EGR Malta report 2018: The rules have changed: Malta’s new Gaming Act

ARTICLE

21 Sep 2018

The content of this article was first published in EGR Malta report 2018. 

James Scicluna and Robert Zammit, of WH Partners, identify the key changes brought about by Malta’s new gaming act. 

Malta has just gone through a facelift of its gaming and gambling regulations. Its stated objective is to retain its role as the leading jurisdiction worldwide for online gambling and to create opportunities for the gaming (nongambling) industry. Malta’s new gaming act (“act”) came into force on 1 August 2018, together with a series of regulations which have changed the way things are done. 

Although Malta’s former regulatory framework was somewhat of a reference point for other jurisdictions seeking to regulate the online gambling market, improvement was needed to cater for evolving technologies and business models. 

The change from an outcome-based approach to an objective-based one is also most welcome. The act itself is built on principles which apply across the whole spectrum of the gaming and gambling industries, covering all verticals and all channels of delivery – from land-based to online and beyond. 

The grandparenting over of licences issued under the former Remote Gaming Regulations seems to have gone smoothly, with the MGA putting in extra hours to ensure that operators were aware of changes and how this will affect them on a day-to-day basis. Experience to date suggests that the act has been generally well-received. 

Remote gambling – simplified licence classes 

The most apparent change was the simplification of the licence classes. We saw a move away from the system where an operator was required to obtain multiple licences to off er similar products provided from different soft ware providers. Now Malta has a two-category licence system: (a) a business to business (B2B) critical supply licence and (b) a business to consumer licence (B2C). Operators holding Class 4 licences had their licences grandparented over to a B2B licence, and those holding Class 1, Class 2 and Class 3 licences had all of their licences grandparented over to a single B2C licence, unless they opted to have certain “old” licences converted into separate B2C licences under the new act. 

The change was aimed at reducing bureaucracy and time-to-market when launching products of a similar nature and risk profile. It has also brought about a crackdown by the MGA on operators offering products licensed outside the EEA via a domain offering MGA licensed products. The message is clear: there is no excuse for an operator to seek to off er products licensed outside the EEA via channels of distribution used for products licensed in Malta or elsewhere in the EEA. 

New products, if they are supplied by third parties holding a B2B licence or otherwise licensed in the EEA, can now be launched by a Malta B2C operator with extreme ease. Instead of having to wait for months to obtain a new licence to off er a product which is similar in nature and risk to the ones already offered, operators can now plug-and-play such products to their system and off er them to their customers following a mere notification to the MGA. 

MGA approval is still required when launching verticals which are new to the operator. However, the MGA will limit its review to the gap and, in particular, to the technology and whether it meets the player protection standards required under the act, rather than delve into corporate due diligence every time a new product is launched. 

The same principle applies to B2B providers. When launching new games under the same gaming system and/or the same random number generator, no approval is required, while the launch of new verticals will require prior MGA approval.

Longer licence term and “group” licences

The term of MGA licences has been lengthened to 10 years from five years. 

Group licences are now also available. The act refers to them as Corporate Group Licences. Operators can now split their markets or products (and therefore their risk) in different group companies but benefit from the same MGA licence. If the companies are at least 90% owned by the same owner, they are considered to form part of the same group for this purpose. Furthermore, a company which provides a critical supply solely to its group can also fall under a corporate group licence and will not require a B2B licence.

Material supply licence 

The act introduces the possibility for persons supplying certain services to MGA licensees to obtain a “material supply licence”. The material supply licence is optional. However, for the holder, the advantage of this type of licence is that a B2C licensee that wants to use its services will not need to go through any approval process to commence the relationship. The relationship is plug and play once commercial terms have been agreed. 

Operating from Malta under licences from other EEA regulators 

Malta companies which are not licensed by the MGA but are licensed in another EEA jurisdiction and provide gambling services from Malta must now obtain a “recognition certificate” from the MGA. This is a new requirement intended to give the MGA visibility of those companies which are licensed by another EEA authority and therefore outside of its control but operating within the jurisdiction. 

A key official is no longer required 

The act does away with the role of the key official, who was formerly the main point of contact between the licensee and the MGA. Licensees are no longer required by law to have a director who is a resident in Malta. However, licensees are now required to identify the group of persons responsible for the core management of the business. These persons need not be resident in Malta (certain functions may also be outsourced), but they must be readily available in Malta should the MGA require to see them. Each of them must also satisfy the MGA’s fitness and properness tests. There is some debate as to what “readily available” means. Licensees should take advice on this point.

New tax rates and contributions 

Change comes at a price. In late December 2017, the MGA published the new tax rates and monthly contributions licensees must now pay. These have applied as of 1 January 2018. Operators already licensed by the MGA continued to pay under the old tax regime until August 2018, aft er which a settlement mechanism kicked in under which adjustments were made of tax paid under the old tax system versus tax due under the new system from 1 January 2018 onwards. 

The novelty is that a monthly tax of 5% on gross gaming revenue generated from Malta has been introduced across the board. In addition, operators are to pay monthly contributions depending on the products provided, with minimum and maximum yearly contributions. The operators who have mostly been affected are those offering remote casino games, as the new system moved from the flat monthly tax towards a percentage on the gross gaming revenue. It is yet to be seen how this change will affect small operators in the long run considering also the increasing regulatory expenses to tap into markets which have become regulated. 

B2B operators have also seen a change to their dues to government. Whereas under the former Remote Gaming Regulations, Class 4 operators paid a monthly tax of €4,660 and an annual licence fee of €8,500, under the Gaming Licence Fees Regulations B2B operators must only pay an annual licence fee which has been increased to a minimum of €25,000 and a maximum of €35,000 depending on the volume generated under the licence. A decrease of contributions of around 50%. Clearly a move to incentivise the technology side of the business.

Start-ups 

Another initiative in the Directive on Start-Up Undertakings, introduced under the act, is the exemption for start-up B2C operators from paying the monthly compliance contributions. A qualifying B2C start-up is exempt for its first year of operations from paying monthly compliance contributions. 

Our views 

It is our view that Malta’s new gaming act has improved the rules of the game, bringing a stronger, streamlined licensing process, a horizontal regulatory approach and a framework that responds to the ever changing technological evolution. Clarifying concepts which were not defined under the previous legislation, introducing a stricter, yet simplified and less bureaucratic supervision process and a risk-based regulation, the new law tries to improve transparency, effectiveness and efficiency and confirm Malta as the leading jurisdiction worldwide for online gambling. That being said, there are some areas of the law and regulations which are still open to interpretation and we think that the first year or so following the roll out of the act is a crucial period within which the industry should work with the MGA to obtain the clarifications required. Licensees and licence applicants should seek advice especially on areas which are subject to interpretation. 

The article can also be read here