Keeping up with the Regulators
Sigma met with senior lawyers James Sciculna (on the left) and Joe Borg (on the right) outside their offices in Ta’ Xbiex to find out what it takes to navigate through the complexities of constant regulatory updates in such a fast-paced industry.
How has the gaming scenario evolved in Malta?
JS/JB: Malta was the first EU member state to regulate online gaming, at a time when most other countries were still scratching their head as to what to do with this online “phenomenon”. Malta being ahead of the game in terms of regulation resulted in a significant chunk of the industry choosing Malta as its base. Many operators and suppliers actually started off here and are now sizeable multinationals leading the way in the industry. This critical mass also lead several other very large operators which originally decided to establish themselves elsewhere to moving parts or all of their operations here. Today Malta is at the centre of the global remote gaming industry and keeping this leadership role requires regulatory innovation and investment in improved infrastructure locally.
Mergers and acquisitions seem to be taking the whole industry by storm. This must mean a lot of work for firms like yours. Are you worried that ultimately this bubble might implode?
There has been significant M&A activity in this industry over the past eight to ten years or so, but the last few years have seen the stakes get progressively higher. There is increased consolidation in the industry with acquisitions by operators interested in expanding to new markets and some very significant private equity groups looking at this as a real opportunity to build shareholder value. We’ve seen mergers of equals or quasi-equals which on paper should have worked due to complementary products and increased efficiencies, but these are always harder to manage in practice. On the expansion side competition is cut-throat and certain markets have become quite saturated. Product innovation, cost-cutting and focus on increased customer loyalty are, in our view, all essential for the industry to continue to thrive. The brave will be looking for new markets in geographic areas many wouldn’t have previously considered. We are actually seeing all of that happen and as the big fish get bigger and others become interested in this sector, we expect to see continued high levels of M&A activity over the next year.
The main challenge which the industry has faced for some time now is over-regulation, the increase of compliance costs which is resulting from market fragmentation as well as taxation and the application of rules in certain markets so as to give an advantage to local incumbents.
We do not believe that this is a case of a bubble that could burst. The industry is here to stay. However, the scenario is evolving and as it does so business must evolve and regulation must keep up with it.
Tell us a bit about landmark cases that might have helped reshape the course of iGaming law.
As you readers will know, in Europe the industry was shaped to a large extent by a number of judgements of the Court of Justice of the European Union (CJEU). Unfortunately, while initially decisions of the CJEU suggested that a single market for remote gaming was an achievable reality, more recent judgements favoured a national authorisation regime approach which, in itself, has reshaped the industry to what we have now. Probably the turning point was the Santa Casa case in 2010. That being said, there are several EU law rights which can be availed of by operators in this industry, such as that to establish their business wherever in the EU they deem fit.k
There never seems to be a dull moment. From AML to EU trade secrets to changes in EU (data protection) law, Brexit and more… how do you see the legal landscape evolving?
There are several areas of EU law which are harmonised and cut across sectors, which have a strong impact on the gaming industry. Recent changes to EU AML laws are being implemented across EU countries at the moment. These will add further compliance burdens on operators, but in the end, operators will comply and continue to do business under these new laws. The same applies to important changes in EU data protection laws. The industry is maturing very quickly and most stakeholders have learned and are equipped or are equipping themselves to comply with these new obligations. We feel that the industry can survive added burdens which are logical, fair and necessary for the better regulation of the industry itself and the protection of the consumers.
Brexit is a completely separate argument. It is unfortunate that Britain has taken a decision to leave the EU. In our opinion it is a tragedy for the EU, Malta included, in the longer term. In the short term this decision has created more interest in the Maltese regulatory regime, especially from operators that are based in Gibraltar. However, it is also true that Malta has lost one of its biggest allies on the EU negotiation tables. In gaming, the UK was probably the only member state, apart from Malta, that was more open to the needs and the specific realities of the industry. It was also the jurisdiction that was more open to harmonisation of certain technical standards for the gaming industry, thus simplifying cross-border market access to gaming operators. So all in all, in our opinion, Brexit is a bad thing that we have to live with.
Esport, Fantasy Sport, Digital Games of Skill, Virtual Reality…. is it possible for legislation to keep up with such a fast paced industry?
The only way for regulation to keep up with the industry is by having the technology and game neutral regulation. Technology neutrality and game neutrality favour innovation and development. It is also essential that the regulator is granted the adequate tools and a high-level framework to regulate the industry effectively and efficiently.
This is what the industry is expecting from the legislative overhaul announced by the government and the MGA. This is what needs to be achieved in this process.
Given gaming’s impact on local GDP and the increasing demand for talent, do you feel there is a need for the University of Malta to introduce more related academic modules?
There is certainly a need for a larger supply of skills related to the gaming industry in the local labour market. This is important for the growth of industry here. In the short term the supply can, in our view, only be satisfied by those having the skills moving to Malta, so to say by “importing it”. In the medium and longer term, we would like to see Malta’s academic and technical institutions churn more developers, people interested in marketing, accountants and lawyers, amongst others, minded to work in the area of technology. Fundamentally, it is not only about churning numbers of graduates but also about their quality, not only in academic terms but also in terms of their communication skills, critical faculties and openness to the world.
Where do you see the Maltese gaming industry in the next five years?
Five years is a long time in such a dynamic industry. It is difficult to predict. Much depends on the regulatory overhaul which the government and the MGA have embarked on. Achieving a technology and game neutral regulatory framework as well as cutting down on red tape by simplifying procedures whilst keeping a high level of consumer protection is the goal. A lot also depends on Malta’s ability to improve its physical infrastructure, roads, urban planning, quality accommodation and on keeping inflation in check. However, the future future also depends on external factors that may create new challenges as well as new opportunities for the industry in Malta. Time will tell. What is certain is that Malta cannot just sit and wait.
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