KPMG eSummit Gibraltar

April 2016

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A Word from the SponsorWe at Continent 8 Technologies are absolutely delighted to besponsoring this year’s KPMG Gibraltar eSummit Report.Gibraltar is uniquely placed at the heart of EuropeaneCommerce and features a stable politico/economicenvironment, low taxation, compact business community,excellent transport links and a strong public/private sector bond.Alongside this, improved and extensive telecommunicationsnetworks mean we can continue to provide the very besttechnology storage solutions at the heart of Europe - we feelproud to call Gibraltar our home.

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Many interesting topics came up during this year’s eSummit but one resounding cry was for industry collaboration:together, we are stronger. Whether you are a small operator, facing a hit by regulatory changes, or an industry giantconcerned about the ever changing political and economic environment, it’s clear that we can all embrace the challengesand achieve more, by working together as one cohesive sector.

We hope you enjoy reading this report and look forward to seeing you all at the KPMG eSummit in Gibraltar on 23 March 2017.

Richard EbbuttContinent 8 Technologies

Kindly sponsored by

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IntroductionThis report showcases the events ofthe KPMG Gibraltar one-dayeSummit held at the Sunborn Hotelon the 21st April 2016. It is the 6thsummit of its kind to be held inGibraltar, and 12th in a series ofeSummits hosted by KPMG,including those held in the Isle ofMan. Drawing over 250 delegatesfrom the world of eGaming, as wellas 30+ keynote speakers, theeSummit offered a stimulatingagenda, exploring many topics suchas: The Impact of a Potential Brexit oneGaming, the Commercial Value ofData Analytics, Happy & UnhappyGamblers, the Impact of HMRC’sChanges to VAT, AML Regulation inEurope, recent M&A Activity in theSector and the evolution of eGaming.

In addition, an interactive element oflive polling via the Bizzabo app cameinto play, whereby delegates couldvote on a wide range of issues, fromthe likelihood of Brexit, to the HorseRacing Levy. The results of thesepolls are often surprising, and can befound in the relevant sections. Alsoappearing on the agenda were threeIMGL masterclasses on hot topics:

eMoney, Technology and Regulation.

The expertise of KPMG in the field ofeGaming has increased year on yearwith this series of eSummits.Speaking on the day itself, JonTricker of KPMG Gibraltar: “We’redelighted to be hosting this eventtoday in Gibraltar. It brings togetherclusters of local eBusinesses, as wellas operators from the UK and furtherafield in Europe, in an open forum todiscuss the challenges andopportunities in this fast-evolvingindustry. We’re also very fortunate tohave a government that whollysupports us, and welcomes newlicensees and innovation to thejurisdiction.”

Coming hot on the heels of theeSummit, KPMG have additionalcause to celebrate, with their successat the eGaming Review B2B Awards.At the ceremony held in London on1st June, KPMG Isle of Man andGibraltar scooped up the award forBest Corporate Services Provider ofthe Year 2016.

It’s safe to say that in the eGamingCalendar, the Gibraltar eSummit has

become a premier event. As onedelegate confided: “It’s been afantastic opportunity to network.Everyone in the industry seems to behere! And I’ve learnt a lot: theregulatory changes represent a realchallenge to us as a small operator.But I’m hopeful we’ll overcome these,and can look ahead to a productiveyear. Overall it’s been a reallyfascinating day… so glad I came.”

Taking each presentation and paneldebate in turn, this report seeks toprovide a detailed account ofeverything discussed and/orpresented. Where required,additional information such as slidesor tables are inserted. Of special noteis the live polling data, the results ofwhich can be found in the relevantsections. KPMG is very grateful to thefollowing sponsors for theirgenerous support of the GibraltareSummit: Continent 8 Technologies,Ramparts European Law Firm,ISOLAS, Hassans International LawFirm, Gibtelecom, GibVault, Cube, W2Global Data, IDT Finance, IMGL, andGibraltar Finance (HM Governmentof Gibraltar).

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I’d also like to start off by thanking my own team, my staffat the Gambling Commission who deal with you on aregular basis throughout the year. I don’t often get thechance to sit with the eGaming community who interactwith them on a daily basis, so I’d like to take the opportunitynow if I may to thank them for the enormous amount ofwork that they put in. I hope and assume that most of youreceived the Gambling Review yesterday: you will see thatin section 530, they very cleverly insert a little item whichsays that the Gambling Commission requires to be farbetter resourced. Now obviously, you can see Phill Brear’seffort and hand in that section of the report. But withoutquestion, it is a testament to their effort and commitmentthat with the resources they do have, they’re able to do theextraordinary work that they do, throughout the year, so ahuge thanks to Phill and his team.

The gambling sector remains strong, despite the hugeactivity in mergers and acquisitions over the past 12-18months. We still have the same number of licensees thatwe did this time last year. As licenses tend to besurrendered due to merger activity, new entrants arecoming in and it’s pleasing from our perspective to see thatthe numbers of those in employment in the gamingcommunity of Gibraltar still remain above 3,000. Of course,it’s cyclical as you know, and there’ll be ups and downs, butthe strength remains in the core of that number that wemanage to maintain.

As we celebrate 20 years in the sector, we now look to thenext 20 years. As mentioned, The Gambling Review whichwas sent out is a document which really does rely on onevery crucial aspect: and that is your interaction. We are notsubmitting a document ready to be stamped in 3 months’time: it’s a working document, it’s an ideas document. Idon’t for a second believe that it covers anything andeverything; indeed, I expect you, as industry leaders, withan operator’s understanding of the daily labours, to take a

detailed look and to tell us what you think of it. Areas onwhich you think we should focus more, or less, and newideas: we welcome innovation and creativity. Consequently,I really do ask you to please engage with us directly throughthe GBGA (Gibraltar Betting and Gaming Association). In myletter yesterday, you will have seen I’ve asked for one-to-one meetings with all of our operators to ensure that we doget a complete view and response from the sector, in termsof how you see what we’re doing and how we should bedoing it in the next 20 years.

I also have to thank, obviously, the four Peters – Sir PeterCaruana, Peter Montegriffo, Peter Isola and Peter Howitt, forthe huge amount of time they’ve spent in putting thisdocument together. From a cursory read of it, you willgather that a lot of thought and effort has gone into thatdocument. I have to tell you also that there is a seconddocument which I haven’t shared as yet, which gives a littlemore detail in the thinking of the four Peters as to thedirection in which we’re going. I’ve not circulated thatintentionally and the reason is simple: I don’t want to shapeyour minds as to the direction that you think we should begoing and therefore, by holding that back, what I’m seekingto do is to get a better idea from you as to the detail of howand in what way, you believe we should move forward. Itreally is a programme for interaction, it will succeed or failon the basis of that interaction; it is not a “fait accompli” byany stretch of the imagination and I really welcome yourdetailed discussions.

Overriding the Gambling Review is one thing that will notchange, and that is our philosophy of quality, reputation andregulation. This remains paramount in our thoughtprocesses as to how we move forward in terms of thelicensing. It would be so easy to open the door and allowanother 10, 15, or 20 operators in. We will stick to the rulethat we have now adopted over the past 20 years to ensurethat we only engage and marry with quality operators and I

WelcomeAddress

Good morning ladies and gentlemen, and a very warmwelcome to the 6th KPMG eSummit here in Gibraltar. Mythanks of course to Micky, her team, KPMG and all of thesponsors who combine to put together this magnificentevent. I have to say, in the years that I have attended, itseems to get bigger, better and stronger year on year, somy great thanks and congratulations to KPMG andMicky’s team.

The Hon. Albert IsolaGovernment of Gibraltar

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think that’s important that you shouldknow that. When reading thedocument, there may well be thingsthat we’ve left out, or which we haven’tgiven sufficient consideration to, soplease do feel free to come back to uswith those ideas, particularly in theareas of creativity and innovation. Ithink it’s important that we stay aheadof the curve in that respect.

So, what are the challenges? Well, youcould probably spend a couple ofhours talking about the challengesfacing us: BREXIT, taxes, PanamaPapers, VAT, cybercrime, dataprotection, the 4th Anti-MoneyLaundering Directive, integrity in sport,responsible gaming. Those are just afew of the many challenges that weand you, as the operators in this space,face. As a mature and sophisticatedindustry, we will face these together.Your Government will be your partnersin how we deal with each and everyone of these issues.

In respect of the Panama papers, Ithink and hope you do too, that ourcommitment to international standardsin terms of transparency and exchangeof information, and our commitment tocomply, has put us in a good place,despite the furore this has caused. Isee more to come, going further intobeneficial ownership across a biggerplatform, and overseas territoriesincluding Gibraltar and the Crown

dependencies, as the G5 have allsigned up to an agreement with theUnited Kingdom bilaterally. I expectthat to continue, to grow across awider space - maybe the EU, maybethe G20 or maybe even the OECD (110members of that global forum).

In terms of BREXIT, we will continueas we have done, to work very closelywith the UK Government. Frankly the23rd June can’t come quickly enough.The issues that have arisen, and thediscussions taking place, are, from myperspective, difficult to understand,although clearly we respect them. Foranybody that understands thetemperament of the surroundingjurisdictions like Spain, Portugal,France, Italy and Germany, to think thatyou’re going to be able to walk awayand still gain the benefits of that club,is something that I struggle tounderstand. As somebody put it to mejust a couple of days ago, it’s likegetting home after a day’s work andtelling your wife you’re going to beleaving her but you’d like it if shewouldn’t mind carrying on doing yourlaundry and your washing! The rules ofthe club are clear and to expect to beable to achieve the benefits of thatmembership, without the obligations,is something that I don’t quite grasp.We are confident that we will see itthrough and working with you, wehope, post the 23rd June, to be able totake a step up in terms of the

promotion of this jurisdiction byworking together.

I think there is no question, and thoseof you who worked here these pastfew years will understand thiscompletely, that the Government’scommitment to this sector is absolute.My door is open to each and every oneof you, to work with you to increasethe flow of your business, to growyour business, to pay our taxes and toenable us to continue to develop ourwider economy. I have to say that it’sbeen a pleasure working with you forthese past 12 months and I am verymuch looking forward to facing thesechallenges together and of courseengaging directly with you in respectof the Gaming Review.

I think there is noquestion, and thoseof you who workedhere these past fewyears willunderstand thiscompletely, that theGovernment’scommitment to thissector is absolute.

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The first panel session of the summit looked back at the recent wave of M&A activity in the Gambling & Bettingsector and considered the drivers behind it. A number of drivers were identified, including cost synergies, scale,new markets and consolidating the supply chain. At the top end, the purchase of bwin.party by GVC Holdings for£900m was designed to increase its platform and boost operating synergies. Smaller deals appear to have beendriven by complementary businesses and acquisitions of the newer technologies. Looking ahead to future mergers,regulation was cited as having helped the industry to become more mainstream; this in turn, will open the door toPE-backed investments, particularly at the smaller end of the business scale.

Opening this session, Mr Kristan King welcomed everyone and introduced himself and his subject for debate. Hebegan by conducting the first delegate poll of the day. Testing audience thoughts around M&A, the followingquestion was put to the room: what would be the key drivers of M&A activity over the next 2 years in the eGamingsector in Gibraltar?

Considering 4 possible responses, including cost synergies and competitive scale, delegates used their mobiles tomake their choices, via the Bizzabo app or text. The results were to be revealed at the end of the session.

Mr King then went on to introduce his panel, a selection of expert lawyers from the world of media and gambling.

Panel Session Riding the Wave: M&A Activity in theGambling & Betting SectorModerator: Kristan King, Head of Deal Advisory,KPMG Gibraltar & Isle of Man

Moderator: “First of all we have Steven Caetano, acommercial lawyer at ISOLAS with extensive experiencein eGaming and betting mergers and acquisitions,privacy and media law. Steven was recently lead partnerfor GVC Holdings in its acquisition of bwin.party DigitalEntertainment PLC, handling the Gibraltar aspect of thetransaction, and is a regular advisor to the localGibraltar eGaming community. Then we have DavidMcLeish, a Partner at Wiggin based in London whoadvises on a full range of corporate, commercial andregulatory matters, principally across the gamblingtechnology sectors. He has a wealth of experienceadvising on private and public M&A transactions andprior to joining Wiggin, David was General Counsel at aleading gambling software supplier. Next up is NyreenLlamas, Partner at Hassans. Most of Nyreen’s work

involves advising the gaming industry in respect oflicensing and regulatory matters, as well as corporateand operational aspects of their businesses. And then wehave Susan Breen, who leads Mishcon de Reya’s Bettingand Gaming Group. Susan has been involved in many ofthe M&A transactions in the gambling and betting sectorover the last 15 years, both in Gibraltar and otherjurisdictions. And finally, we have Aaron Carpenter. Aaronleads Ramparts’ eGaming and commercial practice inGibraltar and has a number of years’ experience ingaming, regulated eCommerce and M&A.”

Mr King then asked Ms Breen for her views on thesignificant deals done over the course of 2015. Whatwere the key drivers there?

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Ms Breen: “Looking back, I think thethree big deals have a number ofcommon themes. The mergerrationales were cost, complementarybusinesses, scale, increasing theplatform, and in one of the large deals,it was actually classified not so muchas a merger but as a turnaround, sothere was a financial risk play withinthat deal. In my view those large scalerationales will apply to a greater orlesser extent to the smaller, mid-market deals.”

Mr McLeish: “I agree. There’s a lot ofsearch for scale to try and deal with

some of the challenges the industryfaces, some which were mentionedearlier: the change in regulatorylandscape, and responsible gamingtools. In addition to that, there’s asense that the competitive landscapeand changes in tax regimes mean weare getting to the point where a scaleis the place to be. Cost synergies issomething which is often cited as areason to merger, but they shouldn’treally be the reason to merge; thereare many benefits of merging. I thinkthat if they’re your key play then it’sprobably something which is going toend in an unhappy way”.

Moderator: “Nyreen, looking to 2016,do you think that sort of consolidationis going to continue?

Ms Llamas: “Yes, I think so. The truthis that, in the past, the headlines haveshown significant mergers amongstoperators looking at differentpropositions, brands, and products.However, I think a lot of the plansgoing forward will be mergers, orcommercial joint ventures relying onthe technology expertise where there’sa huge growth. Historically, operatorshave had a lot of in-house technology,and now this has almost gone.

Panellists: David McLeish Wiggin

Nyreen Llamas Hassans

Steven CaetanoISOLAS

Susan BreenMishcon de Reya

Aaron CarpenterRamparts

Of course, they still need technologyinternally but are looking more andmore to platform providers andsoftware content providers to developthe industry further. Operators arerealising that these providers are betterplaced to do this and JV arrangementsmight be more of a common feature.Recently, we’ve heard about William Hilland NYX’s financing of the OpenBetacquisition. So I suspect there will bequite a lot of activity at that level. I alsothink that the industry itself has becomemuch more mainstream because ofregulation. Regulation does obviouslyprovide a burden, but because of it,there’s been a big adjustment in termsof how the industry itself has changed.Indeed, private equity might have a placein future in driving some of theacquisitions and some of the changeshere. So, yes I think 2016 will continue tobe a busy year and possibly even 2017.”

Moderator: Aaron, what are yourthoughts in view of the consolidationof the supply chain?

Mr Carpenter: “Well I think theWilliam Hill NYX deal is particularlyinteresting, and addresses a particularproblem. Nowadays there are a lot ofsportsbooks, many of whom are usingthe same platform. This makes it hardto differentiate from competitors onthe basis of technology and userexperience, so anything that enablesyou to get more control, or acompetitive advantage, could be adriver for a deal. In that context, youcan see how a deal such as William HillNYX and OpenBet has come about.This consolidation of the supply chainis a trend which looks set to grow.

Just picking up on a few other points:David mentioned the change inregulatory landscape - that’s not goingto stop in 2016; there is a continuingpush towards national licensing and

point of consumption tax regimes. That,in my mind is a factor that will againincrease operators cost base, which is areason to perhaps look for scale toleverage against costs. Looking to theUK for a moment, and the last twobudgets, another factor to consider isthat the Treasury is considering addingVAT to marketing and advertisingservices supplied from the UK on a useand enjoyment basis. And then you’vegot this year’s budget - we’ve had theannouncement in terms of taxing freebets - again, you’ve got factors therethat are really going to compressmargins, and will, if anything, increasethe desire to look for acquisitions andmergers rather than decrease it.Basically, companies will try to findways to maintain their margins.”

Moderator: “That’s very interesting.Steven, we mentioned briefly theprivate equity activity when looking atthe market. It’s certainly something I’venoticed in the UK with some of the mid-market and even lower mid-marketprivate equity firms, now, seeing theeGaming sector as an area that theywant to move to. Is that something thatyou’ve noticed, and do you think there’sgoing to be more money coming intothe market in that respect?”

Mr Caetano: “Yes, I think the interestof private equity houses in gaming hasbeen there for quite some timealready. As the industry has becomemore mainstream, there’s been moretalk of PE interest in funding gaming.As part of our corporate/ gamingpractice, we’ve been working withprivate equity for some years now,albeit very discreetly and I agree withNyreen, that as public perception of theindustry improves, it will continue todrive PE interest in the sector. I alsothink PE firms have been driving M&Aactivity behind the scenes for sometime now. So, yes, I think it willcontinue to drive the M&A market overthe coming years, as online gaming isalready a mainstream industry - 20years in the making here in Gibraltar.”

Moderator: “I think that you’re right. Inotice that in the UK, some of thesmaller, lower mid-market firms(meaning not at the top end of thelarger deals) are now realising that thereare some strong returns to be made inthe gaming sector. David, do you thinkthat’s going to be more at thetechnology end in the supply chain?”

Mr McLeish: “The short answer is

yes. Anything which has a story andgrowth prospects is a potentialinvestment opportunity. One of thethings that the larger private equityfirms struggle with is the fact they areso global. So the unregulated, and to-be-regulated markets, can representmore of a challenge for them.However, some PE houses are muchmore advanced in their thinking thanothers, such as those which have beenaround the sector for a longer period oftime. Inevitably, there are somebusinesses which won’t be for them interms of their global reach. If you lookat deals done over the last 12-18months, there’s clearly a lot of equityand interest being unlocked from NorthAmerican markets in terms of thefunding, just look at Amaya andIntertain. In fact, you can see thegeneral trend that’s emerging, not justfrom European private equity, but also,North American private equity beinginterested in the European markets,perhaps as a result of the slower thananticipated progress in the US.”

Ms Breen: “I would agree with David.If you actually look at the market andthe psychology of a PE investor, they’refocused on interesting and growingsectors, so tech has always been onethat’s a fascination. But wrappedaround that, what they’re looking forare businesses that can scale quickly,and it’s a virtuous circle: increasedscale, better margins and cash flow.So many of the PE investors are overthe difficulty of the politically negativeview of the industry; they’re happy tolook at the shades of grey. Both theB2C and B2B segments of the industryare highly competitive and fragmented.If you look at the size of the pool ofpotential businesses - we’ve got over5,000 B2C businesses and 100 B2Bs,you have a market here that is ripe forconsolidation given the drivers that wediscussed. Many of these companieswill already be considering some formof merger activity whether it’shorizontal, or a B2B and B2C tie up. Atthe Deal Advisory seminar yesterday,KPMG talked about having the cash,being able to do the deal, and theability to scale by sequentialacquisitions. The companiesthemselves and the funders are readyto do more deals.”

Ms Llamas: “I agree with Susan, Ithink we are just seeing the start ofthis and as private equity really getsmore involved, the dynamic of the

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“Regulation doesobviously provide aburden, but becauseof it, there’s been abig adjustment interms of how theindustry itself haschanged.”

industry itself will change. Nobody has ever categorisedthe gaming sector as being soft, but private equityinvestors are notoriously unforgiving and commerciallydriven. Private equity investors will want to call on theirinvestment and they will be on top of you in terms ofboard response, undertaking cost/benefit analysis andso on. Basically boards will really be held to account inthat scenario. In the context of the US, I think it’s alreadythere, it’s quite mature, especially in the very bigtechnology PLCs. It will come into Europe and will driveand create even more momentum and movement of theindustry across Europe. This will also continue to pushthe industry more into the mainstream.”

Mr King: “Do you think that’ll change the spirit of theindustry?”

Ms Llamas: “Perhaps not as much initially in the bettingsector, but maybe in the gaming.”

Mr Caetano: “Also the European gaming industry is amature industry. The US is perhaps lagging slightlybehind and of course the interest is obviously from theUS to the European market, that’s where it’s moremature and more established, so it makes more sense.”

Mr McLeish: “It’s true that certainly on the operator’sside, there has been a lot of activity. I agree, technologymay push operators to acquire stakes, like William Hilldid in NYX. Or even to acquire technology companiesoutright to try and give themselves a USP. Over andabove that, one of the challenges that remains to beseen, is the multi-brand strategy arising from some ofthis consolidation, and whether those brands are goingto be used in particular markets or for particularproducts, and how you navigate around that. If you’regoing to use it for different products, then that doesn’tlend itself to going for a big technology play. Equally,with some of the larger operators (such as the listedcompanies) who have historically taken a more prudentapproach to regulatory risk, you can see the chanceemerging for there being a reversal of that. Everyoneelse has managed to navigate their way through and ismaking high margins in off-white markets. In thosecircumstances, will there be a re-opening, of marketsand could there be a way of accelerating your re-entrypoint into those markets through M&A?”

Moderator: “Nyreen, thinking about companies that aregoing to be participating in transactions and looking atnew markets, as David was discussing, how do youthink they should be preparing for deals? What are thesort of key things that you’re seeing throughtransactions at the moment?”

Ms Llamas: “It depends on a few factors: whetherthey’re operators, or content providers, and whetherthey want to continue on their own for some time.There’s the issue of scaling up because the size of someof the operations, and the size of the technology of someof the operations are so significant that it is becomingdifficult for companies of a certain size to remaincompetitive. But I still think, even though we speak aboutM&A, there are some very good operations and verystrong brands out there that are doing very well on theirown, and which continue to focus on their core businessand are growing it. The value in all these businesses are

ultimately customers , and the retention of customers.

There are some operators (even some of the big ones)that still very much count on the involvement of theirfounding members and, although they are involvedprimarily because of financial considerations, manyretain a strong emotional attachment to thoseoperations which can impact upon whether a deal goesahead or not. I remember discussing this with Susanpreviously. Sometimes, whilst it may seem logical froman outsider’s perspective for a certain deal to go ahead,it doesn’t because of the decisions or resistance of thosefounders who may oppose the deal because it doesn’twork for them.

So whether M&A is right for one company or the otheris quite a subjective question and is very difficult todetermine - it just depends whether the right synergiesand desire are there. Indeed, even when a deal is done itdoesn’t always work out. As we have seen in the past,and without mentioning names, we have seen a verylarge PLC which was itself the product of a mergerseveral years ago now undergoing another largeacquisition given that the initial merger did not pan outas expected. Ultimately, businesses have to constantlyreview and adapt and boards have to constantly assessopportunities.”

Mr Carpenter: “And that, on the huge deals at least, theeffort that will have to go into the integration, planningand the realising of synergies, which are promised,people have to be careful that that doesn’t become adistraction with others who are focusing on a singlebrand strategy or haven’t entered the M&A fray, theycould feel that they are in a position to just carry on doingwhat they’re doing and try and make headway whileother people are trying to realise the benefits of scale.”

Mr Caetano: “Also, as a result of these large M&A deals,there is also potential for smaller deals as consolidationtakes place and acquiring parties’ review their assetportfolio’s and, possibly reorganise acquiredassets/divest certain aspects, so there’s also potentially aknock-on effect for smaller deals as a result of the biggerones.”

Moderator: “Steven, with your clients in Gibraltar, howdo you see the factors impacting them when they’redoing deals at the moment?”

Mr Caetano: “The GVC/ bwin.party deal was interestingbecause an Isle of Man company was acquiring aGibraltar company, and with that there was anassumption, that it wasn’t a great news story forGibraltar, but as far as I understand it, the IOM “foreigncompany” acquired the Gibraltar company but islooking to deploy assets to Gibraltar rather than theother way around, which is obviously a good thing forGibraltar. This shows that it doesn’t necessarily mean,

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The value in all thesebusinesses are ultimatelycustomers , and the retentionof customers.

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for example, if a Gibraltar companyis the acquirer or the party that isbeing acquired, that it’s going to benecessarily negative or positive forGibraltar. Sometimes, as in thiscase, the synergies are such that theacquirer wants to latch onto theexisting platform/existinginfrastructure, rather than acquireand dismantle. So, it’s a veryinteresting dynamic with no hardfast rule to follow.”

Moderator: “Are there specificthoughts in terms of Gibraltaractivity at the moment? I knowthere’s a session a little bit later onBREXIT, so we don’t want to talkabout that to any great extent, but Ithink it’s one point we shouldperhaps try and briefly touch on. Iknow Steven and Susan andperhaps Aaron have got some briefthoughts.”

Mr Caetano: “As a Gibraltar lawyerand Gibraltarian, BREXIT is a hottopic at the moment, as you canimagine. In terms of the GibraltarM&A sector, it’s hard to predict whatimpact it could have, but certainly,European facing businesses mayhave challenges. For UK facingoperations, my view is that theyshould be able to continue in thesame fashion that they are now, andenjoy the same benefits, but it’sthere in the background.”

Moderator: “Aaron, what are youseeing in Gibraltar at the moment?”

Mr Carpenter: “I think Steven’s hitthe nail on the head. If your targetis, for example, a UK facingoperator, with maybe some interestsin the Australian market then, yesthere are going to be someoperational difficulties and somelegal challenges. For example, wedon’t know how the AML regulationwill necessarily be effected this if ithappens. Data protection andintellectual property law in both,Gibraltar and the UK are allintertwined with Europeanlegislation so, yes there’ll be somechallenges, but ultimately operatorscould continue to do business asusual. I think it’s more thecompanies, as Steven said, who areperhaps relying on Article 56 rights,that could face the greaterchallenges if we do have the OutVote on 23rd June.”

Moderator: “So we’ve heard someof the factors that have been at playin 2015 and 2016 markets, withconsolidation looking for top linegrowth, looking for good customerbooks to acquire, looking to broadeninto new markets. As clients lookforward, do you think M&A has tobe part of their strategy, if it isn’t atthe moment? In terms of trying toachieve some of those objectives?”

Ms Breen: “Inevitably, yes. Becausethe buy and build strategy, whateveryour core product is, works for thisindustry and I would include thosedeals which are a defensive play.With the increasing burden of taxand regulation we can seeincreasing legislative andgovernmental creep. I don’t thinkwe’ve seen the end of the tax graband there are a host of regulatoryand fiscal changes coming down theline including the focus on taxablepresence across differentjurisdictions and we haven’t heardthe last on VAT. The sheer costburden is going to force businessesto come out of certain markets orlook for partnerships. As Nyreensaid, those partnerships could bestrategic ventures. They can be B2Cor B2B or across platform contentproviders – and you’re going to seethe drive for the Omni Channel. Thequestion is, how do you capture anincreased audience? At its core, whatis this industry trying to do? It’strying to attract and keep customers,and it’s trying to do it with wider andmore interesting content; keep it“sticky” and not go off of the page.You have to partner with innovators.It’s what the industry has done wellfor 15-20 years and it will continue todo that.

I see some operators toying withIPOs but I would not see that as aparticularly favourable market foreveryone. The only ones that I’mseeing cross my desk are fromentrepreneurs who are reallywedded to the business: profitableEuropean businesses acrosssports/casino who don’t really wantto sell, but think maybe this isactually a good time to extract valuewhile still keeping a strategic stake. Ifthey sell it, it’s a pure exit play, evenwith an earn-out structure.

In summary, 2016 and beyond holds

more of the same whatever the sizeof the business: a squeeze at thesmall end, unless you have a uniquebusiness proposition and in the mid-market, a focus on scale, earningsand competitive advantage. “

Moderator: Interesting. What we’rereally hearing is that M&A activity isstill going to be key in terms ofbusinesses developing theirmarkets, growing their customerbases, and that’s going to be the keyfocus, or should be the key focus.Make sure that you take your costsynergies as you do those deals,and make you sure you drive thefinancial success from those dealsthat you do.. Perhaps be flexible: ifM&A isn’t on your strategy at themoment, regulatory change mightdrive a change of thought and you’llbe able to adapt it.

Ms Breen: “Can I just mention onepoint which is related to BREXIT?This industry has been very good atinnovating and being flexibleenough to react to newenvironments. While the BREXITdebate continues, I think we’ve allseen a lull in some of the deals thatwe’ve been doing. Separatelyhowever, from an operational andrisk perspective, those involved inthe industry need to ensure that theconsequences of a BREXIT don’timpact on the operation orperformance of commercialcontracts in place with suppliers orcustomers. For example, acommercial agreement that has aterm that extends beyond the dateof an exit which depends uponmovement of goods or services, orthe impact of VAT around its supplyof services, should now bereviewed. Businesses also need tobe aware of these issues if they arecurrently negotiating contractswhich could become unprofitable orhard to terminate or amend in theevent of a BREXIT. If you lockyourselves into those contractswithout having some flexibility toexit or adjust the commercialrelationship, you may end up indifficulty. So, operationally, a healthcheck on your commercial contractsto assess the implications from aVAT, tax, services, and insuranceperspective would be wise.”

What will be the key drivers ofM&A activity over the next 2years in the eGaming sector inGibraltar?

A. Cost synergies (trying to leverage fixed cost base)B. New Game Technologies or New Games (broadening the service offering)C. Competitive Scale (new markets) D. Another reason

Mr King thanked Ms Breen for her excellent advice and moved on to reveal the poll results. The following question was putto the room at the start of the panel session:

Moderator: Looking at the result of our poll, we can seethat option C (competitive scale) was the greatest driver,with B (new games & technologies) close behind it. Thatdoes chime largely with what our panel has just discussed.

Questions were invited from the floor:

Q. Mr Carpenter, you said you thought there’d be adifference between EU facing and UK facing strategiesin BREXIT. Can you elaborate?

Mr Carpenter: I was thinking more for from the point ofview of what you are seeking to achieve - if you’re lookingto increase scale, for example, and your markets are notdirectly affected by an Out Vote, then that’s going to giveyou a very different position in terms of where you look forpotential targets, particularly in respect of Gibraltar. Theother issue, just from a risk point of view, comes back toSusan’s point, when we talked about contracts and deals. Interms of the markets you’re servicing, say if your HQ is in

Gibraltar, but you’re serving the UK and other non-EUmember states, but you also have another EU office, you dohave the ability to react, perhaps by moving your EU HQ towherever that member state may be. Again, it’s about beingflexible and reacting to it in the correct way, and I think formost people it is pretty high on their risk register and froman operational point of view, I daresay it’s something peopleare looking at already.

And also, if I could just add to what Aaron said, the trend ofhaving to set up an office in a jurisdiction to continue inservice, your market is already well established with thecountry we’ve had, so setting up an office in a marketplaceis already something that gaming operators have been ableto do quickly and quite successfully, so I feel it will just be aquestion of re-adjusting that strategy.

Mr King offered his thanks to the panellists for theirexpertise, and to the delegates, for listening.

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Outlining the shape of his talk, Mr Morris aimed to offersolutions for overcoming the barriers presented to thegaming sector by the recent regulatory changes, especiallythose in international markets. “I’ll consider thecharacteristics of a sustainable market, but also, whathappens when things go wrong, and the implications of that.In this context, I’ll be looking at the impact on operators, ongovernments and consumers. I’ll also touch very briefly onthe European Fourth Anti-Money Laundering Directive. I’llthen turn to the British market, looking at the post point ofconsumption implementation but also highlighting some ofthe key developments and challenges for the industry inoperating in that market. Some of what I say will touch onthemes that will be covered throughout the conference bypeople that are far more specialist in those areas than I, I’llleave the details to those experts but I hope that what I saywill set these themes in the broader context.”

To provide some background information, Mr Morrisconsidered the impact on markets of point of consumptionlicensing. “Recent years have seen a number of marketreforms by jurisdictions, developing completely newlicensing regimes, as well as jurisdictions reforming existingremote licensing regimes. The common element, mostnoticeably across the EU, is the now well established moveto implement point of consumption licensing; in otherwords, the key determining factor in deciding whether alicense is required, is where the customer is based and notwhere the gambling operation is physically located. For manyyears, there was a view by lobbyists in the United States,that it should move towards the kind of cross-border federallicensing system that many hoped to see here in the EU.

PresentationUnited We Stand: Overcoming RegulatoryChallenges

“Well, it certainly is refreshing to visit a jurisdiction where the contribution that our industry makes is welcomedand also recognised.” So began Paul Morris, opening his slide presentation on the topic of regulatory changes,including those affecting Gibraltar operators. Mr Morris thanked his hosts KPMG and mentioned how on this, hisfirst visit to Gibraltar, he’d been struck by the very positive atmosphere compared with that of other markets. AsDirector of Regulatory Affairs at the Remote Gambling Association, Mr Morris and his team have interests in manymarkets, both within and outside of the EU, and a wealth of experience in engaging with regulators, legislators andkey decision makers in numerous jurisdictions. The RGA’s membership (which can be found in full atwww.rga.eu.com) includes the biggest operators and B2B companies in the business which gives the team at theRGA considerable insight into the challenges facing operators, and other stakeholders in emerging as well asestablished remote gambling markets.

Speaker: Paul MorrisDirector of Regulatory Affairs, Remote Gambling Association

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It is perhaps ironic that the reverse has happened and theEU has ended up with a system very similar to that in theUS, where each state can pretty much decide its own rulesand companies must obtain multiple licenses in order tooperate in multiple states. While the prospect of an EUsolution and a form of mutual recognition is further awaythan ever, the point of consumption reforms not onlypresent challenges but they also present opportunities toaccess markets. But importantly, the reforms also presentsignificant opportunities for government and regulators toimplement a regime that is sustainable, protects consumersand, of course, represents an important source of revenue.Too often, the nature of that reform means thoseopportunities are lost.”

The work of the RGA extends to many jurisdictions: eitherdirectly, as in much of Europe, but also indirectly, with alliesin territories such as Australia, the US, South Africa andBrazil. In Europe, meanwhile, the gaming sector awaits theEC’s updated infringement package (to be publishedshortly), there is hope that this will produce speedy reformin some of the markets that are clearly in breach of EU law.Legally, it is wrong that these markets have erected barriersto European operators gaining access in favour ofincumbent monopolies.

Mr Morris elaborated, “The key issue is that when thereform takes place, the regulatory and tax regimes must besustainable; after all, one of the main justifications given bymember states for introducing point of consumptionregulation is in order to protect consumers. However, thatonly works if the market is attractive to operators, and moreimportantly, attractive to consumers. Too often, legislatorsoverly focus on enforcement tools, at the expense ofconsidering how the market will function. The commonview being, that it doesn’t really matter how unsustainablethe market is because we will stop unlicensed operatorsusing ISP or financial transaction blocking.” Whilst

acknowledging that such enforcement measures are a keypart of any market reform, but knowing that they cannotensure the success of the market alone, Mr Morris statedthat such measures act as a deterrent and a disruptionmechanism but are expensive to implement and resource,also a determined player can circumvent them.

“Having a sustainable market is critical to market reform,meaning enforcement tools can be focused more effectivelyagainst the few, rather than the many. So the overall cost ofdoing business, primarily the total tax burden, is a crucialfactor for companies when deciding to enter a particularjurisdiction, and will be crucial in determining whether ajurisdiction’s market is successful.”

Mr Morris then went on to examine the characteristics of asustainable market opening. Of the many elements, someof which are inter-related, just a few of the key issues wereconsidered: “So of course taxation; it’s clear in ourinteractions and our understanding of the market that taxmust be on a gross profits basis. This creates a level playingfield; for operators it allows freedom to provide consumerswith greater choice and value without concern about themargin of certain products, but it must also be at asustainable level. Governments need to understand that in acompetitive market, there is a limit to the burden theindustry can sustain. Unfortunately, that is a lesson thatmany are slow to learn. For example, we have seen in theNetherlands that the proposed tax rate is increased from20% to 29% of gross profits, as a reform passed throughParliament. The Head of the regulator has herselfhighlighted the risk that the increased tax rate will makeenforcement more difficult; this is because some of thecosts would have to be passed on to consumers, andconsequently, it will make the black markets more attractiveto them. We saw earlier this week that the GreekGovernment has announced that it intends to increase itstax rate to 35%.

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So there’s also product availability.The regime should enable operatorsto offer the fullest range of gamblingproducts, if it does not, thenplayers will then turn to the blackmarket to provide those products.We’ve seen in France that the lackof a regulated online casino marketmeans, by definition, customersmust seek out the black market toaccess those products.”

Technical requirements are anotherissue, as Mr Morris explained:“These of course should beproportionate and take account ofgood practice. Too often we seejurisdictions reinventing the wheel,or at least cherry-picking technicalrequirements from otherjurisdictions, and this is donewithout sufficient consideration ofwhat they want to achieve andwhat’s possible. But member statesalso need to be realistic about theimplementation of technicalrequirements. This is a currentchallenge for us in Romania, whereour focus is on ensuring thatoperators have sufficient time toimplement the necessary technicalrequirements. Failure to have asensible transition period representsa significant risk to operatorsconsidering entering the market.”

Moving on to marketing, Mr Morrisrecognised the contentious nature ofthe issue. For the most part,gambling advertising is viewed as anegative, despite there being noevidence of harm. Put in context, MrMorris referred to the government-led review last year which gaveadvertising a clean bill of health. Anupdated version of the IndustryAdvertising Code was launched inFebruary this year, which hasstrengthened requirements in anumber of areas, including theremoval of pre-watershedadvertising of sign-up offers for new

customers, and more prominence to‘gamble aware’ and ‘responsiblegambling’ measures. Mr Morrisagain: “It is critical that licensedoperators can distinguishthemselves from the black market;one way is of course for operators toshow on their websites that they arelicensed and where they are licensed,but it’s important that the GamblingLaws permit licensed operators toadvertise and market their productsand that it is also backed by effectingenforcement against those that are not.So although advertising is often seenas a negative, it is crucial tounderpinning any licensing regime bydirecting players to licensed operators.”

“If the regulatory authorities get thiswrong and impose tax and regulatorycosts that are not sustainable, thenoperators seeking a licence will not beable to compete with those whochoose to remain outside. This willundermine the reforms to thedetriment of operators as they won’tbe able to compete with the blackmarket, to governments, as themarket will not function properly andthey will not derive tax revenues orachieve their regulatory objectives,but also for consumers as they willnot experience the protection of theregulatory regime.”

Considering the impact of the FourthAnti-Money Laundering Directive,due to launch in 2017, Mr Morrisexplained how its implementationwill affect all member states,whether they have establishedregulations or are due to developthem. The process calls for eachmember state to develop a nationalrisk assessment, whilst the EC isdeveloping its own supra-nationalrisk assessment. “The challenge forthe remote industry is to educateofficials about the characteristics ofonline gambling, the real nature ofthe money laundering threats andhow we seek to mitigate thosethreats effectively. The danger is, ofcourse, that ill-advised perceptionswill lead to the introduction ofoverly-restricted regulations andearly indications are that we aremaking some progress, for instance,through our direct involvement inthe supra-national risk assessmentand in individual jurisdictions suchas the UK, which has alreadyconcluded, in its nationalassessment, that online gambling is

low-risk,” according to Mr Morris.

Looking now toward the UK, MrMorris sought to highlight some ofthe recent developments there. Asone of the largest, if not the largestregulated online gambling market inthe world, the UK has long been anattractive one for the industry.“Despite that history, tradingconditions have become muchharder since the implementation ofpoint of consumption reforms at theend of 2014. Costs for operatorshave increased dramatically andthere is uncertainty about what themarket will look like in a few years’time. Although the UK remains ahugely competitive market, withover 150 operators obtaininglicenses at the end of 2014, the fullimpact of the reforms is yet to feedthrough fully. Moreover, it seemsunlikely that this maturing marketcan sustain that number ofoperators in the long-term.”

So what lies in store for the UKmarket? Mr Morris painted a mixedpicture: “We have already seensome highly publicised merger andacquisition activity, this is primarilydriven by the new tax burden, butalso reflects the high costsassociated with recruitment and theretention of customers. There willalso undoubtedly be exits from themarket by operators that are lesswell established in the UK, and whohave not been able to get a footholdin the market. So, although commonwisdom suggests that the blackmarket is not currently a problem inthe UK, that risk cannot be ignoredby the UK authorities. Experiencesince implementation tells us thatthe UK market remains attractive tooperators and to players but as I say,the full impact of the reforms is yetto fully feed through. Some of thedevelopments, such as VAT andgaming duty, will also have animpact. Moreover, there continues tobe a conveyor belt of regulatorychanges, each of which increase thecost of compliance and the resourceneeded to ensure that compliance.Some of them also serve to hitprofitability, this is not the place togo into a very detailed explanation,but some of the regulatory changes,for instance changes to rules aboutauto-play, will be important.”

For the most part,gamblingadvertising isviewed as anegative, despitethere being noevidence of harm.

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Other headline issues include self-exclusion, which is verytopical at the moment. Of most relevance is The NationalOnline Self Exclusion Scheme (NOSES). Followingconsiderable work on the NOSES system, which beganback in 2014, the Gambling Commission wrote to operatorsearlier this year explaining that it had in fact concluded thatthe industry is best placed to lead and manage this Schemeand had asked the RGA to now take it forward. It is alsoworth reiterating that participation in a NOSES is a licencecondition for remote operators. As Mr Morris explained,“We have consequently agreed to take this project on,through the RGA, and although we believe we can deliver itat a lower cost than that estimated by the Commission ataround £2m pounds, it will still require significantinvestment. But it’s also important to remember that thispresents an opportunity for the industry to introduce asystem that will significantly add to existing safeguards foronline gambling customers. However, there arefundamental differences between such a scheme beingoperated by a public body, such as the GamblingCommission, and a private sector body, such as the RGA.Although the technical issues are very similar, there are awhole range of issues, such as legal, funding andgovernance that are not. As a result, the first step in theprocess is for us to bring in independent consultants toundertake a thorough scoping study for us. Until that workis completed, we will not be making any decisions aboutthe most appropriate self-exclusion model or what the rightvehicle might be for the long-term ownership of the system.We are also very mindful that the system must beaccessible to all remote licensees, not just RGA members.It follows that we must proactively find ways to keep thewider online gambling community updated about keydevelopments. Non-RGA members are of course verywelcome to contact us for further information, but we arevery hopeful that through the trade press and the GamblingCommission itself, we will be able to reach out periodicallyto every single licensee. This will be critically important asthe timetable and cost structure become clearer.”

Mr Morris moved on to tackle the matter of the horse racebetting levy. In the March budget, the UK Government setout a timetable for reforming the current levy by April 2017,in a way that will require betting operators outside of the UKto contribute to that levy. So operators will incur yet anothercost, and there are concerns about what any radical changewill look like. “We believe there are still major legal hurdlesto overcome, if the Government is to make theseamendments, and make them by the 2017 target date. It’ssafe to say that the Government’s plans are giving usserious cause for concern and we are already involved withexternal consultants who will be advising us on the legaland economic issues. This measure has to be notified onstate aid grounds to the European Commission, we alreadyhave an outstanding legal challenge against the French levyand cannot rule out following a similar course of action inthis instance. However, hopefully that can be avoided. Thenthere’s other tax changes - the Government recentlyannounced its plans to tax free bets on online gamingproducts and to consult on measures which could lead toVAT being applied on gambling advertising. We are workingwith the groups that HMRC is establishing in both of thoseareas to try and head off the worst effects.”

“A quick word too about player analytics: the issue of socialresponsibility in general is, if anything, the key area ofinterest for the UK regulator and the Government. Theindustry is under constant pressure to try out and evaluatenew measures, these are on top of extensive requirementsalready contained within LCCP (License Conditions & Codesof Practice). Later this year, the Responsible Gambling Trust(RGT) will publish its research on identifying markers ofpotentially harmful gambling. Operators have developed andrefined their own systems for flagging such activity overmany years and have shared best practice. But this researchwill be key to most operators benchmarking their systemsagainst this external research. We have established our ownworking group to look at current approaches, and to ensurewe are in the best possible position to benchmark ourapproaches to that research.”

Mr Morris also spoke about anadditional issue of concern for the GC:“In the UK there has been significantfocus on the marketing of freebets andbonuses, in particular the availability ofthe key terms within the advert. As anindustry we have to accept that thereis variable practice in this area, andalthough the situation has improvedthere is still work to be done. TheUKGC has shown in other areas it isprepared to identify publically those(including holder personal licenses) itconsiders to be below par, and that riskremains. Of course, as a responsibleindustry we should be trying to getthese things right ourselves, but oursense is that this is an area where theUKGC is losing patience”.

Mr Morris also noted: “TheCommission is not just interested in

the transparency of marketing offersbut is also concerned that someoperator terms - both marketing andgeneral terms – are unfair. It has beenworking with the Competition andMarkets Authority (CMA), who are thelegal authority in this area. We haveinitiated a dialogue with the GC andthe CMA to try and understandprecisely what their concerns are. As isoften the case, terms have developedover time and have gone through therigours of operators’ legal teams, but itis clear that this is an area that will infuture be under increased scrutiny bythe Commission and other authorities.”

“In conclusion, the title of thepresentation is overcoming regulatorychallenges but I’m afraid there’s nosilver bullet. We have to accept thatmost regulators come to the issue of

online gambling with the best ofintentions but don’t have theexperience or the knowledge, and thatis something the industry has to take aresponsibility for. The world in which weoperate is complex and becoming evenmore complex and challenging, somuch so, that we could reasonably addregulation to the old saying aboutnothing being certain except death andtaxes. People can bemoan it but there’sno avoiding it. As a responsible industry,our response to it should be to acceptthat improvements can always bemade, to welcome those reforms thatrepresent a proportionate response to areal problem and to prevent or improveregulations that are flawed. That canfrequently be easier said than done, butthere really are no alternatives.”

Mr Morris thanked his hosts KPMG and his audience, before inviting questions from the floor.

Q. – Regarding your comment about the VAT question - which I know is being discussed later so please don’t gointo great detail - has something been published yet?

Mr Morris - Unfortunately, I was running short of time and had to rush through that slide so I’ll set out where we are.We are engaged with HMRC and they are going to run a series of workshops with relevant stakeholders includingthe gambling industry in the next month or so. In advance of that, they have circulated what you could call a“discussion paper”, which sets out the rationale for the change and asks questions of the industry. In order to bringforward firm proposals HMRC will need to consult on changes before they could be implemented and it is possible itcould publish a consultation before the summer.

Q. – With regard to the self-exclusion database, why did the Gambling Commission push it back to the industry?

Mr Morris –The Gambling Commission wrote to every licensee explaining that their preferred approach was that theindustry should lead and manage the scheme. What’s clear is that we put an awful lot of effort with the GamblingCommission since 2014 to consider the issues. They, for their own reasons, have decided that it’s not for them torun. I don’t think I can add anything further to what they said in their letter, which is that they think the industry isbest placed to do that.

Q. - Is it because it is too hard to do?

Mr Morris – It is clear that there are additional challenges for the industry to do this, which is not to say it wouldhave been easy for the regulator However, the discussions with the Gambling Commission since 2014 includedconsideration of the technical specification which is probably the more straightforward element. Some of the moreproblematic and challenging issues I mentioned in my presentation are those that we now have to consider as acommercial entity such as governance, and funding. These would perhaps be easier for the Gambling Commissionto address –– for example, it has an existing fees structure and mechanism for collecting fees, and governancearrangements.

In conclusion, it would be a challenge for whoever did this. There are additional challenges for the industry toimplement this but it is worth remembering that participating in a NOSES is a licence condition for remoteoperators. We are committed to looking in detail at what’s possible and when and how we can deliver that.

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Panel SessionForward Thinking: The potentialimpact of Brexit on the gamingindustry and Update on the Reviewof Gambling Regulation in Gibraltar

Moderator: Jon TrickerManaging Director, KPMG Gibraltar

Panellists:

Peter Howitt Ramparts Law

Peter Isola ISOLAS

Sir Peter Caruana, KCMG, QCformer Chief Minister of Gibraltar

Peter Montegriffo, QC Hassans

A topical and stimulating panel session followed on from the coffee break, providing an update on the Review ofGambling Legislation in Gibraltar, and a discussion on the potential impact of a “Brexit” vote. Featuring again a‘live polling’ feature, the session invited delegates to respond to questions via the Bizzabo app on their mobilephones. Jon Tricker Managing Director of KPMG Gibraltar moderated the panel, which consisted of four top gaminglawyers in the jurisdiction – all sharing the first name Peter! After introducing the team, Mr Tricker raised the pollquestions and asked delegates to consider their responses.

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Poll Question 1.

What do you think the regimein Gibraltar could benefit mostfrom?

A. Greater clarity on the regulatory obligations for commercial partners of licensed entities

B. Stronger statutory protections for consumers

C. More detailed guidance on anti-money laundering

D. Bespoke licensing that more clearly distinguishes B2C vs B2B operators

E. Something else

Poll Question 2.

What is the best thing aboutthe current Gibraltar regulatoryregime?

A. Simpler compliance requirements compared to other licensed jurisdictions

B. Greater importance attached to regulation by people rather than by rule books

C. A supportive macro environment (government and regulator attitude to online gaming) for the sector

D. Speed of decision making by the regulator

E. Something else

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The moderator then asked PeterIsola to provide some backgroundfor the paper Gambling Reviewwhich had just been published forconsultation with the industry. It’simportant to remember that the aimof the review is to strengthen andbuild on Gibraltar’s strong licensingand regulatory reputation in thearea of gambling and to modernizevarious aspects of the licensing andenforcement provisions.

Mr Isola outlined the mainmotivations and drivers for theReview: “Obviously over the years,Gibraltar has done very well witheGaming. This is a timely paper aswe’ve not had a review of legislationfor 10 years. Gibraltar has alwaysbeen ahead of the curve: we are apremier jurisdiction and want tokeep going that way. That is reallythe motivation behind the paper; wewant to engage with operators. AsMinister Albert Isola said thismorning, it is very much a first bite;it is important to keep the dialogueopen, to keep coming toGovernment with your ideas. We areaware we haven’t addressed on anumber of soft issues, with regardto economic recovery, and somechanges with licensing, perhaps alicense which only caters for B2C,we need to cater for B2B also. Weneed to look at support services, atlicensing to the perimeter, how bestto keep operating Gibraltarcompanies. We used to have the taxexempt and the qualifyingcompanies which allowed theregulator to have a look and seewhat was coming in and then decidewhether it would need licensing ornot. So I think for all those reasonswe needed to modernise. In termsof regulation, we are very lucky tohave Phill Brear, and I think heneeds greater resources for thegreat work that he does.”

Mr Isola stressed the need for clarityon enforcement of the powers thatthe regulator will have goingforward: “The operators need tounderstand clearly what theirobligations are going to be. Anoperator mentioned to me that interms of segregation of funds, in theUK it is perhaps slightly different towhat we understand here: they cankeep the money within the payment

processing system, so perhaps asegregation won’t quite work. We’llhave to look at that. So we’re veryopen, but we’re lawyers, notoperators, and we very much needyour input.”

Moderator: “Let’s look at our firstpoll results: two main thoughtshere. Firstly, greater clarity onregulatory obligations forcommercial partners, drew thegreatest response, which isinteresting. Secondly, a bespokelicensing regime that more clearlydistinguishes B2C and B2Boperators. In terms of licensing forcommercial partners, PeterMontegriffo, please would you gointo some of the detail on theproposed changes in the paper?”

Mr Montegriffo – “In the generalcontext of licensing our proposalsare straightforward. As some of youmight have seen in the paperdistributed last night, we areproposing to recommend two thingswhen it comes to licensing.Currently, what triggers the need fora licence is whether you have apiece of remote gamblingequipment in Gibraltar. It’s the oldUK definition – and we want to beable to look at that, because, asPeter Isola was suggesting, that’smade it difficult to police theperimeter. When people do thingsthat fall outside the confines of thatdefinition, it can create potentialreputational damage.

Secondly, if I look at your questionon B2B and B2C it is clear thesemodels are regarded as quitedifferent, as are the support servicesthat go beyond them. We felt thatthere was a need to hone in andmake relevant the licensing andregulatory regime for each, andindeed make provision for a thirdcategory of support licenses, whichwould open up the jurisdiction to astructured diversification. I think onedriver for us was our desire to seethe industry diversify. It’s alreadyhappening in reality although thelicensing regime doesn’t reallyaccommodate it. There is a realopportunity for diversification to beundertaken in a more structuredfashion, which provides regulatoryunderpinning. So the ideas we’re

putting out in terms of B2C, B2B andsupport services, address that rangeof issues.

Now, with regard to supportservices in affiliate business, we’rebasically suggesting almost acodification of what is currentpractice. At the moment, theregulator does require a B2Coperator that uses B2B services, tohave a series of approvals. We’relooking towards codifying that orproviding some statutoryunderpinning for it. The detail of thisis not described to any great degreebut the principle is well recognised.There is an interest obviously tomake sure that commercial partnersdealing with operators at least gothrough a minimal level of approvalwith the regulator and his team.

So to sum up, manifestly our currentposition is out of step with the waythe industry has developed. To someextent the proposed regulation isdesigned to help us catch up, but toa larger extent, we want to createthe sort of environment in Gibraltarwhich will provide regulatorysupport to the diversification thatwe think is vital.”

Moderator – “The paper alsomentions enforcement; there aresome proposals to bring in astronger regime. Peter Caruana,please share your thoughts. Is therea threat to Gibraltar in having astronger enforcement regime?”

Sir Peter – It’s not particularly astronger enforcement regime. Iwould rather describe it as a moretransparent and more user friendlyenforcement regime. In this exercisewe are not driven by the view thatsomething is broken and needsfixing. We are driven by the need toensure that in a changing industry,reputation matters; the protection ofour reputation as a territory issignificant. Moreover, the corporatereputations of our operators areincreasingly subjected to testing bycriteria that are themselves changing.It’s important that our regulatoryframework is up to scrutiny and seenby the outside world as placingGibraltar where we’ve been for manyyears: at the forefront of regulation ofthis industry.

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So, it’s not about identifying a needper se. Many of the regulatorychanges that we propose are toassist the industry. For example,how many people know that adecision made today under ourregulatory system, is not appealableit is unilateral and binding and thatis not, in our view, the way forwardfor the future. For many years thepartnership in Gibraltar in thefinancial services sector, and inonline gambling, has been the coreof our success; and that is anexquisite equilibrium between theproper measure of regulation thatenhances and protects ourreputation as a jurisdiction, providesa safe environment for companiesto operate in, whilst at the sametime, allows business to be donesafely and successfully. Ourproposals remain aimed at that.Now the industry has evolved, andmany activities have appeared at theperiphery, in a physical andqualitative sense. On the physicalside, there is activity which raisesquestion marks as to its legitimacy.On the qualitative side, thoseactivities that can be done fromGibraltar without a licence, such asthe marketing of gambling (thelatter being carried out from anotherjurisdiction) which, if it goes wrong,will damage our reputation as much,if not perhaps more, than if one ofour own operators suffered aproblem of that sort. Therefore, acollective effort to protect ourcommon interests in reputationthrough regulation, requires us tomake available to the licensingauthority, which is the Governmentand to the regulator, the powers toprotect the jurisdiction andoperators from a) unfaircompetition, and b) the activities ofpeople who are not presently caughtin a regulatory net, and which canbe dangerous to our reputation.Certainly, the present approach toregulation, as Phill Brear has led on,is an important ingredient of oursuccess, but we can do more.”

Mr Isola added that, under currentlegislation, the power the regulatorhas is what could be termed‘nuclear’, so a license may besuspended or even cancelled. “Whatis really needed is the power to getthe information to work with youand to have gradients of powers,rather than this sort of nuclear

option. I think that could really helpthe industry in that respect.”

Moderator: “Another issue arisingfrom the paper is to do with theneed for additional resources for theGambling Commission. Peter, youmentioned how important PhillBrear has been for the industry, butis there a danger that the GamblingCommission may start to look morelike the Financial ServicesCommission?”

Sir Peter: “Not really. The FinancialServices Commission is a muchmore complicated beast because itregulates so many different kinds ofactivity and needs to be properlyresourced for each. In effect, each ofthem is a separate industry. In theonline gaming industry, we’re not inthat position and therefore, the scaleis necessarily different and smaller.But you know, we’re a very smallregulator. It’s clear that the regulatedcommunity, that ultimately pays forthe regulatory cost, does not favourunnecessary regulatory cost burden.But the regulated communitysupports the Gibraltar Governmentin the importance that it attaches toregulation, because it’s a bigmarketing tool. The sort of regulatorychanges that we are suggestingwould require an increase inresources; but it wouldn’t be verymaterial when spread around theoperators. Indeed, unlike others, thisis an industry in which theGovernment can also support theregulatory cost.”

Moderator: “Turning now toregulation enforcement, there’s theissue of segregation of playerliabilities, and a recommendation toadopt a UK model. Peter Howitt,would you be able to explain that andthe thought processes behind it?”

Mr Howitt: “The recommendation isto go even further than the UKmodel and to improve on it.Returning to the comments made,the point of the review from ourperspective is to ensure that it’s nota radical departure from somethingthat’s working. We’re looking tooptimise the things that do work,and when we looked at some of thekey issues, protection of consumersis a fundamental issue in anyregulatory environment. We alreadyhad operators having to deal withthe UK legislation and the

requirements in terms of advisingcustomers about the safety of theirfunds. Looking at another area ofregulation, eMoney and payments,we realised that the statutorymechanism there could be broughtinto the gaming sector without anysignificant cost to operators, andwhich would give customer liabilitya priority over other creditors. Thereis no obvious reason why theyshouldn’t have a priority and I thinkthe benefits outweigh the burdens.When the UK changes came in, Iwas talking to some UK operatorswho said, if we have to saysomething about protectingcustomer funds, it would be nice tooffer more than just the statutoryminimum. If we could say Gibraltardoes more, but without therenecessarily being a huge cost, thatwould potentially be a competitiveadvantage, or at the very least agood marketing tool. We believethat the change to protectconsumers is fundamentallyimportant. We’re also thinking abouthow, if you do it well and you workwith the industry, you can use it tobenefit you in terms of publicperception. So we’re always tryingto make sure we’re thinking aboutthe perception of Gibraltar as ajurisdiction, as much as thearchitecture that runs it.”

Sir Peter: “I agree. We are acutelyconscious of the need for Gibraltaroperators to remain competitive andnot to be saddled with unnecessaryoperating costs, which could furtherimpact on shrinking margins in thisindustry. There is no comparablejurisdiction that actually protectscustomer funds, despite claims tosuch. Ultimately, protection can onlybe achieved by treating customerwallets as if they were solicitor’sclient’s accounts and the moneysegregated and not forming part ofthe operator’s balance sheet. I am notaware that there is any jurisdictionthat does that. The most that is done(as per the UK model) is a physicalsegregation of funds: you put them ina separate account from yourcompany operating account. Butthere’s no legal separation, so fundscontinue to belong to the company,and there is a debtor/creditorrelationship, as with a bank account,rather than client’s money, as with asolicitor’s client account.

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Nothing in our paper suggests anything different. In fact, weadvised the Government not to impose any legalsegregation of funds. What we did suggest, which would bea novelty in respect of physical separation of funds, is that inthe event of insolvency, customers should have priority ofaccess to the monies in that physically separated account.That provides the high possibility of protection but not theguarantee of legal protection. Now that is a considerableamount greater protection than any other jurisdiction,including the United Kingdom, gives. The Governmentshould consider it, only if they agree with our view (as manydo already) that the cost implications are not huge.”

Moderator: “Before we move onto Brexit, let’s see the pollresults to the second question. It was, what’s the best thingabout the current regulatory regime? Most people pickedanswer C: a supportive macro environment (Governmentand regulatory attitude to online gaming) for the sector.Peter, your thoughts on this please.”

Mr Howitt: “Well that response comes as no surprisebecause, it’s a thing that Gibraltar is very good at. And as ajurisdiction we ought to remember to sell that whenspeaking to people who are considering locating in Europeor coming to Europe. We saw the way the UK went aboutthe changes in point of consumption: rather than trying tolevel the playing field to encourage people to come back tothe UK, they made any serious operator nervous about

whether this was the right macro environment to beinvesting. Business people will obviously be interested inlegal issues, but not that much. What they’re reallyinterested in is, “Is this a safe place for me to have a seriousinvestment that can have a long-term chance of success?”That comes with having a good regulatory and legalenvironment, but more importantly, having an integratedenvironment where the Government supports that industry.Online gaming doesn’t always have friends in the world, it’san industry that’s had to fight for its existence and survival.So having a place where you’re wanted, where we’ll lookafter you, where we’ll think about what you need tosucceed and will be careful about it, so that we don’tdamage the jurisdiction, is absolutely fundamental. It’simportant in financial services too, in fact becoming moreimportant in financial services as we start to see a degreeof fragmentation in Europe, despite some of the Europeanlegislation there.”

Moderator: “Let’s move on to Brexit. There’s a lot of fear onMain Street, not only in terms of the gaming sector but justin general, on the potential impact in Gibraltar. I think firstit’s worth putting some of that fear into context, so, thebookies currently have Brexit clearly in second place, so it’sa 2-1 shot, meaning that it’s felt unlikely. We’ve got a couplemore polling questions. These are a lot simpler.

If I may put the question to you, Peter Montegriffo, will theUK vote to leave the EU on 23rd June?”

Mr Montegriffo laughed: “Well if I knew that of course, Iwould be much more important than I am! And wiser too.Of course, it’s a matter for the British electorate but I notonly hope that the UK votes to stay in, I believe that it will.So what we need to do is navigate the next 8 weeks as bestas possible. To put the whole issue into context: obviously,the impact of a potential Brexit could be considerable, but

the difficulty we have is that a Brexit is not a defined state.A Brexit will depend on a whole number of variables whichare uncertain at the present moment. Precisely what wouldthe UK want to negotiate with Europe? Would it be the UK,or would it be England finding its way in the wider world ifScotland pulls apart? What Europe are we talking about?There are many formulations and different trade bodieswithin Europe. So it’s difficult to do more right now thansimply think in broad terms about the issues that you’d needto address.”

Question 1.

What is your view on themost likely outcome for theBrexit vote?

A. Remain

B. Brexit

C. Undecided

Question 2.

How will you vote?

A. Remain

B. Brexit

C. Undecided

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“In the context of Gibraltar specifically, let’s firstly considerthe amount of business that we all have which is UK facing,and which we think we have a very good chance ofpreserving, because that doesn’t depend on Europeanrights: it depends on a bilateral agreement betweenGibraltar and the UK. This business would be salvageableand is something which we are rightfully entitled to hangonto, so a big part of the Brexit threat may be mitigated.”

“Secondly, of course, there is the whole dot.com generalexpansion of our business. Proper, regulated markets inEurope are important for us but we’re looking towardsdiversifying, and there is a world outside the EuropeanUnion which is also important.”

Thirdly, there are opportunities outside the constraints ofEurope. Europe does come with great benefits but it comeswith great obligations as well. The Minister was absolutelyright when he said that it’s difficult to see how we could havethose same rights without obligations, but there are broaderopportunities out there. Historically, Gibraltar has always donewell to navigate its way through difficulties, even if you go wayback to the time when Spain shut the frontier. In the 1950’sand 1960’s for example, Gibraltar was a great point ofinteraction and trade with Spain. We had thousands ofworkers who came in and out. There was a huge amount oftourism. Our airport was in fact the major conduit into theCosta del Sol. So for us and this industry, even in a worst casescenario, there would be a readjustment, but one that I thinkwe could cope with. It would require some reinvention, andwe’ll think how to go about that, if we find ourselves in thatsituation on 24th June.

Moderator: “So, briefly, do you think it will happen? Do youthink ultimately the vote will be to leave the EU? What’syour personal opinion?”

Mr Montegriffo: “I don’t think the vote will be to leave.Look, we all have friends in the UK, some of you are fromthe UK and you have your own opinion. I find it very hard tobelieve that a sophisticated electorate like the UK willdisregard such a chorus of considered, friendly opinion.There are world leaders, people like President Obama, (withwhom the UK has a special relationship) and manyEuropean countries with whom the UK has close relations,lining up to give advice regarding the economic and socialbenefits of staying in Europe. They are doing so not justbecause it's in their self-interest, but because they havecome to a considered view about what’s best all round(including for Britain).

Now of course, the UK will make up its own mind but I dobelieve that the likely outcome is that there will be a vote tostay. However, the vote to leave might be much bigger thanwe can speculate today: it could be a sizeable minority.From a Gibraltar perspective, I believe that the more that thearguments are set out, the more overwhelming the casebecomes to stay. Not only in economic terms, but also interms of security, and very importantly in terms of thefuture of the European project generally. The other dayMichael Gove set out his case for Brexit. He said it wouldallow the UK to reassert its sovereignty; he also said “and itwill liberalise or will bring liberation to Europe” which wasan extraordinary thing to say. It was as if he was suggestingcontinental Europeans may be encouraged by a Brexit voteand actually rebel against the model themselves.

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Well, if that is what he was reallysuggesting, an implosion of theEuropean model, we all know whathappens to Europe when it starts tobreak apart! We’ve got a long historyof two millennia of wreaking havocin the continent which, by the way,the UK can’t insulate itself from. Sothe European project is not justeconomic: it’s about security andkeeping the peace, and I think as thearguments start to be made, theBritish electorate will understandmore of this. Of course, there’s avisceral reaction in some quartersbut I’m convinced that you can trustthe good sense of the electorate toget it right.”

Moderator: “Let’s have a look at ourpoll question and result. Does theaudience share the view that thevote will be to remain within the EU?Wow! I think that’s quite decisive,83% think we will be in the EU in justover a couple of months’ time.

And the next question was, how willyou vote? Ok, so even more wouldvote to remain, 87%. Of coursethere’s a Gibraltar angle to this and Ithink we all feel very closely towardsGibraltar. Very interesting! Ok, solet’s assume that Brexit happens,Peter Isola, what would be theimmediate impact?”

Mr Isola: “I find it very difficult tostart on the premise of Brexit willhappen as I firmly believe it won’t.However, if it did happen, operatorsrely on the freedom of services, soone would be looking at whatarrangement we might have after oron that occurrence. There will beplenty of time to look at that if itwere to happen. If you look at theUK, the media is full of it: you've gotthe charismatic Boris Johnson onthe campaign trail, it’s easy to makeheadlines to suggest Brexit is great,and Peter referred earlier to MichaelGove and his philosophy. At the endof the day, when you look at thereports coming out, such as the UKTreasury Report, the PwC Report, theLSE Report which said we constantlyfind that by reducing trade, Brexitwould lower living standards. Thepound is going to be affected, it'sgoing to affect people’s money intheir pocket - I just cannot see ithappening in any shape or form.

Only yesterday in The Times was aheadline “unemployment rise fuels

fears of Brexit slowdown”. In thecontext that Brexit did occur, and itwill obviously depend very much onwhat the UK negotiates, and to whatextent we can piggyback on the backof the UK. Obviously, that wouldraise issues as to whether we are apart of the economic area EFTA andall the rest of it. Spain would bedifficult in allowing us to piggybackin that way, but operators would belooking and seeing how freedom ofservice would be affected. Obviouslythe frontier flow would be affected,as something like 60% of gamingemployees live in Spain, so it’s acrucial factor. One would hope thatSpain, if there was a Brexit, wouldthink “ok, this is a question of time”and that there would be a reasonableflow at the frontier. We have to facereality and these would be theproblems that would arise.Underpinning that view, is that I don’tthink Brexit will happen, but I’llhappily be shot down, and obviously,as you mentioned, I wouldn’t betagainst the bookies.”

Moderator: But, if the vote is to leaveon the 23rd June, what are themechanics for Gibraltar? Does itmean that from 24th June we have animmediate change to the status quo?

Sir Peter: No. Under the treaty thereis a 2-year period for the UK tonegotiate its Brexit agreement. Thatperiod can be extended, albeit itwould require unanimity amongstmember states to do so, but there’sno reason to suppose unanimity onthat question would not beavailable. As Peter Isola has said, interms of the outcome as it affectsGibraltar, much depends on whatthe UK is able to achieve. I think thatthere is an excessive amount ofoptimism in the UK, but for us, itdepends on what we’re allowed topiggyback on (just to borrow hisphrase) and the extent to which weget the benefit of the same exitagreement as the UK. I share theview of the audience: I don’t thinkBrexit is going to happen, nor willthe margin even be close. If it doeshappen, the consequences toGibraltar will be economic, butmainly political. I share theGovernment's view that they are notlife threatening consequences, butall change involves disruption anduncertainty, which leads toinsecurity and to postpone business

decisions, and things of that sort.Specifically, for this industry, aBrexit would take Gibraltar back astep. The gambling industryeverywhere has changed a lot:technological change, cheaperplaces to operate out of in terms ofmanpower, that has lead companiesto take activities away from Gibraltarand place them in other cheaperjurisdictions, but without severingtheir connection with Gibraltar. Ifthere were Brexit, the consequencesfor the online gaming industry willnot, in my view, be an exodus, it willnot cause online gaming companiesto seriously doubt whether Gibraltaris a place that they should remain orperhaps even establish in. It maylead to a reconfiguration of the sortof activities that you wouldn't nowchoose to do in Gibraltar and mighttake elsewhere, and a newcomermight never establish in Gibraltar,but that’s fine. Because in Gib, oneof our big advantages is that theGovernment is accommodative, thatwe’re nimble, that we’re agile, we’reable to reposition, to repositionourselves in terms of what we canbe useful to for the industry.

I think other industries will facegreater challenges than the onlinegaming industry. The politicaldimension is a different one, whichwill affect mostly lifestyle issues. Soit's very important to go out to voteso that the majority in Gibraltar for‘Brexin’ or ‘Bremain’ is as big aspossible because to stay in Europesuits us, certainly politically, andeconomically it will just avoiddisruption and the need to repositionand re-jig and reconfigure.”

Moderator: So, if I’m clear, as anoperator, if I have a period of at leasttwo years after the vote, I’m best towait and see what happens?

Sir Peter:Well yes, and perhaps animplementation transition period,after the agreement, and then a lotlonger than two years.

Moderator - Even considering that,which indicates that there’s noimmediate threat, Peter, are thereother reasons, even assuming thatthere’s a Brexit, at some point downthe line, are there reasons to feeloptimistic about the industry inGibraltar and how it might look?

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Mr Howitt – Well, it would be an easier question to answerif we didn’t have the issue with Spain, which is alwaysthere. You know, the UK doesn't have that so when it thinksabout Brexit, it’s thinking in very different terms. Butbecause we rely on cross-border workers so much,fundamentally, the impact on Gibraltar would depend on towhat extent would the ability to have movement of workersinto the airport and across the border, still apply? We’ve gota period of 2 years’ minimum where we will have the samerights, if there is an exit, and there’s so much uncertaintyabout what would happen in that period, it’s very difficult tosay. There's room for optimism in terms of the fact that theindustry has already pivoted away in some cases fromcontinental Europe and looked more at Africa, Asia andSouth America because of commercial reasons. They’vebeen looking in financial services and gaming. We’ve seenwith compression of margins that operators are alwayslooking elsewhere where there are new opportunities andnew growth markets. The loss potential of the ability to havefreedom of services argument or a passport, aren'tnecessarily that troubling when you look at a business thathas a global outlook. And sometimes, as you know, thegaming operators here already have a local license in otherEuropean member states, despite being in the EU. So there

are lots of things where I think it wouldn’t actually be such abig shock to the industry. The question to the UK electorateis, do you want to leave the EU, but what we don’t know is,what will you join if you leave the EU? That’s really thequestion, and when we know the answer to that, then Ithink we’ll have more confidence in our ability to understandthe impact on Gibraltar.”

Sir Peter Caruana added a final point about the issue of freemovement for workers: “We mustn’t rush to assume thatBrexit equals problems at the border. Spain has reputationalissues to consider too in a modern Europe. There will beplenty of time to work things out, they will not becomemore stringent at the border straightaway, and may not doso at all, even if that is what is feared. They certainly will notclose it.”

Moderator: “The best thing we can do then, is to makesure that we vote to remain and as far as possible, thoseoperators in Gibraltar, to make sure their employees vote forremain, so that we give a resounding YES that reflects whatpeople say and that they will go out and vote in force. Thenwe won’t have to worry about Brexit. Thank you to my panel,and to you, for listening.”

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Mr Beaver opened the presentationwith a few words on big data: “We’dlike to bring to life some of theproblems we’re helping organisationswith and some of the challenges you'refacing, around how to turn data intocommercial opportunity. Frankly, I’m abit bored at the concept of big data;everybody’s talking about it. You can’tget through an airport, a train station oropen a newspaper without seeingsomething about big data. Theunfortunate truth is that big data clichésare kind of true. For example, this slide,showing the Google 24-hr economy,demonstrates the huge volume of datathat's being created every day.”

“Now, to give you another statistic, inthe last year alone, we have createdglobally, more data than we have in theentire history of mankind. With theadvent of machine to machine, growthof the internet, and more of you

posting, accessing and engagingonline through mobile devices, thatnumber is going to drastically increase.Why is that? Well, it’s because everyday that you wake up, you create whatwe call a vapour trail of data and ofinformation. The challenge oforganisations now is to think, how canwe harness, understand and capturethis vapour trail in order to understandmore about you, the customer: howyou behave, what your motivation is?The answer can be reached via theright analytics approach, which canconvert that data into informationabout that customer.”

Mr Beaver moved on to highlight thesales process of a major airline, andthe use of data analytics in refining thisprocess. “The basic need here is you,the customer, wanting to travel frompoint A to point B. You get on a plane inLondon and want to travel to Madrid.

So you’re travelling along, that’s greatand they can price your ticketaccording to the volume of seats onthe plane. But actually, if the airline canbegin to understand why you’re goingto Madrid, what’s your journey throughLondon to the airport, what you do onyour flight to Madrid, what you’re goingto be doing in Madrid, what activitiesare you going there for - for a sportingevent, concert, or conference - thenthey can begin to think differently abouthow they price to you, and they can bemore dynamic around their pricing andabout their cross-sell and their up-sellopportunities. If for example, theyunderstand you're going to Madrid for aconference, where the conference isand what hotels are within that area,therefore, they can think about whatthey cross sell to you in terms ofadditional products and services, notjust in line with your ticket.”

An engaging talk demonstrating how Data Analytics elicits commercial value was held in the main room. Two experts inthe field, Paul Henninger and Nathan Beaver of KPMG UK, presented the session with slides. They paid particular focusto the strategic use of data analytics to maximise the value of free play for gaming operators, which is very topical inlight of the UK Chancellor’s recent proposals. The concept of Big Data has been around for some time, but theapplication of analytics is relatively new; certainly with current technologies the speed and efficiency of BDA bringsfresh benefits to individual companies. As more industries conduct market research, BDA is rated a valuable tool, able toexamine large amounts of data to uncover hidden patterns, correlations and other insights about customer behaviour. Itis especially useful in online gambling as the customer’s entire behaviour pattern is online and traceable. Data compiledfrom this, together with external factors, will compose a keenly accurate picture of said customer, and can be used topredict future play & spend patterns.

Paul Henninger and Nathan Beaver, KPMG UK

PresentationTurning Data Analyticsto Commercial Value

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“The whole premise now behind thiscliché of big data is how can you beginto understand the motivation andbehaviours of your customers byutilising information that exists outsideof your organisation.”

As an industry and as a sector, eGamingis one of the richest in terms ofcapturing data about customers,probably second only to financialservices. “You know who yourcustomers are, where they live, youknow when they play, where they playand how they play, you understand whatthey play and you understand,

fundamentally, your P&L around thatcustomer. But that is an inside-out viewof your customer,” explained Mr Beaver.

“The challenge for the industry,” hecontinued, “and this is a cross-sectorchallenge as well, is how can youmarry that information with a vastquantity of data that also sits outsideof the organisation, and pull those twodata sets together in order to be ableto better understand and drive abusiness outcome. The problem withbig data, is it’s a bit like working in a labat a bench and doing tests andexperiments. You could sit there fordays, months, years doing tests andexperiments but you’re fundamentallyin a lab: you need a hypothesis to hangit off. It’s the same principle in data,you need a business outcome that youcan hang your approach analysis off. Soin the industry, this could be how youwant to increase wallet share, or howyou can more effectively offer andpromote to your customers, and howyou can better understand theirspending patterns. So by marrying thisexternal and internal data, you canforecast customer spend, and begin tounderstand what the right reactivationfor a customer may be.”

To put it into context, Mr Beaver gavean example of a gaming customer who

is ‘fading’ in the sense that their onlineactivity has dipped. “So, the customeris beginning to fade from your site, andyou think, I’ll throw them a £10 bet, afree £50 bet or some kind of offer, andyou’ll offer that to everybody. But thefact is that we all react differently to adifferent kind of incentive andpromotion, and so what you need todo, is to understand the behaviouralcohorts of your customers. So if youwant to re-engage and reactivatecustomer A, actually A would reallybenefit from a personalised telephonecall. If you want to reactivate customerB, it could be a special offer around abet on their favourite football team, forexample. It’s understanding anindividual’s behaviour to the pointwhere you know which is the righttrigger to pull, in order to generate theright business outcome that you’retrying to achieve.”

In a different context, Mr Henningermoved on to show how others outsideof the gambling sector have taken therecipe and the same approach toaddress some of the challenges thatthey’ve been facing.

Mr Henninger: “The challengepresented to gaming institutions bychanges to the UK tax law, which mayor may not come in the wake of Brexit,

“The challengepresented to gaminginstitutions bychanges to the UKtax law, which mayor may not come inthe wake of Brexit,will be somethingthat affects us all.”

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will be something that affects us all. Atthe moment we don’t know whetherthat will be less of a problem or more ofa problem! What we do know is thatthe Finance Bill (published March 2016)intends to tax free play moreaggressively. That presents a problem:on the one hand, we’re going to have topay more money for offers that wepresent to clients and the free play thatresults from it, and we’ll try to minimisethat. That is a reasonable approach. Buton the other hand, this gives us anopportunity to figure out how we canoptimise the results of that. The pointthat Nathan was making, when youpresent that offer to someone, is howto do it in a way that’s most likely toresult in an economic and entertainingoutcome that results in them playingmore. In that sense, analytics is bestused not to try to answer everyquestion under the sun, but whenthese types of opportunities arecreated, where you’ve got change inthe scarcity on some of our resources,i.e. all of a sudden it’s more expensiveto make offers. So it’s about seizing anopportunity to better target people, andto achieve the ideal outcome. And, in acouple of cases, where you’ve spentless money, and essentially achievedbetter results.”

Mr Henninger moved on to illustrate therelevance of this with examples whereKPMG have successfully applied dataanalytics in other industries:

“We’ve worked with a couple ofclients to try to understand thatprinciple. If you consider the retailindustry for example, we focussed onwhy people are interested in eatingsandwiches. The answer to that issimple - you eat a sandwich becauseyou’re hungry, but what motivates you,what is the journey by which you cometo walk into a restaurant or coffeeshop, and select a particular item toeat, is complicated. So, in this case,we worked with a large food retailerwho had expanded globally. [slide no.30] The problem that neededaddressing was that they no longerhad confidence in the parameters ofthe model they’d been using: openingup a store on a corner is better, lots ofpeople walking by is good, 2-for-1offers were good, but their successrate was uneven. The client was eitherfar more successful in locations wherethey opened, or far less successful,and it was unclear why there was sucha differential. Way less successfulbecause he’d created a wastageproblem, way more successfulbecause he wasn't taking advantage of

the opportunity that was presented bypeople who were interested inpurchasing food and beverages at thatlocation. So what we did was definethe problem differently. We looked atwhat people bought and what peopleconsumed, but also at all the dataavailable, as Nathan said, from thesevapour trails which point to how acustomer arrives at their purchase.Where do they live? Where do theywork? How long does it take for themto get there? What are people like whodo that there? What type of economicsituation are they in? What are theirfeelings about education, opinionsabout Brexit, etc.? From the hundredsof different sources of browsinginformation, including crime stats, youcan form a picture. It’s not aboutmaking assumptions; it’s more aboutdefining the customer, based on dataanalysis. Who are these people whocome into our stores? How can weunderstand why they’re buying asandwich or a pot of fruit or a soup or asalad? Or why are they walking out? Isit because things are too busy?Essentially, what we did here was findanswers to those questions. Our dataanalytics enabled us to understand thatnext week on Tuesday, at 10 o'clock inthe morning, in Leeds, on a particularstreet, what’s likely to happen is,

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Mr Smith will walk in, buy a coffee and an egg saladsandwich, and an apple. But – and this we know from thevapour trail – he has a loyalty card, and he likes cake, so onTuesdays, we’re promoting cake, to LC customers, near thetills, and, hey presto! Mr Smith adds a cake to hispurchase.”

“Essentially, if we can get that right enough, what’s ‘likely tohappen’, can become a ‘what will happen’. So you, as aclient, will know with a greater degree of accuracy, howmany sandwiches people will buy, how many pots of fruitand coffees etc. That becomes incredibly valuableinformation in terms of determining whether you want toopen a store here, or there, what you do about it, how manysandwiches do you need? Also, which offers are best? Howdo I get people to buy more stuff? What’s going to make adifference, or what’s a waste of time?”

Convenience and proximity play a big role too in decisionmaking, whether you are buying a sandwich or placing a bet.Mr Henninger again, “If your office is located in the businessquarter, are you likely to buy your lunch there? Or go furtherafield? Or, if you come out of a public transportation point,how far away is the closest restaurant, what other

restaurants are in your sightline, and all of that informationwe’ve scaled down to data that we can use to build into amodel. In the context of gaming, from a physical point ofview, you’ve got stores, so that same information exists. Ofcourse you can just pull your phone out of your pocket – thattoo is convenient. But on a sunny day, with the Everton gamecoming up, why not take the 5-minute stroll to the bettingshop, just along from the office? It’s understanding whatmotivates your customer, when, and why.”

Mr Henninger put the customer in context. “Currently,you’ve got a fragmented view of the customer from howthey interact with you, via technology. Essentially, you'retrying to put Humpty Dumpty back together again, as youbring together information into a single customer view. Thatis a worthwhile effort, but you wind up with a view of thecustomer which is fundamentally one dimensional. All youknow is everything there is to know about how they a)interact with you specifically (not your competitors), and b)consume the service that you’re offering them. You don’tknow why they got there, do they have children, do theydrive to work, do they take the train, did they go on holiday,where did they go on holiday, what did they do whilst theywere there and so on. All sorts of information can begathered and computed so when someone clicks onto yoursite, you’re well informed as to what got them there andwhat they are therefore likely to be interested in. It’s astatistically solvable problem.”

Mr Henninger explained that it’s not only a solvable problemin terms of the retail sector but also in other areas, such aslending, by using a similar approach to figure out who’screditworthy. Colossal amounts of back data exist onpeople, on their likelihood of paying back a loan, derivedfrom credit histories. “It’s interesting because banks havetended not to look at the external factors which drive their

customers; historically they’ve tended to see them as quitelinear: spenders or savers, risk-takers or non-movers. Whena more holistic approach is adopted, via a whole host ofquestions and data analytics, a bank manager will discoverwhat really motivates his client to spend, or save or invest.The bank is better placed to understand who’s likely to needa loan, pay back a loan, or even be interested in having aloan. Developing a rich picture of customer behaviour can beincredibly useful to corporations. In this particular case, wewere able to improve the accuracy of the model that folksare using by 17%, which is not a huge number, but is amassive increase in their ability to address a credit marketand frankly, simply, to understand the customer.”

So the question really is, how can we apply this to gaming?The answer is not simple, but it is relatively straightforward.Mr Henninger again, “As Nathan suggested, a huge amountof information about how people game is available. What arethe historical spikes in their behaviour? How do theycompare to other people in their cohort? The important thingto put into context is customer behaviour, in terms of howthey’re using your services, and to provide that broader datacontext to understand who is likely to behave in what way,

and why. Once we do that, there are interesting things thatwe can do in terms of wallet share. Are they spending asmuch money as you would expect them to spend, givenwhat you know about them? Are they headed in a negativedirection and is that salvageable? Can offers be used tobump them in the right direction, or would it be a waste oftime? And all of that information, on some level, goes backto replicating a personal relationship with the customerwhich helps you serve them in a better way. So you canprovide them with what they want to derive from yourservice, but also, economically optimise what you’re tryingto do, from a growth and cost point of view.”

Mr Beaver concluded the session: “Basically the recipe issimple but complex. It’s simple in that it's all around how youcombine external data and internal data, to understand thecustomer behaviour that led them to a decision. It’s complexbecause what you’re then trying to do is understand all ofthat data, its relative strength and its correlation amongstitself, and you’re trying to then use that to drive a decision.So, analytics tell you the best way to push a deal, and thecustomer's likelihood of visiting, returning to, or exiting fromyour site, but the challenge then for the organisation is howyou execute upon it. Really it’s not just the data analyticstelling you what to do, it’s the organisation pulling the leverand actually delivering the change. A final point to make is theone that Paul made earlier around the challenge of free playtax that’s come in. For us, we see that as an opportunity.Everyone will be doing the right thing working out what theirtax strategy is, but it also presents an opportunity to thinkdifferently about how to optimise marketing and promotionspend. It’s a chance to work out the right product, and theright promotion for the right customer at the right time, inorder to maximise the benefits of that spend and generateyou the greatest return.”

“All sorts of information can be gathered and computed so whensomeone clicks onto your site, you’re well informed as to whatgot them there and what they are therefore likely to be interestedin. It’s a statistically solvable problem.”

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Presentation: Happy and Unhappy Gamblers

A fascinating look at the impact of gambling on customer wellbeing was provided by Professor David Forrest,Economics professor at Liverpool University. Based on a Prevalence Survey carried out by the British GamblingCommission in 2010, Professor Forrest analysed the results of over 8,000 British adult respondents. A baselinemodel was constructed and used to assess contributors to wellbeing. The information gathered revealed muchabout gambling participation & behaviours, and the survey screened - discreetly - for problem gambling, usingspecific tools (PGSI and DSM-IV). At Professor Forrest’s instigation, the survey also asked the “happiness”question, which is unusual for surveys in the gambling industry. Perhaps the most surprising result, however, wasnot that problem gamblers tend to be unhappy, but that the majority of gamblers are, in fact, happy.

Professor David ForrestEconomics Professor, University of Liverpool

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“Taking all things together, on a scale of 1-10, how happy wouldyou say you are these days?” – the Happiness Question

Professor Forrest began his presentation by alluding tothe idea of ‘happiness’ as it appears in surveys across theglobe, for anything from retail market research to NASAspace programs. Indeed, in 2011 a UN resolution invitedmember states to collect ‘happiness’ data and use thedata to inform public policy. Governments now routinelyinclude a question regarding happiness in nationalcensus polls. But its application to the business ofgambling and its inclusion in surveys taken by gamblershas thus far been absent. So the findings by ProfessorForrest can be seen as providing fresh insight into themotivations of gamblers, and the link between theirgambling behavior and their level of wellbeing .

It is clear that data collected from the respondents wascredible, explained Professor Forrest, as the use of a

statistical model “reveals intuitively plausible patterns inanswers that are stable over time and space”. Referring tofactors such as marriage and good health, which tend toincrease happiness, Professor Forrest pointed to the factthat a “predicted happiness score” is based on severalkey indicators. Depending on how consistently &logically the respondent scores, the survey will assesswhether a person’s answers are considered andresponsible, and therefore can be taken with confidence.“Moreover, psychologists’ validation studies find highcorrelation between individuals’ happiness scores andother indicators of mental wellbeing (e.g. how often thesubject smiles) and other people’s assessment of thesubject’s state of mind: happiness score is “a usefulmeasure of wellbeing”.”

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The large numbers of people required to take part in suchsurveys are necessary to build an accurate picture ofgambling behaviours and assess a ‘happiness’ quotient.Fortunately, the BGC tends to conduct large-scale surveys:this one held 7,500 respondents. As Professor Forrestexplained, “I willshow you from theBGPS (BritishGambling PrevalenceSurvey) data how thepattern of wellbeinglooks, linked togambling behaviour.The legitimacy of agambling industrydepends on itsconduct taking intoaccount thepropensity of some ofits customers tobehave in a self-harming way. But italso depends on thebelief that gamblingdoes some good forthe majority ofcustomers, perhapseven raising theirquality of life. We therefore need to consider the wellbeingof problem gamblers, of ‘safe’ gamblers, and perhaps alsoof those in-between (at-risk gamblers).”

If you consider firstly problem gamblers, in fact the BGPSsurvey screens showed this to be only 0.7 – 0.9% of thegeneral population. Given that in Great Britain the gamblingcommunity comprises around 11 million adults, that appearsto be a low percentage. Actually, according to the BGPS,

73% of the Britishpublic will admit togambling of somesort; this includesthose who may buyone lottery ticket oncea year. The populationof Great Britain todaystands at just over 64million, so put intocontext, of thegambling community,only 0.04% are notedas “problemgamblers”. There havebeen identified afurther 3.5 millionregular or frequentgamblers who areseen as “at risk”,making up 7% of thegeneral population.But to return to the

biggest concern, just under 1% of the general populationare problem gamblers: in reality this is 448,000 people whohave an actual addiction that can affect health & wellbeing.

Professor Forrest explained the results of the happinessquestion as applied to the BGPS: “The majority ofpeople appear to be happy. About 70% of peopleanswer 8, 9 10 on a 10-point scale. In fact, if we takeanswers 1-6, that amounts to pretty well exactly 15% ofpeople who answer 1-6. The other 85 answer 7-10. Somost people report themselves as pretty happy orindeed extremely happy at level 10 and this is trueeverywhere, for the most part. Now I’ll put up the chartfor the sub-set of respondents who were diagnosed asproblem gamblers and you will see it looks verydifferent from the people in the survey who were notproblem gamblers and very different from the charts forall the happiness surveys that you ever see. This chartshows still that there are significant numbers of peopleanswering 8, 9 or 10, but more interesting, now, is thatthere are many people who are reporting themselves tobe in what I call well-being poverty. What I call well-being poverty is thinking your life is so bad, you answerbetween 1 and 6. So 15% of the general populationanswer between 1 and 6, but 47% of problem gamblersanswer between 1 and 6. So this first sign is thatproblem gamblers are, unfortunately, exceptionallyunhappy people. You might think that you’re gettingaway with the maths because the charts show all of it. Infact, we need statistical modelling because it might bethat the problem gamblers fall disproportionately intodemographic groups who are known to be unusuallyunhappy compared with the general population. Forexample, always and everywhere, young people are lesshappy than old people. Always and everywhere in thesesurveys, ethnic minorities in the particular country arepretty unhappy and also, on the whole, men tend to beless happy than women. So problem gambler profiles,very often problem gamblers fall into these categories ofyoung, male ethnic minority, so they might not beunhappy because they are problem gamblers, they may

be unhappy because they are in the demographic groupswhich tend to be unhappy anyway compared with therest of the population. So you need a statistical model tocontrol for all the different and demographic and lifecircumstances so you can isolate the impact of being, say,a problem gambler.”

Professor Forrest went on to explain how to construct astatistical model to cope with all the variables: “Thestandard methodology is first you construct a statisticalmodel to predict happiness. You try to get themathematical equation that will best fit the data in termsof predictive power. In that equation, you use things thatare found everywhere to matter to people. Definitely you

need to include demographic variables, such as thefamily structure in which the person lives, their state ofhealth, their job status (retired/employed/unemployed),and their level of income, because all these things aregoing to have a significant influence on people’swellbeing. So you build a baseline model to get it tobest fit the data and then you add your special interestvariables, which in our case, are variables describing thegambling behaviour of individuals as they reported it inthe BGPS. These are standard variables which affectpeople’s happiness and I call them life circumstances.”

The principle exploratory in the baseline model are:ethnicity, age, education level, marital status, presenceof children, household income, labour force status,alcohol use, smoking status. The model was based oninformation collected from respondents in the BGPS, topredict an individual’s response to the happinessquestion, on the basis of these variables. Luckily, theprevalence survey collected information on all thesethings and the results of the baseline model werecompletely uncontroversial. They revealed that thepeople answering the BGPS are just like everyone elsein terms of what matters to them.

Professor Forrest again, “It would be fun to look at howthese things impact on happiness, but we’ve not quitegot enough time today. We would be able to find, forexample, that having a partner rather than living alone,bumps up your predicted happiness score by 0.7 points,and that’s a lot, because remember, most people answerjust in the range 8-10, so 0.7 is a big shift in terms ofwhat the model predicts.”

“We could talk about the impact of children. One of thefew insignificant variables was the presence ofchildren in the household. In the male equation, that’sinsignificant – men seem blissfully indifferent to thepresence of children. In the female model, there was astatistically significant negative sign indicating thatwomen, in households with children, were less happythan women in households who have no children. Thisperhaps reflects the fact that an undue part ofchildcare falls on women and as a result, notchesdown their happiness.”

“I put in alcohol use and smoking status because theseare two consumptions which perhaps capture things likewillingness to take risk, which might also becharacteristic of gamblers, so it’s a way of trying tostandardise for personality type, but in fact thosevariables didn’t do much. The only thing either of themdid was, amongst women, heavy drinking wasassociated with depressed happiness score, butotherwise, smoking and alcohol information didn’t addanything to the model.

After building the baseline model, the next thing I didwas to add gambling variables and I actually have twosets of results but I’m just going to present one. Eachset of results corresponds to information based on oneof the problem gambling screens. I’m going to show youthe modelling where the gambling variables were asrevealed by the PGSI screen.”

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“We would be able to find, forexample, that having a partnerrather than living alone, bumpsup your predicted happinessscore by 0.7 points...”

“Now here are the gambling variableswe added. The problem gamblingseverity index asks people a number ofquestions which are intended to revealeither psychological symptoms ofaddiction or harm resulting fromgambling. For example, addiction iscaptured by when you lose, so do youhave to go back to try to win whatyou’ve lost, and is harm is representedby questions like “have you ever lost arelationship because of gambling”? Themajority of people who gamble, answer“no” to everything and get a zeroscore: 90% of gamblers answer zero.

You then, progressively, as youendorse more andmore items, you getclassified as low risk,moderate risk or afull-blown problemgambler, for whichyou need a score of 8or more. Now these 4variables are addedonto that great longequation with income,children and smokingstatus and everythingelse. These are addedto the equation andthe model is re-estimated again.These 4 categoriesare all people whogamble and theadjustment you needto make from theequation here is theadjustment I make: if the person is amoderate risk gambler relative to notbeing a gambler at all, not being agambler at all is the reference categoryand then the equation says whatadjustment in happiness score youpredict if you’re told that the individualis in one of these types of gamblerinstead of being a non-gambler.

As it’s a long equation I’m just going totake one item out and explain that. Thefirst item I’m going to look at is thevariable called no risk gambler. Thistells us how much adjustment wemake to a predicted happiness score ifyou are holding all those lifetimecircumstances constant, but then youmake the person a “no risk gambler”instead of a “non-gambler”, and in themale equation, for no risk gamblercompared with non-gambler, we haveto raise the predicted happiness by0.157 points and the fact that there’s 3

stars, that’s a measure of howstatistically significant it is. Three starsmeans extremely statisticallysignificant. We can be very confidentin this result that no risk gamblers, thatis people who gamble safely, arehappier on average than non-gamblers,taking into account all those lifecircumstances that are in the model.

When we confined it to white males,the result was much stronger. This isquite a modest increase in happinessbut it gets bumped up significantly ifwe just look at whites, perhapsreflecting that amongst white Britishmales, gambling is a more accepted

part of the culture, fewer feelings ofguilt and so on.

Amongst women, there are no starsnext to that number 0.026 and thismeans that it’s not all statisticallysignificant. We’ve got no firm evidencethat being a safe gambler makes anydifference to women compared withbeing a non-gambler.

A little footnote to that is when we putin a separate variable for “plays bingo”,as playing bingo did have a significanteffect positive on women’s wellbeing.However, this bingo related variableapplied only to land venues.

So what we’ve got here is that men onthe whole, if they’re gamblers and themajority are safe gamblers, are acheerier lot than people in similar lifecircumstances who don’t bother withgambling at all. Now this isn’tnecessarily causation because it may

be not that being a safe gambler issuch fun that it makes you happier, itmight be that happy types are thepeople who go out and gamble. Risktakers, happy-go-lucky etc. We don’tknow. We don’t know the causationbut we cannot rule out that gambling,if done responsibly, appears to offermany things that psychologists identifyin that minority part of psychologycalled positive psychology, whichdoesn’t look at disorders but whatmakes people pleased, this part ofpsychology says that havingexcitement, having an escape, going toan environment which is sociable,feeling that you’re gaining control

over something youdo rather than beingunder someoneelse’s orders, allthese things inpositive psychologyare supposed to begood for your mentalhealth. So maybe it’spossible that thecausation doesindeed run from safegambling to greaterhappiness.

(I see someone hastaken a picture ofthis! It’s becausethis is very goodnews for theindustry that thelarge majority of itscustomers are

happier than those miserable fewwho don’t gamble.)

The bad news follows the good.Now I focus on problem gamblers,which is another term in this greatbig long equation.

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“We can be veryconfident in thisresult that no riskgamblers, that ispeople who gamblesafely, are happieron average thannon-gamblers,...”

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Here, the news is absolutely disastrous because if we lookat the male column, if you’re a problem gambler comparedto the reference groupof non-gamblers, wehave to lower yourpredicted happinessscore by almost 1.2points on the 10-pointscale. That is anenormous shift. That’sthe sort of shift yousee normally onlyamongst, say, cancerpatients. Remember,most people areanswering in therange 8, 9, 10, so inthe population, half apoint is a bigmovement and this ismore than a point. Weget a lesser change ifwe change the healthvariable from averageto very bad. Maleproblem gamblers are extremely unhappy people. It’s notexplained away by their life circumstances because the restof the model accounts for demography, ethnic status,income etc. This is the bad news. The industry often saysproblem gambling, well it’s not many people, and maybe it’strue it’s not many people, but those people are sufferingwithin the population and within the study of otherdisorders, an exceptionally depressed level of wellbeing.Now that’s the males.

The females produce about the same result. The loss of 1point on the happiness scale if a problem gambler. There’sonly 1 star because it’s not quite as statistically significantas the male result, but that’s mainly because there are fewfemale problem gamblers to study, so your degree ofconfidence reduceswhen you don’t havemany cases to study,but it’s still statisticallysignificant atconventional levels.So the news from thisslide for problemgamblers, is thatwellbeing goes downby at least a point onthe 10-point scale,which is a severeeffect.

Now, again, this is notevidence of causation.Problem gamblers arelikely to have multipledisorders. It may betheir general mentalmakeup which leadsthem into problemgambling but it wouldlead them into being unhappy people anyway. If problemgambling is a symptom of unhappiness rather than thecause, that could well be, there’s no ability of this model toidentify causation. On the other hand, there’s still a big

lesson here for public policy and for the industry, it’s that, asa group, problem gamblers suffer exceptionally low

wellbeing: they are avery vulnerable group.In the online survey,according to theprevalence survey,they comprise 15% ofcustomers andtherefore there is avery strong duty ofcare in my view tomake sure that theproblems of theseproblem gamblers arenot made worse bythe practices of theindustry, which is whythere is such a widewelcome for the factthat many parts of theindustry appear nowto be addressingresponsible gamblingissues more seriously.

Now what about the group in between. We’ve dealt withthe quite happy, safe gamblers and we’ve dealt with thereally badly off problem gamblers, but what about thosepeople who do endorse some of the items on the screen,but not enough to be classified as a problem gambler. Theseare variously called “low risk” gamblers and “moderaterisk” gamblers. Now this is possibly the most surprisingresult in the study. It’s that especially for women, evenendorsement of some items on the problem gamblingscreen, is sufficient for us to sharply downgrade thepredicted happiness score of the subject. That is, it’s not justproblem gamblers who suffer depressed wellbeing, it’s alsothose who are close to being problem gamblers. Now thisis, if anything, even worse news for the industry because

there are three timesas many moderaterisk gamblers in thepopulation as full-blown problemgamblers and theseresults suggest thatwe should be worriedabout those people aswell. Once again, Idon’t find it convincingthat they aremiserable because oftheir gambling activity,but they are peoplewho are vulnerablebecause they arehaving mental healthproblems. Theanswers to thisquestion has shown inpsychology to be agood indicator of

mental health. There’s something about these people thatmakes them vulnerable and we should worry about themand we should tread carefully when we’re dealing withthem as customers.

I’d like to consider the ripple effects in a completelyseparate model now. It started with the baseline modeland then we looked at the impact of having a relativewho is a problem gambler because the prevalencesurvey asked each respondent “do you have a closerelative who has a gambling problem?” and in thismodel, what I do is explain the impact of that onwellbeing and it’s a serious effect again, especially in themale column. There is a dramatic depression of wellbeingamongst men if they report that they have a close relativewith a gambling problem. Now notice that although thereis an adverse effect on both men and women, it’s themen who seem to suffer more. Now very often the closerelative will be a spouse, so very often, this will bereflecting the effect on a male of having a wife who is aproblem gambler and it’s a very severe effect. Perhaps it’smore severe amongst men than it is amongst womenbecause female problem gambling is unusual and so willcarry more stigma. Alternatively, it could be that men arejust less resilient to problems than women. We had inthat big long list of things in the model, remember wehad family structure, family status, and one of thevariable was widow and in the male equation, if the manwas a widow, that was about as bad as being a problemgambler. We had to take a point off his predictedhappiness, but I’m afraid that in the female model, itdidn’t seem to affect them very much being a widow.”

“It is worth noting that within the gambling sector, theshift to eGaming offers some hope since it offers the bestconditions for using automated systems to identifyproblem gamblers from their patterns of play. Butidentification has not yet been shown to bestraightforward and the next task after that is to find outwhat interventions might be effective. In my view, wehave some way to go before these issues are resolved.The journey is worth making because effective targetedinterventions are the one policy that breaks away fromthe need for a trade-off between the interests of safegamblers (let them have fun) and the need to mitigateharm to problem gamblers (restrict gambling). We canstrive to intervene in the category of ‘low-risk’ and‘moderate risk’ gamblers to minimise harm done in thelonger term.”

“My overall conclusion is really that we should be verycareful not to worsen the problems of problem gamblers.They are seriously unhappy people. It’s not enough forthe industry to say only 1% of the population are problemgamblers. They are a far higher proportion of yourcustomers and they’re as badly off, in terms of wellbeing,as cancer patients. So we have to formulate policies withthe goal of allowing people to gamble sensibly and havefun and be happy gamblers, but make sure there are nofeatures to the gambling that make the problemgamblers’ problems worse.”

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Ms Skuszka: “We’re here to talk to you today about thelatest VAT challenge which is coming up in the next yearor so, and its impact on the gambling sector. HMRCannounced that they will be ‘considering a wider reviewof offshore based avoidance in the VAT exempt sectors’.VAT exempt sectors includes the finance sector,insurance sector and, of course, the gaming sector asbetting and gaming is exempt from VAT. HMRC arelooking at this with a view to introducing additional Use& Enjoyment measures for services such as advertisingin the following year.”

“Under current UK regulations, advertising services aretreated as general B2B services: the place of supply isnot where the supplier belongs, but where the customeris. This means services are taxed where the customerbelongs rather than in the domain of supplier. Forexample, if you had a UK supplier of services and a UKcustomer, that’s a domestic supply. In thosecircumstances the supplier would be responsible forcharging VAT on those advertising services to a UKcustomer.

In terms of the basic rules, when a UK supplier providesservices for example to a French business, the place ofsupply is France rather than the UK. The French business

would have to account for any VAT due under Frenchregulations, not UK ones, so the customer would payVAT to the French authorities. Now if that customer wasa gaming customer, they wouldn’t be able to claim thatVAT back. Similarly the place of supply for a non-EUcustomer is currently where the customer belongs.Although Gibraltar is in the EU they are not in the EU forVAT purposes, so a supply of advertising services froma UK supplier to a Gibraltar customer means VAT wouldnot be due on that supply. Basically the supplier doesn’tcharge VAT and the Gibraltar customer doesn’t have toapply VAT. These are the current rules and that’s how it’sapplied at the moment.”

“With regard to Use & Enjoyment, what is the UKproposing to implement at this stage? Use andEnjoyment Rules come under Article 59a, and if you lookat that specifically, it states: “In order to prevent doubletaxation, non-taxation or distortion of competition,member states may, with regards to services, put theplace of supply, which governs Article 44, which is thegeneral B2B rules, consider the place of supply of any orall of those services if situated outside the communityas being situated within their territory if effective useand enjoyment takes place in their territory.”

The Latest Challenge: The Nature & Impact ofHMRC’s ProposedChanges to VAT

An informative talk on the upcoming proposed changes to VAT was held in the main room, led by VAT specialistsSandra Skuszka and Mike Camburn, both of KPMG. As the new tax year unfolds, companies will need to prepare forthose changes and put in place measures to cope with their impact on the gambling industry.

Sandra SkuszkaHead of VAT Services, KPMG,Isle of Man & Gibraltar

Mike CamburnIndirect Tax Partner, KPMG,London UK

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In practise this means that if you have anon-EU customer, for example aGibraltar gaming business, and a UKsupplier of advertising services, and it’sconsidered that those advertisingservices are used and enjoyed in theUK, the UK supplier would have toapply UK VAT. So the place of supplywould shift to where those services areused and enjoyed.”

“To put it in a more commercialcontext, take the sponsorship of a

football club, for example. This involvesvarious logos placed in different places,broadcast across many countries. Canyou say that the sponsorship service isactually used and enjoyed in the UK?It’s not wholly clear, but in accordancewith the Athesia Druck case,advertising services are considered tobe used and enjoyed where theadvertising material has emanatedfrom. HMRC already apply use andenjoyment rules to lots of differentservices and have guidance on theirwebsite, which states that effectiveuse and enjoyment takes place wherethe recipient actually consumes

services, irrespective of the contractualarrangements, payments or beneficialinterest. So it’s clear what the changeswould potentially mean to a companypositioned outside of the EU thatprovides exempt services. It won’taffect a company that is positioned inthe Isle of Man or in Malta, it will onlyaffect those companies that arepositioned outside the EU.”

Mr Camburn pointed out that someterms used in the new regulations may

not necessarily yet be defined in law,and therefore we find ourselves at thefronties of VAT law once aain. Referringto a slide, he explained the chronologyof all of the recent proposalssurrounding VAT. “The first we heard ofthis was from the post-election budgetof last year, 2015. There was a briefcomment on a proposed review ofoffshore-based avoidance in VAT exemptsectors which clearly incorporated thebetting and gaming sector. The term‘review’ has now changed to one of‘consultation’; a review would seem toimply they are going into somethingwith an open mind, whereas

consultation typically means that theyare going into something with a view totaking action.”

“Earlier this year, we heard noises asthe Treasury began to form aconsultation document. Since therecent budget in March, there’s been alot of activity. Working groups areforming to comprise various regulatorybodies including those that representthe the betting and gaming industrysuch as the RGA and GBGA. Specificaccounting firms are being asked toattend a working party, of which KPMGis a member. It’s worth stating that thisisn’t a change which is just going toimpact betting and gaming; potentially,it can hit all financial services.”

“In the last couple of weeks we’ve hadan informal working paper issued byHMRC in the UK. It sets out a numberof areas which they are considering,four of which apply in the context ofbetting and gaming. Point one, howdoes advertising impact on yourindustry? What are the trends? It isdigital or is it still very much traditionalmedia spend? Point two, is advertisingtargeted on a geolocation basis? i.e.,are you looking at particularjurisdictions with specific adverts etc.?And their third point is to considerwhat the impact is on the regulationon advertising. Does the fact that youhave to comply with various rulesimpact on the sort of adverts that youcan show?

“Working groups are forming to comprisevarious regulatory bodies including thosethat represent the the betting and gamingindustry such as the RGA and GBGA.”

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Lastly (point four), would operators becapable of self-certifying, or providing acertificate to suppliers of media, to beable to determine where thoseservices are used and enjoyed? Thereare three possible approaches: one isthat VAT is applied across alladvertising and marketing services,regardless of what sector it applies to.Secondly, VAT is simply applied acrossall exempt sectors, everything fromland and property, medical services,financial institutions, banks, insurance,fund management, B2B lending, andof course, betting & gaming. The thirdoption is it just gets ring-fenced aroundspecific sectors such as insurance orbetting & gaming.”

“I’m certain the chances of the firstoption happening are very slim.Introducing VAT across everythingwould be like a sledge hammer tocrack a very small nut. The likelihood isthat it’s going to be number three,whereby they’ll look to ring-fencecertain sectors and VAT will beintroduced on that particular basis.”

“There is clearly going to be a financialimpact on the operators who will haveto start paying VAT. However, the actualonus to determine whether VAT needsto be charged or not will be the problemof your suppliers, not you [asoperators]. Suppliers will need to beable to determine whether or not, in thevarious contracts they hold, they oughtto be charging VAT. This will be verydifficult. I’ve already mentioned globalversus local contracting. You could havea global contract with the likes ofOmnicom, WPP, full of provision ofadvertising as it appertains to yourmarket and not to anyone in theEuropean Union, or the Far East, (ofwhich the UK may be a smallconstituent part) and you’d need to beable to go back to your supplier and say,‘Hang on! Don’t charge me VAT, as thisall relates to my Far East market, or mySouth American or European one’”.

Mr Camburn outlined that you don’tneed to be an advertiser to provideadvertising services. “The term‘advertising’ will incorporate marketing,PR and those similar activities.Advertising has got a very broaddefinition from an EU perspective.There were a number of cases back inthe early 90’s whereby variousmember states were infracted for theway in which they were applying ordefining advertising, and what thecourts said was that advertising can be

extremely wide and incorporatecocktail parties for example, and otherpromotional events. T here are creativeaspects to making an advertisement,then there’s the actual underlyingmedia placement, be it in traditionalmedia form or on digital media.”

“I mentioned earlier that HMRC wereasking the question, ‘Would it bepossible for operators to self-certify?’Really what HMRC have at the back oftheir minds is, that by using a‘reasonable methodology’, you coulddemonstrate to HMRC that theservices are or aren’t being used andenjoyed within the UK. That is animportant distinction that operatorsneed to grasp.”

Moving on to the issue of global andlocal contracting, “This throws upadditional issues, and one point Ihaven’t made yet, is that there’s aperception that just switching on andoff VAT of suppliers is easy. Anybodywho gets involved in ERP (enterpriseresource planning) systems know thatit’s not that easy. It’s very difficult, sothis is potentially very onerous onsuppliers themselves.”

“It will also have an impact onoperators. If implemented, this willform an absolute cost to the industry:the estimate of VAT ‘saved’ by HMRCwill be £200-300 million. It’s a bignumber. We’ve taken some ad-hocsoundings from a number of operators,and we think this is the likely impact. Itreflects other jurisdictions outside ofthe EU as well as Gibraltar. Also, asmentioned, all forms of advertising arepotentially impacted. It will beabsolutely critical during thisconsultation process that the definitionof advertising is agreed upon,otherwise you’ll get all sorts ofservices pulled into it which will simplyincrease that cost.”

Some form of relief may come throughthe 13th Directive Claim Mechanism.“Luckily for you, we don’t have time fora technical explanation of how the 13thDirective Reclaim Mechanism works!But I will say it provides another way of

doing this, whereby suppliers couldarguably discharge the VAT in full andthen you would need to go through areclaim process with HMRC in the UKto get back some VAT. It’s messy, buttechnically doable. Operators will needto provide some form of customermetadata around where thesecustomers are located, potentialrevenues, and transactionsthemselves. Again, we’re looking atwhat is a reasonable methodology inthis particular regard.”

Explaining how this has worked in theDanish market, “There’s a point herearound how advertising is actuallyundertaken. For example, we know thatDenmark has introduced theseprovisions, and what the Danish taxauthorities have done when theadvertising is of a digital nature, i.e. it’sa banner or online, they tend to ignorethat, whereas if it’s down the moretraditional media route, they tend to taxthat. I do see an inherent logic aroundthat because digital advertising is kindof global, and it’s very difficult to pin itdown to one particular jurisdiction.”

“If you consider how branding andintellectual property bring value, this is

really a callout to the broader taxpicture. You see an advert which istargeted towards a certain sportingevent, and underlying it, you see thename of the operator associated withthat: ultimately, that’s building brandawareness. With any element of anadvertisement, you would have to saythere are global or brand elements to itwhich just can’t ordinarily be said torelate to one specific jurisdiction.”

Is this a tactical switch by HMRC totarget so-called ‘avoidance’?“Historically, what HMRC have done issuggest that operators in offshorelocations don’t have enough‘substance’ - human and technicalresources - to be properly establishedoffshore. It’s of testament to theGibraltar regulatory regime that theconditions [of holding a licence] youneed to fulfil mean that you’re allproperly established here. In otherjurisdictions those requirements arenon-existent or quite lax.

“Suppliers will need to be able to determinewhether or not, in the various contracts theyhold, they ought to be charging VAT.”

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HMRC have alluded to the point that if operators are[properly] based in Gibraltar, the only way in which totax them would be change the rules so that VAT isapplied on where the services are “used and enjoyed”.What they’ve clearly identified is that advertising andmarketing is a very large element of the operator spendwhich is currently free of VAT.”

“Where the UK goes in terms of Use & Enjoyment,means that it’s not unrealistic to assume that other EUmember states will seek to do the same. Strangely,these rules did apply in Italy, but the Italians threw in thetowel as it was too difficult to implement; the Spanishdo apply it but in a rather ad-hoc way. Denmark is quitesophisticated in terms of what they do, as mentionedearlier. In our view, an emotive argument or cry doesnot work and makes you an easy target: we saw whathappened with the Point of Consumption Tax, and theensuing front page agendas around tax avoidance etc.However, we think a credible, technical approach willdraw dividends in terms of how the changes could beimplemented.”

Clearly the best approach for the industry is to becollaborative: “An important point to remember is thatHMRC do allow industry-wide agreements aroundcertain aspects of how the tax is managed. Sosomething collaborative, whereby you [operators] all

agree to look at, for the sake of argument, revenues,customers, or something else, which points to amethodology, which will ultimately drive a number,would be a good idea. Where you get to a position tosay, ‘Well ok, we’ll only pay VAT on 20% of the mediaspend, or 10% of the media spend, or whatever the casemay be’. There’s strength in collaboration, don’t losesight of that.”

“From a practical perspective it’s a good idea to thinkabout longer term contracts now, particularly thosewhere T-shirt sponsorships, stadium sponsorships, etc.will be directly impacted by this. Some grandfathering isprobable, but not guaranteed, nor is the length of anysuch provision.”

As a final point, Mr Camburn urged delegates toconsider the wider business impact and operationalstructure. “Those who operate within the EU are nottechnically impacted by this, so there may be someoptions just to think about how the business is currentlybeing operated, with a view to perhaps minimising theimpact of these changes when they arise.”

Ms Skuszka and Mr Camburn thereby concluded theirpresentation with a few poll questions. Delegates votedvia the Bizzabo app or via text.

“Where the UK goes in termsof Use & Enjoyment, meansthat it’s not unrealistic toassume that other EU memberstates will seek to do thesame.”

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Ms Skuszka and Mr Camburn thereby concluded theirpresentation with a few poll questions. Delegates votedvia the Bizzabo app or via text.

Ms Skuszka commented on the answer to poll question1, “There’s a big yes there, but not as much impact as wewould have thought. That’s not surprising consideringthe marketing spend for all gaming companies.”

Question 1:

Do you buy advertising ormarketing services from UKsuppliers?

A. Yes – 69%

B. No – 21%

C. Don’t know – 8%

Question 2:

Do you buy advertising ormarketing services from UKsuppliers purely to target UKplayers?

A. Yes – 40%

B. No – 45%

C. Don’t know – 13%

Question 3:

Would it have a materialimpact on your financialresults if VAT is applied tosuch services?

A. Yes – 65%

B. No – 20%

C. Don’t know – 15%

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Dr Thaer Sabri, Electronic Money AssociationChief Executive

PresentationSecurity Priorities: AML Regulation in Europe

The second presentation of the day was a fascinating talk given by Dr Thaer Sabri, Chief Executive of the ElectronicMoney Association. Dr Sabri began with a brief overview of the EMA: “The Electronic Money Association is essentially atrade body for eMoney institutions and innovative payment service providers. Some of them are acquirers, somegateways, but what they all have in common is new innovative means of payment, and as a result of that, needing anew way of interpreting the law or facing some barriers to business.” Members of the EMA include large eCommercebusinesses such as Airbnb, Facebook Payments International Ltd., and Google Payment Ltd., smaller providers such asSkrill as well as more established providers such as American Express.

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Dr Sabri then proceeded to outline thescope of his talk, which would focuson the new Anti-Money Launderinglegislation, in essence the 4th MoneyLaundering Directive. “I will alsocombine it with what’s happened as aresult of the Paris attacks, which is are-opening of that directive, and that iswhere some of the security prioritiescome in. But I’d like to broadly coverthe changes in the AML regime thatwill impact industry; you’ll be familiarwith the inclusion of gaming providerswithin the scope of the directive.” DrSabri advised how “the mostsignificant parts” of the directivewould be considered, but not theentire text. During the negotiation andadoption process, the EMA workedhard to try and mitigate some of therestrictions that were beingintroduced, but then, and afteradoption, the attacks in Paris andBrussels have re-opened thelegislation; and we are expecting theamended text to be proposed in June2016” confided Dr Sabri.

Dr Sabri began by talking about the4MLD, and the timetable for itsimplementation. Adopted in June 2015,the directive is due for implementationinto national law by June 2017. At themoment that makes it a two-yeartimetable, but that may be subject tochange: “Previous directives have not

involved the European BankingAuthority, which now has a prominentrole in drafting Guidelines andRegulatory Technical Standards(“RTS”) relating to the legislation. DrSabri also alluded to the time gapbetween the 3rd and 4th Directives, asthe 3rd Directive was adopted back in2005: eleven years is long time forfinancial services related legislation toremain in place without amendment.

“The European Banking Authority hasbeen tasked under both the 4MLD aswell as the Payment Services Directiveto develop a range of Guidelines andRTS. There is an enormous amount ofwork to do, and frequently thedelegated areas correspond to difficultquestions that could not be resolvedduring the period of adoption. It shouldalso be noted that ‘Guidelines’ will inpractice be treated by firms asobligatory, as the requirement is to‘make every effort to comply’. If you’re acompliance person or you’re advisingyour firm of its obligations and saying,‘Well it’s a guideline’, people tend to kindof look away and say ‘Thank you verymuch, maybe we’ll do it, maybe wewon’t’. It’s not that kind of guideline!”

Dr Sabri continued, “RTS have directlegal status; once developed by theEBA, they then get adopted by theEuropean Commission as a regulation:a piece of legislation that has direct

effect in the EU. So again, its impact isconsiderable, legislatively speaking.”

Part of what the EBA are required todevelop under 4MLD are guidelines forrisk factors that need to be consideredwhen undertaking simplified duediligence, or conversely enhanced duediligence. ‘Simplified due diligence’allows a lighter approach to customerdue diligence (CDD) or KYC (know yourcustomer) and ‘enhanced duediligence’, involves additional CDDprocesses being adopted. As Dr Sabriexplained, “For example, if it's a highrisk country or if it's a politicallyexposed person, or if you think the riskof money laundering is high, and thesecannot be sufficiently mitigated, thenenhanced due diligence may beappropriate. There are also guidelinesfor competent authorities on their riskbased approach to supervision, toassist regulators in implementing aneffective risk based approach. It meansa firm can direct its resources to thearea where it's most needed and itaccepts that a zero failure regime isnot expected. If you put in place a riskbased policy and you follow that policy,then it should result in the firmaddressing the greatest risks and itaccepts that there may be far lessemphasis on areas of lowest risk.”

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Dr Sabri continued, “There is also anRTS being developed in relation tothird country risk, which is whereservices are offered in a third non EUcountry, but where the EU firm cannotensure compliance with the EUregime. This can relate to the AMLregime or to data protectionrestrictions, preventing compliance.The EBA is required to develop an RTSto address such situations, which couldinclude a requirement withdraw fromthe market.”

There was also an update on fundtransfer regulations. “The fund transferregulation used to be called the wiretransfer regulation: it wasRecommendation 7, and came intoeffect after 9/11. It required paymentservice providers to attach ’completeinformation on the payer’ to themessage so that destination andintermediate countries that might seethat fund transfer go through, wouldbe able to tell who originated thetransfer. Law enforcement can thenalso track or trace a fund transfereasily, without having to go througheach intermediate jurisdiction, trying totrack a payment to its source. It alsoplaces obligations on the paymentservice provider, first of all to attachthe information, and on the recipientprovider to confirm its completeness,and for intermediate service providers,to send it on.”

“The revised regulation now statesthat in addition to originatorinformation, beneficiary informationmust also be attached. You might think,‘Well, without beneficiary information,how do you know where to send itanyway?’ But the amount ofinformation that is required is greater,and also, intermediary providers haveto look to see that it’s complete. If it’snot, they have to warn the sendingprovider, and if it persists, end thebusiness relationship with the sendingpayment service providers. It alsorequires the provider to considerwhether to make a suspicious activityreport regarding the failure. So as aregulation, this has a direct effect onbusiness.”

Dr Sabri went on to outline therelevance of this for UK operators: “Ofcourse, in many countries where thereis gambling licensing, anti-moneylaundering obligations already apply –that’s a given. So, if you apply to belicensed as a gambling service provider

in the UK, they expect you to becompliant with AML already. What thedirective brings here is the firstharmonised approach to anti-moneylaundering at a European level forgambling service providers. What doesthat mean? Let’s look first at what theprovisions are: If you've got a businessrelationship and this is in common withall other obligated entities, then youhave to identify and verify yourcustomer. There is an exemption forsingle or linked transactions of €2000or less, so if it is single transactions orlinked transactions less that €2000,then you don't have to verify. Memberstates can however exempt lower riskproducts from compliance with theAML regime, so when it comes to theimplementation of the directive, Iwould expect the gaming trade bodiesto engage with the regulators, toclarify and seek to influence theperimeter of exemption. An alternativeapproach would be to be more specificand to seek specific allowances forlower risk transactions, for example.”

There are many other parts of the4MLD which concern the eGamingindustry. It essentially applies all ofmoney laundering regulation as apackage. Dr Sabri again, “Beginningwith customer due diligence, itrequires you to monitor the businessrelationship, monitor transactions,keep records (usually for a minimum of5 years), undertake training, put inplace policies and procedures, appointa nominated officer and makesuspicious activity reports, where thisis appropriate. That’s the package.”

However, there are one or two detailsin the 4MLD which Dr Sabri was keento point out: “Firstly, the moneylaundering offence itself doesn'trequire you to be regulated to becaptured by it. If proceeds of crimecome through the system and a firmwas complicit in some way, then thatwould be a money laundering offence.But that’s not what we're talking abouthere. What we’re talking about here isan obligation on the gaming serviceprovider, as an obligated entity, to havesystems and processes to look forevidence of other people doing moneylaundering using their system. So inessence we have two offences – andthe offence here is in not meeting theregulatory expectations of havingsystems to look for this activity. Theredoesn't need to have been a moneylaundering event at all: not having the

systems, not doing proper customerdue diligence when you ought to, is anoffence. Of course, the underlyingoffence of money laundering persistsanyway; it’s always been there.” DrSabri continued to mention thevariation in what constitutes a proceedof crime, “This is related to thepredicate offence. In some countriesonly the proceeds of serious offences(predicate offences) can give rise toproceeds of crimes for AML purposes.In others, such as the UK, all offencesare predicate and can give rise to aproceed. Increasingly, this ‘all crimes’approach is being adopted across theworld. It means that a successfulcredit card fraud would give rise to aproceed that would require asuspicious activity report to be filed.”

“I would like to talk about the generalapplication of simplified due diligence(SDD) provisions which are probablyone of the biggest changes, and whichhave a practical consequence forbusinesses.”

Dr Sabri went on to explain how theDirective will impact on therelationship between customer spendand due diligence: “Under the ThirdDirective we have currently a simplifieddue diligence approach which isspecific to e-money, which states thatif a customer transacts €2,500 per yearor less, and there are no suspicions ofmoney laundering, customer duediligence is not required, with theexception of monitoring of therelationship. The new regime providesfor a similar but more restricted regimefor e-money, but in addition providesfor a general SDD provision for allobliged entities.

Law enforcementcan then also trackor trace a fundtransfer easily,without having to gothrough eachintermediatejurisdiction, trying totrack a payment toits source.

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Simplified due diligence now means a response to everyaspect of due diligence - identification, verification, beneficialowner, purpose of the relationship. However, obliged entitieshave flexibility and it’s risk based. So, a firm can identify, it canrequest a name and address, but then postpone verificationto a particular point in time when it thinks the level of riskshould trigger verification. This could be a transactionthreshold or a time limit or both. .This is the good news, as itenables much flexibility and continues to enable access fornew users. These provisions can be utilised by any paymentproduct, they could apply to a money transfer, they could,depending on the risk posed, apply to a gaming product. If afirm recruits a customer, if it can demonstrate low risk, then itmay be able to require registration and postpone verification,subject to transaction thresholds.”

Dr Sabri moved on to underline the requirement to performrisk assessments, when applying the 4MLD, “You have toshow low risk, in order to benefit from SDD, but moreimportantly, a risk assessment is required for the entireproduct portfolio. This needs to be informed by risksassociated with the product, the channels, the geography,market etc. It also must be informed by the local NationalRisk Assessment and by the intra EU risk assessmentundertaken by the European Commission. It should benoted that products can start off as high or medium risk,and then be subject to mitigating measures, such asreducing turnover, or introducing controls or restrictions,reducing the overall risk.

Record keeping requirements are worth mentioning asthose relating to transactions appear to have increased from5 years from the date of the transaction, to 5 years from the

end of the business relationship with the customer. This is aconsiderable change and will have an impact on recordretention policies and operational arrangements.

There is a requirement for member states to create centralregisters of beneficial owners, and for all companies toidentify their own beneficial owners. Details of beneficialowners need to be kept and sent on to the register, with theconsequence that regulated entities will be able to consultthe registers to establish the beneficial owners ofcompanies in the EU.”

Dr Sabri moved swiftly towards the end of his presentation,with a word about the active role of the EMA in the face ofall the EU legislation, and to mention a new initiative thatwas announced following the Paris attacks, to restrictexemptions relating to prepaid cards and vouchers. This willneed to be tracked, and interested parties should make theirown submissions to the European Commission, or they arewelcome to coordinate with the EMA to ensure aproportionate response that increases security but does notsuffocate business.

“The Commission also asked member states to bringforward the implementation of 4MLD from June next yearto the end of this year, December 2016. This means a lot ofwork by member states and by industry in a very shorttimescale. Current evidence is that this is unlikely to beachieved, with the exception of a few countries, that notablyinclude France and Germany. Service providers shouldtherefore track and contribute to legislative proposals asthey are published to ensure a proportionateimplementation,” concluded Dr Sabri.

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Panel SessionEvolution of eGaming:The Operator’s View

The final panel session of the eSummit was a lively look at eGaming from the operator’s perspective, exploringtopics such as the benefits of public vs. private; the optimum age of your targeted consumer; a maturation of therelationship between industry and government (both in the UK and in Gibraltar); how to ensure the industry acts asa cohesive whole; and briefly, Brexit. The moderator and panellists share a wealth of experience in the sector, acrossa broad range of markets. Phill Brear, Gambling Commissioner and Head of Gambling Regulation at theGovernment of Gibraltar, opened proceedings:

“This conference is a bit of a landmark event for us, because each year, it’s another stake in the ground in effect as to thenature and diversity of the Gibraltar industry and the success of the Gibraltarindustry. This panel hasn’t been put togetherjust by happenstance, these people were personally invited by me for a specific reason, and that’s to quietly address one ofthe elephants in the room. These four gentlemen and their companies have all been licensed in Gibraltar in the last 3 or 4years, they came here at the height of the POC storm. At that time, people were asking, “Can Gibraltar ride out this latestwave?” and in my annual report, I was making it quite clear that yes,that was the case.

Moderator: Phill BrearGambling Commissioner, Government of Gibraltar

Panellists: Andy Hornby Gala Coral

Brendan Hughes BoyleSports

Dr David von Rosen von HoewelLottoland

Jon MossBet365

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“Five years ago, there were 3,000 people employed in thisindustry, today, there are still 3,000 people employed. Athousand of them are employed by these four gentlemen.That’s a massive shift of people around the operators ofGibraltar, but it’s also a testament to the stability,resilience and nature of the industry here. Five years ago,these guys were not part of the landscape, but they arenow, with more beside them. From my perspective, theGIB industry goes from strength to strength. Of course,rationalisations efficiencies, mergers, and acquisitions area natural consequence; there will be ebbs and flows insize and scale, but as I say, the industry is as strong nowas ever in the past, despite, and possibly even because of,the way Gibraltar handles some of the headwinds.”

“Their other common feature is they’re all privatelyowned companies. That may soon change for one, orpossibly even more of them, but it is an interesting featureof the industry that despite all of the chatter over the lastfew years about IPO’s listings and the like, the industryremains largely privately owned.”

“First we have Jon Moss, Head of InternationalDevelopment at Bet365, which as you know, is one of theworld’s largest remote gambling companies, privatelyowned. Bet365 has an international focus, and is amultiple licence holder in Europe, with markets farbeyond it. Bet365 obtained its first GIB licence as longago as 2007, but that was a relatively small operation.Since 2014, it’s very substantially expanded its offer fromGIB and, as I say, now employs close to 400 people.”

“Next we have Andy Hornby, Head of Retail for the GalaCoral Group. Andy is running 2,000+ betting shops aswell as the fastest growing British remote gambling site.And, as most of you know, Gala Coral is currently in the

throes of merger talks and competition markets authorityexamination with regard to their possible relationshipwith Ladbrokes. So Andy particularly may have someadditional boundaries to negotiate in any discussiontoday, which I’ll try and be sensitive to. Gala Coral has hada long association with Gibraltar, licensed here in 2012, inits current form and presence, it too has close to 400employees.”

“Then we have David von Rosen. David is Chief StrategyOfficer for Lottoland, which provides the opportunity forits customers to place bets on lotteries. Lottoland waslicensed here in 2012, is rapidly growing in scale andreach from Gibraltar and recently awarded the biggestprize ever from here - €14,000,000 (£12,000,000). That issome 3 to 4 times the size of any prize that I am aware of,coming out of Gib. Where that would normally have sentthe lights flickering in the CFO for the door, for David,that’s business as usual! When we call it “bets onlotteries”, I think we should call it “bets on lotteries withenhanced prizes”, because even the underlying lotteriesdidn’t offer that prize. For David, just another day at work.”

“And finally, we have Brendan Hughes. Brendan is theCommercial Director for BoyleSports. BoyleSports is anestablished shop and online brand in Ireland and growingin the UK for many years. It was licensed here in Gibraltaronly last year and is still relatively small in presence, butfor me, is very indicative of a well-known betting operator,landing in Gibraltar in very recent times. Brendan is nostranger to Gibraltar, having ridden the wave ofPokerStrategy.com as its COO. Like all our panellists,Brendan too has experience outside this sector thatremains a key part in the development of his companyinto international markets.”

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Moderator: So, my first question comes in two parts. Doesrecent history in this sector tell us that PLCs will offer bettercustomer service and security, better products andinnovation, online or off, than private companies? Andsecondly, if shareholder interest is the first priority of . theexecutives and directors, where is the customer in thatqueue? Jon, your views first, please.

Mr Moss: Just to reinforce what Phill said, we started herein 2007 with 7 employees and I was in the office yesterdayand there’s 390 Bet365 people here now in Gibraltar, andthat’s very good for us and it is indeed a success story forGibraltar. As for the private vs. public question, Bet365 is aprivate company and intends to stay that way. Havingworked for a few companies in the industry, the focus onthe customer and the focus on innovation at Bet365 is quiteextraordinary; it’s outside my business experience anywhereelse, and it’s absolutely driven from the top, whether that isoffering more products, whether it’s offering great odds,whether it’s paying customers more quickly, the customer isabsolutely number one. I wouldn’t agree, however, that

private companies do that differently to public companies –we probably have the ability to make longer term investmentdecisions in markets and products without having to reportcosts and revenue on a quarterly basis, but I’d be surprised ifthe public companies did have less focus on the customerbecause that would, of course, be a false economy.

Mr Hornby: As you said earlier Phill, assuming the mergerwith Ladbrokes goes through, Gala Coral will soon be public.Our new management team arrived 5 years ago and we setup out here in Gibraltar in 2012. I think there is an advantageto being in a private company when you are starting a biginvestment programme. In our case, we had a huge retailestate in the UK and were taking the decision that wewanted to build an online business. We had a set ofshareholders who were prepared to take a very long termview, and we made it clear it was going to take 4 or 5 yearsfor them to see the full return. Hopefully, 5 years on, theyagree that happened and hence the exit with the mergerwith Ladbrokes.

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So I do think in this sector, particularlyonline gaming and sports betting, it iseasier in a private environment to atleast set the parameters of long-terminvestment. You can’t say preciselywhen the payback will come through,however. Having said that, I think thereare some analysts and institutions inthe city who are starting to reallyencourage a longer-term view in thissector. As Phill and perhaps the othersknow, there’s a big movement to stopquarterly reporting, which, in oursector, is definitely a good ideabecause the volatility of margins insports betting on a quarterly basis. Sowe won’t need to waste timeexplaining why it was a good GrandNational or a bad Grand National. Mypersonal view for this sector is, itdoesn’t have to be public or privatebut, there’s an advantage incommunicating to the PLC world, thelonger-term view that it’s easier to sellas a private company. And lastly, Iagree with Jon that if you don’t focuson the customer in this space, you die,regardless. It’s not the ownershipstructure per se drives that, it’s theattitude of the people running thecompany.

Moderator: My question isdeliberately provocative because I dodetect a higher level of short-termismin PLCs than within the private sector.David, as you are sort of sat to theedge of this. Please share yourthoughts on private v public.

Mr von Rosen: I wouldn’t necessarilymake it a question of being public orprivate, rather of scale, size and agemaybe. Obviously, public companiestend to be older and bigger in size sotherefore they have had more time toimprove their product, so usually theirproduct is a little bit more optimisedfrom that perspective. Taking customerservice, to my mind there isn’t a hugedifference between PLCs and privatecompanies. However, I’ve seen verysmall private companies whosecustomer service is so individual andgood, where even the boss takes careof customer service, that gives them abig advantage. We recently acquired avery small company, 6 people only,with exceptional customer care. Andwhen it comes to innovation, smallerand younger companies, tend to havean advantage over larger ones becausethey’re more flexible and faster. It’s likethey are the speedy sports boat ratherthan the big tanker which needs moretime to manoeuvre. So there are prosand cons on both sides. But above all,it has to be the customer who has tobe put in the centre, and this goes forpublic and for private companies. Ibelieve if you have a happy customer,you have a happy shareholder. Thenagain, you have shareholders for publiccompanies as well as for limited ones.

Moderator: I shall bite my tongue andnow invite Brendan to complete the loton this – I think I’m going to lose 4-1!

Mr Hughes: I think some of thecoverage in recent months in the UKmarket would indicate that even PLCscan be called out for not protectingcustomers adequately, so no, I don’tagree that it’s a matter of private vs.public. It’s really more a matter ofgovernance and objectives.BoyleSports is a business that’s beenowned by John Boyle himself for 30years; he built the business up andwe’re the second largest bookie inIreland. We’ve got 25% market shareand we certainly find it easier to take alonger-term view than anyone who’sreporting on a quarterly basis. Wereport on an annual, quarterly, weeklyand even daily basis, but we don’t havethe same pressures from people whodon’t understand our business and areasking questions about it. So Johnhimself is very close to the businessand there’s a strong realisation fromhim, in the retail world, that lookingafter your customer, providing valueand great service, is what makes andbuilds a sustainable revenue in thelong-run. Our goal is to carry that intothe digital world and then tointernational markets. When there areso many different motivations andobjectives around ownership, then ofcourse regulation does play a part inensuring that we all look after ourcustomers. Certainly I don’t see it asbeing about private or public.

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Moderator: Let’s move now toconsumer demographic: it seems tome that the one sector where the USleads and the UK follows, does notapply is remote gambling. Any readerof the trade press can’t have missedthat the new Americanisation is that of“The Millennials”, the target audiencelooming on the horizon. Now of coursetrue Millennials can’t gamble for aboutanother 20 months or so when they’reall 18+. It will be many years beforeMillennials outnumber even mygeneration of the baby boomers, orthat of my much younger panellists,who I’m told are called “Generation Y”,because they’re the ones who ask thedifficult questions. But what struck meabout this emerging obsession withthe millennials, is that it appears, tolack economic sense, because it’scommonly accepted that youngerpeople have less disposable incomeand they like to spend it on otherthings. And there are fewer of them.So, can I invite the panel to pleaseexplain to this dinosaur, the wide-spread obsession with youth as atarget market? Am I missingsomething? Andy, please.

Mr Hornby: I completely agree withyou on this one. People who look atour industry and think retail gamblingis largely an older age group, andonline gambling is largely a youngerage group, well, it is just not true. It istrue that the average age, if you look ata spread of the retail business, is olderthan the average age of the onlinebusiness, but actually, within the onlinebusiness, there is a very good spreadof age. Secondly, when people look atcustomer numbers versus the actualtotal spend you are receiving, it’s evenmore misleading, with older, oftenretired customers, being bothextremely valuable in terms of theirspending, but also in terms of theirloyalty to the brand. And thirdly, themore that the market has gone mobilerather than desktop, the more that isthe case and that the spread of age isactually broader. So I personally thinkyou make a very good point here. Itisn’t sensible for us all to be overtargeting, let’s call it the under 25s; Ireally do think you have to be movingwider. There are early signs, if you lookat TV campaigns for example, thatpeople are starting to be less furiouslyfocussed on the younger market, butit’s got further to go.

Moderator:Well, as someone whoturns down the volume when thegambling adverts come on, I’ll skip thatbit! David, who I’m pretty confident isthe youngest member of the panel,your views on this?

Mr von Rosen: I think you’re right,however, we have an entirely differentapproach to it. What you said isespecially true for lotto, because theolder the customer gets, the morelikely he is to go online, and certainlyhe has more money to spend perweek. So yes, we would like to expandour number of mature players.However, they’re not as easy to get.So our approach is different: we tryfirstly to target younger people. Why isthat? Because younger people tend tobe easier to get, they tend to adapt tonew offers and new technology muchfaster: they are the early adopters.

When I look at the history of anysuccessful online or internet service,like WhatsApp or Facebook, even theinternet itself, it was young peoplewho led the way, and then the oldergeneration follow. So first, youngpeople start using the internet, thentheir parents, and finally theirgrandparents are using it, so that’sexactly why we target younger people.This doesn’t just mean 18 plus, itmeans 25, 30, 35 -year olds, which isexactly our target here at Lottoland. If,in the end, we have 85 year-oldsplaying online, that’s great too. Really,the first step is younger people, thenthe middle-aged, then the elderly.Because we see that with whateverproduct innovation we put out there,the younger go on it first and then theothers follow. For lotto and forLottoland, we have chosen a way to

target the younger people, whilst notforgetting the others, knowing that thisway works better.

Mr Hughes: I think what we’reallseeing is a radical shift in customerbehaviour. From migration from retailto digital channels, from phone todesktop, and then from desktop tomobile. For us at BoyleSports, we don’tfocus on a younger generation per se,but adapt to the changing behavioursof those younger customers. Themillennials were certainly born in adifferent world than me, which is tosay they were born in a world wherethey’re used to mobile and tablet astheir way of interacting. So for us andGeneration Y, they’re more likely to bemulti-channel consumers. Increasinglywe’re digitising the retail environment,whether it’s SSBTs or terminals andtouchscreens and information points.But actually, the newer generation ismore likely to be single channel interms of more mobile-focussed ortouchscreen-focussed. We’re trying toadapt to their demands: they want itfaster, they want it simpler and theywant it more relevant and timely tothem. That’s a shift in how you deliver aproduct, rather than an age focus shift.

Mr Moss: One of your openingremarks wasn’t true Phill, and that wasabout all the panellists being muchyounger than you! So, focus on theyouth market – for us at Bet365, atleast, there isn’t a focus on the youthmarket at all. There’s a focus on peoplewho like sports and people who like tobet on sports, so we advertise beforethe game, and at half time. Now thattends to be men rather than womenwatching the game and it tends to beyounger rather than older people, butthat is not a targeting of those people,it’s a targeting of people who likesports. I think, if we just targeted 19year-olds, they might not know whoRay Winstone was! So basically, thefocus is on people who like sport, not aparticular age group.

Moderator: I asked this questionbecause as a consumer, and as amember of the baby boomergeneration, I see industries adaptingtheir products to my needs, tastes andvalues. Whether it’s cars, mobiles,domestic goods or services – there isdefinitely a shift in the marketingspend of some big providers to the“silver surfers”.

“There’s a focus onpeople who likesports and peoplewho like to bet onsports, so weadvertise beforethe game, and athalf time.”

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Moderator: is that a product of the sensitivity of the IrishGovernment or the cleverness of the Irish industry?

Mr Hughes explained how, having watched the UK marketclosely, Ireland has learnt a lot. Some Irish operators aremore directly involved in the UK market as the Irish marketis still a bit immature in how it’s regulated and managed byGovernment. “They’ve just failed to deal with it in ameaningful way, but everything that we hear scares us interms of multipliers on the taxation that we’re alreadypaying, more restrictive measures around AML and aroundresponsible gambling. We’re already doing an awful lot onthose topics to protect our customers. A major part of thatis to be clear and agree that we can communicate as abody about the things that we are doing.”

The moderator then asked Mr Hughes to provide an exampleof a new development in the Irish Gambling industry.

Mr Hughes: FOBTs, which is a critical topic in the UKmarket, have just been banned in the Irish market, so thatsimplifies things to an extent. With the recent introductionof a tax and a licence around remote gambling in the Irishmarket, the markets and opportunities have opened up alittle bit, because the lines between retail and digital areblurring. So for customers in one of our shops we canprovide free Wi-Fi and tablets with touchscreens enablingthem to access the internet, then, they can play casinogames actually in the shop. But what they’re doing is on aremote server basis, so the lines are blurring. We need tobe on top of that as an industry before the Governmentmakes a decision that is perhaps unhelpful.

Moderator: Jon, you’re probably the most peripatetic ofthe group, dotted around Europe and elsewhere. What areyour views on working with Governments?

Mr Moss: It’s interesting because in Gibraltar, theindustry and the government have a good relationship.In the UK, it is pretty constructive, but if you go aroundthe rest of the world, that relationship can be verydifficult. As an example, I was in one country recentlyand there was a new regulator appointed. He was due togive a speech to Parliament a few weeks after I saw him,and he said, “I’m going to get attacked on problemgambling getting out of control”, and I asked, “Well is itout of control?”, and he said “I have no idea, I don’t haveany data”. So I explained to him about the prevalencestudy that’s done in the UK, the same list of questionsasked every three years or so, and a long-term evidence

base for what the level of problem gambling was. Nosuch thing existed in that country.

Just last week, I was in another country to visit a Ministerof Finance. Our consultants said that he wasn’t happy withthe gambling law and I asked why not, and they said,they’d only been able to take 300 people to court forgambling on foreign websites, and the level of fines thatthe court was imposing meant he hadn’t actually madeany money from those 300 people: that’s where he wasstarting from. So, yes, elsewhere in Europe, and in theworld, the relationships between Government and theindustry can be pretty poor but we’ve actually got areasonably constructive situation in the UK and a veryconstructive one in Gibraltar.

Moderator: There speaks a diplomat! Andy, tell us moreabout these pretty constructive relationships in the UK.

Mr Hornby: I think your question is well phrased. Firstly,we aren’t joined up enough as an industry. I think that thepress and government view different elements of thegambling industry as separate, so they see Sportsbook asone sector, casinos as a completely different sector, andbingo as a completely different sector, even though we’reall regulated by the GC. I think that’s a real problembecause we do not come across as joined up, and there isa real risk that that makes the whole goal of legislationmuch harder.

Secondly, it has worked well in Gibraltar to date, partlybecause the relationship with both government and theregulator has been closely coordinated and constructive,and partly, ironically, because we’re all together on onerock, so I think competitors here do talk about the rightthings in general. It is critical we find a way of being morejoined up. You asked about other industries and whereyou can learn: a good example is the drinks industry.Twenty years ago, the Portman Group was set up in theUK, because in the early ‘90s, the drinks industry was seenas completely out of favour. So there was an alliance puttogether between really big players, the multi-nationalsand smaller ones, right down to independent Scottishfamily-owned whiskey providers who saw the need. It’snot been perfect, but I think it’s been pretty effective. Theyhad a big impact on the kind of advertising that was doneand they came up with their own code. We’ve tried to startthat with the Senet Group being launched in the UK. Ithink it’s been pretty successful in terms of getting a firstleg on the ladder, but we’ve got a lot more work to do.

“With the recent introduction of a tax and a licence aroundremote gambling in the Irish market, the markets andopportunities have opened up a little bit, because the linesbetween retail and digital are blurring.”

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Moderator: The alcohol industry is aninteresting comparison, but then if youlook at food in general and obesity,there are massive public health andpublic policy issues around it. Cue thesugar tax, still two years away fromimplementation, and likely to have verylittle effect on those with bad diets.Consider the tobacco industry, yes it’sdiminishing but not as fast as thehealth lobby has advised. Even thepetrol/fuel industry seems to get awaywith not quite consumer abuse, butsome challengeable practices, if youcompare it to the gambling industry.The ABB spokesman was on TV lastweek and helpfully or unhelpfully,made the claim that betting shops inBritain are the safest environment togamble in. What does that say abouteverything else? There is no move toclose our off-licences andsupermarkets, whereas the industry isbeset with stories of FOBT abuse etc.It does seem that notwithstanding thelack of political sympathy, the industrymust find a way of better informingthis discussion.

We’ve now got three minutes left andI’m going to touch now on the B word.Somebody said last night “we have tofind a better phrase than “remain” for

staying in Europe”, so I came up withone immediately, if you say it fast itworks, if you say it slow it doesn’twork – see who gets it first – Britsin.Brits-in or Brit -sin? ? Anyway!

Gents, very quickly your one-minute lineon Brexit. I’ll start with you Brendan.

Mr Hughes: I’d love to take a veryselfish Irish perspective, of course, wewant Brits in rather than Brits out. Wedon’t want anything that’s a barrier tofree trade and to free movementbetween us and our major tradingpartner, which is a key point obviously interms of the EU. I think the EU hasbeen probably good for this industry interms of arbitrating where local marketdecisions might not make a lot of sense.

Mr Moss: An update on the bettingodds: Britain staying in is 1.44, so it’sfavourite to stay but not a hot favourite.To give you a comparison, Leicesterare also 1.44 to win the premiershipand Donald Trump is also 1.44 to getthe Republican nomination. We feltvery strongly about this to the extentthat the CEO wrote to all staffexpressing the company’s position, itwas better for Britain, it was better forthe company, it was better for Gibraltarthat we stay in.

Mr Hornby: I’ll give you it in realnumbers – 4-9 stay in, 7-4 leave on thewebsite this morning. I actually wouldlike to answer from a differentperspective; the importance forGibraltar is just unbelievable. We aresat here today and I know 400 peopleat work: I explained where I was going,and a large number of those peoplehave worked here for a long time, andthe importance of it cannot be overstated. It’s obvious which way aroundis right for Gibraltar.

Moderator: And with my other non-Brit guest, David – to close please.

Mr von Rosen: You’ve said it already;you’re asking a German so I’m theleast qualified to answer any of this. Ijust put my money on you guys onyour platforms and hope for the best.

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