. This process will be kick-started in cases of reported or suspected breach of laws, or on an ad-hoc basis underpinned by a risk-based approach. New reporting procedures with respect to suspicious transactions will be introduced in line with the latest Anti- Money-Laundering laws and implementing procedures.
- List of non- Compliant Operators
The new law would empower the MGA to roll out a new procedure whereby it can issue a list of non-compliant operators, allowing those operators to make submissions to the MGA clarifying and/or addressing a lack of regulatory compliance in order to be removed from the list. This is aimed at ensuring that players are aware of noncompliant operators and the risk that may be incurred when making use of their services.
- Concept of Administration
The legal proposals also include the concept of administration to protect an operation in distress and, if necessary, to assist in winding down of an operation, thereby protecting jobs and player funds. The nomination of the administrator is to be confirmed by the Civil Court (Voluntary Jurisdiction Section) to ensure oversight of the judiciary on the process. This concept is widely used in the financial services sector and is now being extended into gaming services.
- Administrative Appeal
The introduction of a clear administrative review procedure is a new tool in the rights granted to applicants and licensees alike, in order to appeal and challenge any decision of the MGA which they deem to be wrong or unfair. This highlights the MGA’s commitment to render the regulator more accountable, while improving transparency in the way it conducts its regulatory function.
- Corporate Group Licence
The licence holder must be any person established in the EEA, and such persons may hold a licence for themselves or for a corporate group. If a licence is issued for a corporate group, the approved members of the corporate group are jointly and severally considered as the licensee.
- Social Causes Fund
The proposal is to strengthen the MGA’s role in the promotion of responsible gaming and safeguarding minors and vulnerable persons, by incorporating the functions of the Responsible Gaming Foundation under the remit of the Authority, in order to better leverage the necessary resources and expertise to achieve these objectives to the fullest. A Social Causes Fund is also envisaged, which mirrors and improves upon the structure of the Good Causes Fund established under current legislation.
The MGA highlights that the nature and complexity of outsourcing arrangements may result in increased regulatory risk and therefore certain situations may warrant some form of intervention by the Authority to ensure that compliance is not undermined. It is in this context that the scope of regulation of B2B activities has been widened. Supplies which are deemed to be critical to the delivery of the gaming services have been considered to be licensable activities owing to their intrinsic importance from a regulatory perspective. This includes the supply and management of control and back-end systems controlling, processing or capturing regulatory data.
With regards to affiliates, the MGA states that when the role of the outsourcing provider is limited to advertising and marketing, the regulatory risk is limited to matters relating to adherence of advertising laws. Given that the responsibility for compliance with such laws rests with the licensee, there is no scope for additional regulatory involvement. On the other hand, where the outsourcing service provider also conducts other activities related to the gaming service, intervention may be necessary. Where the outsourcing service provider processes payments and handles player registration, the service provider shall itself be deemed to require a B2C licence, unless such services are being carried out solely on behalf of the licensee, in which case they shall be deemed to be covered within the remit of the licensee’s authorisation.
- Commercial Communications
The MGA has developed a new set of commercial communication standards. The new regulations aim to better protect vulnerable persons and underage players from being incited to gamble. The new framework outlines stronger limitations as to where advertisements can be placed, and the manner in which such communications can be made. The framework also introduces rules specifically relating to sponsorships, bonuses and promotions, misleading advertising and advertising aimed at self-excluded persons.
Some of the proposals deal with the following:
- Licensees are not allowed to publish false information on chances of winning, or suggest that gambling can be an investment.
- Gambling cannot be promoted as a way of gaining prestige.
- It is also not allowed to use celebrities in advertising and making the player believe that gambling was behind their success, or that skill can influence the outcome in a game of luck.
- When it comes to social media, companies need to make sure that under-age persons are excluded from the target audience, while social media accounts also need to contain an educational message on responsible gaming, and an age-limit warning.
- Technical Standards
Many have expected to see draft technical specifications included in the draft published for consultation by the MGA. However, the MGA felt the need to get the feedback on the framework first, before delving into further details. The technical standards will be developed based on Malta’s own experience and best practices from other jurisdictions. The idea is to promote a set of technical standards that shy away from being prescriptive and instead move towards more objective-based requirements, so as not to stifle innovation and technological developments being proposed. While the MGA is aware that the industry is eagerly awaiting these, operators can rest assured that the technical standards will not include something totally alien. They will in fact reflect current industry standards, while catering for the necessary transitory periods for eventual roll out. It is also envisaged that the MGA will be providing the industry with adequate consultation along the process.
- Recognition Notice
Malta shall continue to recognise gaming licences issued in other EEA jurisdictions (the mutual recognition principle) in line with European Treaty Principles, and licensed companies are allowed to operate in Malta. However, under the new law, such operators would need to notify the MGA in view of reputational risks to the jurisdiction. In such cases the MGA may maintain adequate controls over such operators, who are based in Malta. The recognition notice is subject to a yearly fee and may also be revoked.