Can the Isle of Man hold on to its place as a top jurisdiction for online gambling in the face of increased regulatory pressure and offshore competitors? Appleby partner Claire Milne reports

In 2001, the Isle of Man (IoM) was one of the first jurisdictions in the world to regulate online gambling.

The industry now accounts for 8% of the island's total GDP and supports more than 800 employees, while the island has established itself as one of the most dynamic and reputable online jurisdictions in the world. 

But with increasing government and regulatory pressures on the island's online gambling industry – together with the emergence of competing offshore jurisdictions – how will the island ensure it retains its competitive position? 

As a tier 1 jurisdiction with an array of excellent legal, accountancy and fiduciary firms to support their development, a growing network of online gambling operators and software development companies have chosen the IoM as the centre of their business operations. 

The IoM is on the UK's so-called 'white list' under the Gambling Act 2005 and, therefore, IoM operators are entitled to advertise their services in the UK.

The island also offers many advantages to those operators choosing to locate their operations in the there, including:

• a high-quality and stable political, legal, fiscal and regulatory environment; 
• a pool of professional expertise and talent to service and support all of the requirements of the online gambling industry, including internet service providers, software providers, hardware suppliers, graphic designers, web designers, disaster recovery centres, e-payment service providers, lawyers and accountants; 
• a first-class telecommunications infrastructure for hosting and disaster recovery; 
• low-tiered rates of online gambling duty (other than in respect of pool betting, which must be charged with the same amount of duty as would be imposed in the UK); 
• a general rate of corporate income tax of 0%; and 
• a location within Europe that is within the same time zone as the UK and never more than four hours different from any other European country. 

A solid foundation

The IoM's well-established online gambling industry is regulated by the Gambling Supervision Commission (GSC), an independent statutory board established in 1962.

It is responsible for the regulation of all forms of gambling (other than the National Lottery) in the IoM, including both land-based and online operations. 

During my tenure as its chairman(2007-12), the GSC evolved from its place within Government to become an autonomous statutory board; introduced several legislative changes including the safeguarding of player funds, the introduction of network licences and new casino regulations; and signed its first international co-operation agreement.

The GSC is now an active member of the international regulatory bodies Gaming Regulators European Forum and International Association of Gaming Regulators.

The GSC is statutorily charged under the Gambling Supervision Act 2010 to ensure that gambling is conducted in a fair and open way, to protect the young and vulnerable, and to prevent gambling from being a source of crime/disorder or used to support crime. 

It undertakes due diligence on new applicants and post-licensing reviews, ensures that player protection mechanisms are appropriate and investigates complaints from players.

The GSC also has a duty to safeguard the reputation of the IoM, while being careful to ensure that the island's online gambling operators can compete effectively in a global environment. 

The IoM's Department of Economic Development is responsible for the promotion and development of online gambling on the island, and offers supplementary help and support regarding the establishment of any online gambling operator here.

The IoM's innovation in online gambling has enabled the island to position itself as a premier jurisdiction when it comes to online gambling, licensing and regulation.

The primary legislation regulating the online gambling industry in the IoM is the Online Gambling Regulation Act 2001 (OGRA). This covers all online games, betting and lotteries that:

• use telecommunications (such as phones, internet and servers); 
• involve players betting money (or money's worth); and
• incorporate any element of randomness or chance.

Accordingly, the following is a non-exhaustive list of the types of online activities that require an OGRA licence:

• sportsbooks;
• betting exchanges;
• online casino games;
• live dealing;
• peer-to-peer games (eg poker);
• mobile phone betting;
• fantasy football (or similar);
• financial trading (except spread betting, which would be regulated by the IoM's Financial Supervision Commission);
• Parimutuel and pool betting;
• network gaming;
• lotteries;
• certain spot-the-ball-style games; and
• network services.

In addition to complying with OGRA, operators that intend to establish in the IoM must:

• establish a Manx company;
• have at least two local directors who must be individuals and not corporate entities;
• appoint at least one resident designated official or, where the designated official cannot reside in the IoM, an operations manager;
• either register players on IoM servers or operate under a network services licence that obliges them to establish the network services in the IoM; and
• locate gambling and trading accounts with a bank in the IoM.

The GSC recognises the importance of having a clear licensing framework and clarity in relation to its law.

Accordingly, in February 2010, new regulations were put in place that set out explicitly what actions amounted to licensable activity.

OGRA excludes certain established activities from its scope, despite their possible connection with telecommunication-related gambling activity. 

The Online Gambling (Exclusions) Regulations 2010 make it legal for online gambling operators to locate their non-gambling related activities (such as marketing, administration, software downloads, customer support and relay servers) on the island without the need for an OGRA licence.

Operators that are not licensed in the IoM can also make use of the island's premier IT infrastructure in relation to disaster recovery services under the terms of the Online Gambling (Disaster Recovery) (No. 2) Regulations 2007.

A sub-licence can be obtained if the applicant wishes to operate exclusively with a technology provider with a full OGRA licence regulated by the GSC.

The IoM has anti-money laundering and prevention of terrorist financing legislation that applies solely in connection with the online gambling industry in the form of the Proceeds of Crime (Money Laundering – Online Gambling) Code 2010 and the Prevention of Terrorist Financing (Online Gambling) Code 2011.

Protecting customers 

The protection of players is of fundamental concern to the GSC. Thus, as well as ensuring fairness of the games and services offered, the IoM has specific regulations to ring fence players' funds, namely the Online Gambling (Participants' Money) Regulations 2010.

Customer data is essential to all online gambling operators. An aspect that is often overlooked when deciding where to incorporate an online gambling operator is the data protection regimes that apply in the different jurisdictions.

Importantly, the IoM has an adequacy finding by the European Commission in relation to data protection that aids the transfer of personal data in and out of the island under the eighth data protection principle. 

The island has its own data protection supervisor and its legislation (the Data Protection Act 2002) is based on Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data.

On 25 January 2012, the European Commission presented its proposals for reforming data protection rules in Europe by replacing the 1995 directive that forms the basis for the IoM's data protection legislation.

The island is already working to ensure that it retains its adequacy finding in light of the new proposals.

The UK Department for Culture, Media and Sport announced plans to reform the UK's Gambling Act 2005 on 14 July 2011.

It is proposed that the UK's Gambling (Licensing & Advertising) Bill, which was published in December 2012, will amend the Gambling Act 2005 so that remote gambling by consumers living in Britain is regulated on a point of consumption basis. 

Consequently, all operators selling into the British market will be required to hold a UK Gambling Commission licence to enable them to transact with British consumers and to advertise in Great Britain.

This is in line with long-held expectations that the UK would eventually seek to align its regulatory model with those currently emerging in Europe.

As mentioned earlier, the IoM is on the UK's 'white list' under the UK's Gambling Act 2005 and therefore, operators on the island are entitled to advertise their services in the UK.

This system is set to be replaced when the legislation is amended, with operators already in a white-listed jurisdiction receiving an 'automatic transitional licence'.

The UK and the IoM enjoy an ongoing dialogue on gambling regulatory matters and the work to formalise the details of the new regime will simply be an extension of that relationship going forward. 

As noted by the Department for Culture, Media and Sport in its summary to the Gambling (Licensing & Advertising) Bill: "The proposed changes will… mean phasing out the British white list, though operators based in the existing white-listed countries will continue to benefit from the robust regulatory regimes we know are in place and the close regulatory relationships already in place between the Gambling Commission and the white-listed regulators."

The GSC has a good working relationship with gambling regulators throughout Europe and that relationship is important in ensuring there is a comprehensive and constructive dialogue both at a regulatory and political level as more European jurisdictions look at regulating online gambling. 

It seems clear that regulation at the point of the consumer is the way the industry is moving and the GSC can be instrumental in the formation of these policies by sharing its experience and practice with other regulators.

Claire Milne (pictured) is a partner in the corporate and commercial department at Appleby. She is also the former chairman of the Gambling Supervision Commission.