27 Nov 2019

Goals vs. Rules - What we want from gambling regulation

Ewa Bakun

Can you remember the times when industry press headlines were dominated by acquisition news or speculation on new markets opening up, not by new fines being administered, advertising bans discussed in national parliaments or license suspended?

Well, those times are gone.

As enforcement intensifies and has significant financial ramifications, even business closures in the most extreme cases, the tensions between the industry and the regulators grow. Regulators, often operating in a climate of a political and consumer pressure, take decisions that are deemed as incomprehensible to businesses, provoking those businesses to request more clarity and guidance in order to avoid further regulatory action.

 

 

Is the industry calling for more rules-based regulatory approach?

 

I posed that question in a form of a survey to 2000-strong Clarion Ampersand group and, to my surprise, the answer to the above question seems to indicate that. While goals-based approach is generally seen as preferred due to its flexibility that also enables more innovation, when applied to the current context, it is exactly its flexibility that causes imprecision, not welcome by most respondents.

 

 

"I believe goals based regulation sees a huge gap in interpretation by those in industry and the regulators who often are not consumers of the product they're regulating. Rules-based regulation creates a truly level playing field where operators and suppliers know where they stand."

 

 

- Andy Coyne, Operations Director, Hexopay

 

 

That imprecision leaves the regulatory framework also open to interpretation and therefore, in some cases, in particular in highly saturated markets with both big and small companies operating, can lead to abuse. Indeed, the view that the industry as a whole has proven itself unfit to adopt and comply with a goals-based approach was shared amongst quite a few Ampersand members.

 

 

"In all mature markets, such as the UK and Italy, the industry seems not to have met the goals set by the respective regulators, leading to a very visible backlash (…). In both cases, when there was scope for interpretation, regulatees seemed to exploit that leeway so to minimise the impact on their existing commercial practices, for competitive and financial reasons."

 

 

- Francesco Rodano, Chief Policy Officer, Playtech

 

 

Markets with large number of licensees, such as above-mentioned UK and Italy, and most recently Sweden, in particular have seen more open interpretation of the regulatory goals which led to what’s been judged by regulators as rule-bending, followed by sanctions or by even more drastic measures, such as the advertising ban in Italy. Therefore, the regulators in these jurisdictions are now finding themselves in a need to backtrack on their original regulatory model and to redefine the rules, with the industry inviting more prescriptive approach to gain clarity.

 

 

"The risk with goals based approach is that in a very liberally regulated market, many operators compete for market shares and will stretch the provisions to the maximum (see UK and Sweden). In the follow-up, the regulator has to redefine and specify rules in order to get the market under control (see for instance advertising or resposible gambling rules in UK). If everybody acted fully responsibly, yes, a goals based approach would allow all to act as 'adults', but the rule of competition does not make it possible."

 

 

- Annemarie Furtschegger, Public Affairs Consultant

 

 

 

No doubt, it is easier to implement and manage a goals-based regulation with fewer market participants who don’t have to push the boundaries to win the fierce competition for the customer. It is easier for the operator who indeed is not pressured to revert to questionable practices that exploit loopholes to which a flexible goals-based regulation is more susceptible. It is also easier for the regulator who has fewer licensees to assess. Additionally, the goals-based approach also shifts a lot of responsibility onto the regulatees who have to find ways to achieve the goals set in the regulation and are assessed by that outcome, leaving also some space for regulatory discretion as each case needs to be assessed separately. While regulatory discretion means that each case can be viewed individually, thus a tick-box approach is less likely, it also means that the decisions are more likely to be questioned or contested.

 

 

"Goals Based enables more flexibility on the part of regulatee to demonstrate compliance, it also puts the onus on the regulatee to ensure compliance with the spirit of what is being required rather than just the letter."

 

 

- Fiona Palmer, CEO, Gamstop

 

 

Wherever there is discretion involved, a trust-based relationship and frequent dialogue are needed. It’s fair to say, in the current regulatory climate in many jurisdictions, in particular the European ones, the relationship between operators and regulators is verging on adversarial rather than co-operative. Dialogue provides confidence in the expertise and abilities to achieve goals, when it comes to regulatees, and evaluate them, which is the responsibility of the regulators in the goals-based regulation. How often, however, are regulators coming from outside the industry and therefore lacking knowledge of the gambling sector?

 

 

"My biggest concern about goal related programs is that the vast majority of regulators have little understanding of the industry for they have never worked in it."

 

 

- Richard Schuetz, Consultant and Former Regulator

 

 

Expertise and abilities of the regulatees, combined with the flexibility that goals-based approach offers, can sometimes result in, as discussed, too much creativity and rule-bending. But the requirement to be creative can also be put to a good use. A significant benefit of the goals-based approach is indeed its ability to encourage and enable innovation as regulatees are left with space to look for potentially more effective ways to achieve the ultimate goals set by the regulation. In a highly technology-driven and dynamic industry that is gambling, freedom to innovate is critical and can actually benefit the effectiveness of regulation too.

 

 

"The industry is driven by technology which is evolving so rapidly in functionality and capabilities it’s impossible to be prescriptive for any meaningful period of time."

 

 

- Keith McDonnell, CEO, KMigaming

 

 

It is common knowledge that regulation lags behind technology developments; prescriptive approach typical of rules-based regulation risks becoming obsolete and can only really work if the rules can be reviewed frequently – a challenging task, in particular if it involves a political process.

 

 

"I do feel that the rules based approach is the best model. But there should be periodic reviews of rules which include the input of the industry as gaming evolves."

 

 

- Christopher Hebert, Director, Gaming Division, Louisiana Office of Attorney General

 

 

As usual the answer is somewhere in the middle between a pure goals-based and a pure rules-based approach, has been the comment many survey respondents shared. A hybrid solution that imposes prescriptive rules on regulatory areas such AML or responsible gambling, but leaves more leeway with precise goals for areas such advertising has been suggested. The fact however that not one country mentioned was consistently defined as either suggests that probably that most regulatory frameworks already combine elements of both.

 

  

 

 

The article quotes members of Ampersand who contributed to the survey on goals-based vs. rules-based regulation that was conducted in the period between 11 and 20 September.

 

Ampersand is Clarion Gaming’s global think-tank initiative. Over 2000 industry professionals are part of it to participate in regular online surveys and meetings, share best practice and learn from one another. To learn more about Ampersand, please go to www.clariongaming.com/ampersand.

 

Read the article at the iGaming Business Magazine

 

 

 

 

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