For years, the U.K. maintained one of the most progressive regulatory frameworks for online gaming in the world. But that changed in 2014.
The Gambling Act 2005 modernized regulations for the U.K. gaming industry. It created the U.K. Gambling Commission, a regulatory body with the authority to license and regulate gambling. The Gambling Commission began accepting applications for licenses on 2 January 2006, and began awarding them in September 2007.
The Gambling Act 2005 includes many conditions concerning problem gambling and requires online gambling licensees to establish policies for promoting socially responsible gambling. These policies must be published and explain how the operator will contribute to the research into the prevention and treatment of problem gambling, to public education on the risks and safety of gambling, and to identification of problem gamblers. Operators must also clearly state on their website where players may seek help for problem gambling. Employers of online gambling operators must ensure their employees are properly trained in identifying problem gambling and have procedures in place for addressing customers on this matter. Online gambling operators must also give their players the ability to exclude themselves from their services and advertisers must comply with the advertising codes of practice to not promote irresponsible gambling behavior, including underage gambling.
The 2005 Act also gave the European Economic Area (EEA) and other "whitelisted" countries unfettered access to the U.K. market. Whitelisted countries outside the EEA include Alderney, Antigua and Barbuda, Gibraltar, Isle of Man, and Tasmania. The promotion of international online gambling in the U.K. from countries other than the U.K., the EEA, and the "whitelist" is not allowed.
In addition to being able to operate from a whitelisted jurisdiction, online gaming operators were able to enjoy the tax benefits of those jurisdictions as well.
But in December 2014, the U.K. implemented a new regulatory scheme that requires operators to obtain U.K. licenses and implement a 15% point of consumption tax. That means for all wagers placed in the U.K., operators would have to pay a 15% tax on gross profits. This tax rate is in line with the current tax rate for online gaming operators licensed by the U.K.
Previously, many of the big operators in the U.K. operated offshore, where they faced a tax of 1%.
The new 15% tax on gross profits has the potential to significantly eat into overall profits – and it's already changing the industry in ways both expected and completely unexpected.
In the expected camp, offshore jurisdictions like the Isle of Man are looking for ways to give operators financial relief from the new tax. Some operators chose to withdraw from the U.K. market. In the unexpected camp, some operators are restructuring player loyalty programs to account for the new tax. Full Tilt Poker announced a 20% reduction in the rate at which rewards points are given to players. Full Tilt cited the new point of consumption tax as the prime reason for the change.
As of press time, last-ditch legal efforts were being made to repeal the tax. But if the tax remains in effect, it could reshape the industry.
Online gaming in the U.K. is defined as gambling in which people participate by using "remote communication such as the Internet, telephone, television, radio, and any other kind of electronic or other technology for facilitating communication." The U.K.'s objective with its licensing structure is to prevent problem gambling, ensure that online gambling is fair, and protect children and other vulnerable people from the harms of gambling.
Operators may locate their facilities in the country and offer all types of online gaming, including poker, sports and race betting, casino games, and online slots, abiding by the remote and gambling software technical standards as outlined by the Gambling Commission.
Currently, binary options, or fixed-odds bets on financial markets, are regulated as gambling transactions. However, financial betting could soon come out from the scope of the Gambling Act 2005 and be regulated as a financial product. Binary options account for less than 1% of the regulated online gambling market in the U.K., according to the U.K. Gambling Commission.
There are six types of online gambling operating licenses operators may apply for: a casino operating license, a bingo operating license, a general betting operating license, a pool betting operating license, a betting intermediary operating license and a lottery operating license. Operators who wish to operate more than one type need only apply for one betting license type.
To apply for an operating license, applicants must pay an application fee and an annual fee once the operating license is granted. Both the application fees and annual operating fees are based on the type of license and are on a sliding scale based on gross gambling yield.
According to the 2009/2010 Gambling Commission Industry Statistics, the number of licensed operators increased from 366 in 2009 to over 1,000 in 2015. The Commission attributes the increase to society lottery operators obtaining licenses.
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