Laws to safeguard cross border access for workers, as more firms move in
“Unequivocal support” for the eGaming sector has helped to encourage more on-line eGaming and financial services firms to relocate to Gibraltar since the UK’s vote to leave the EU, despite concerns that a ‘hard’ BREXIT might lead to difficulties with border access from Spain for thousands of staff, reports Ray Spencer
After Brexit, Gibraltar’s frontier will become an external border of the EU and the threat of restrictions on free flow of pedestrians and traffic “fills many who live in Spain and work in Gibraltar with dread”, suggested Peter Isola, senior partner at local law firm, ISOLAS; the gaming industry that accounts for roundly a quarter of the jurisdiction’s economy, he conceded, could be “disproportionately affected”.
He was speaking as a sector expert
panellist at the KPMG 2017 eSummit near end-March, the seventh in Gibraltar primarily for the gaming sector, that now employs 3,350 people, two thirds of whom arrive daily from Spain.
A ‘live’ poll amongst the 260 delegates at the Sunborn Hotel showed 53% reporting continued “free movement across the frontier” was by far the greatest concern, whilst continued access to the UK at 12% was the second biggest issue.
Yet Isola quickly pointed out that, although there was no certainty of post-Brexit circumstances, “there are reasons –both
practical and legal – why concerns may well be overblown”.
Post Brexit, Gibraltar will be an external border of Spain, but that “does not mean Spain is free to act as it pleases”, Peter Isola declared. There is EU legislation from last September regulating the “efficient” management of EU external borders that, although aimed at migration and potential future threats, is committed to ‘safeguarding the free movement of persons’ and ‘processing of personal data should respect the principles of necessity and proportionality’.
In addition, he pointed to a new European Agency being established under a EU Directive that will ‘oversee the effective functioning of exterior borders (particularly ‘neighbouring countries’) and ensure there are necessary additional resources, including ‘equipment, infrastructure, staff, budgets and financial resources’.
Cautiously optimistic
As Isola remarked: “I do not mean to underplay the challenge that this represents: uncertainty is never good for business.” Nevertheless, there are “good logical reasons to be cautiously optimistic”.
Gibraltar firms account for a substantial part of the UK’s eGaming market – 60-70% of sports betting, 50+% of casino and on-line bingo, and 10% of poker games – but most also have separate individual licenses to operate in European countries.
One of Gibraltar’s largest operators, 888, days earlier published its annual report that included a risk assessment on Brexit, which concluded that although the future was unclear, if the company operating in Gibraltar “…it’s ability to rely on EU freedom of services / establishment principles in supplying its services within the EU will be limited”; it might “become ineligible to retain existing licenses in some EU jurisdictions”.
Although the company could not control political changes, it would “reconsider the appropriateness of remaining registered, licensed and operational in Gibraltar in these circumstances. Malta may be considered as an alternative ‘dot com’ licensing jurisdiction,” 888 noted.
That position did not faze Minister for financial services and gaming, Albert Isola, who in opening the KPMG event, declared: “I would expect companies to make plans for what may happen at the end of the Brexit process – it is only right and proper – and I know every financial services and gaming firm has done exactly that.” He added: “I don’t see that as a negative” and promised consultation “with each of you to better understand what support and help we can give. I am certain we will have a solution for you.”
So far this year, four licenses have been granted to providers of games to the sector, “which is where nearly all of the growth is coming from because we have all the major eGaming companies here already”, Phil Brear, Gambling Commissioner and Regulator, told Gibraltar International.
Despite eGaming industry consolidation, with an expected loss of five licensed firms, and the shadow of Brexit, there continues to be around 30 firms based in the jurisdiction. Three more license applications are in the pipeline, but Brear revealed: “We continue to have expressions of interest that don’t meet our licensing requirements (either from the businesses not being sufficiently well established, or not dealing with what we consider to be mainstream markets).”
In financial services (that account for a further 20% of the economy, there had been 20 additional licences granted since the Brexit referendum, Minister Isola reported, and 20 more licenses were being processed, which together with more eGaming companies demonstrated “continued interest in Gibraltar as a safe, well-regulated jurisdiction”.
Isola assured his audience: “All of the discussions we have had with [UK government] across the spectre, whether fluidity at the border or continued access for financial services, has been very constructive. Our relationship with the UK government is better than I could ever have hoped for and not just at a political level, but also filtering through to the officials, (which is always a challenge). We have made clear that “this has to be done – there is a debt and an obligation to Gibraltar to maintain open trading links.”
Challenges remained, he acknowledged, and his Brexit review team were exploring “options and ideas”. Government support for the sector is “unequivocal and we will do whatever we have to do to support and encourage you and ensure that you remain as profitable as possible during your stay in Gibraltar; you are an important part of the economy and it works for you and it works for us.”
Jay Stubina, co-founder of Continent 8, a provider of managed hosting solutions secured over a global private network, told Gibraltar International investment of $US5m for 200 data storage racks is being contemplated nearly doubling the number it already has within The Rock. The firm, which operates in 26 locations, spent $US10m in 2011to open in Gibraltar, and is “waiting to see how the dust settles” on Brexit before expanding.
Gibtelecom, which has 300 data racks at Mount Pleasant serving local businesses, has separated out its operation into a new company Rockolo, and it will install a further 200 racks in 2019.
Expert panellist, Peter Montegriffo, a lawyer at Hassans, maintained: “The UK point of consumption tax has been beneficial in some ways, in that it is has brought more traffic to Gibraltar, rather than to the UK.”
Double tax take
Clive Hawkswood, chief executive of the Remote Gambling Association – an industry lobby group – said the UK tax introduced last year had been expected to raise £300m revenue, “but they are getting double that.” He added: “The UK is the largest gambling jurisdiction online in Europe and the most mature.”
Now the sector also faced dealing with an EU ruling on VAT for gambling, “although there is some leeway in its application as it could lead to the end of some markets as being unviable”, Hawkswood warned.
“Gibraltar is the exception [with no VAT]”, he said, “It is a very attractive jurisdiction, because overall the business environment is very positive. The confirmation of the government’s unequivocal support for our sector is music to my ears.”
In the UK there were increasing demands in respect of tax on gaming ‘bonus’ offerings, advertising standards, social media activity and involvement of ‘affiliates’, he declared, and “I expect there will be a lot of tightening up on regulation” of the sector. That meant greater certainty for operators, but also more cost.
However, Hawkswood suggested that “there is a move away from evidence-based decision taking and more towards what a government Minister wants to happen to satisfy public reaction” and even media references to the on-line gaming sector tended to add to negative public perceptions around people being addicted to gambling, even though only 0.7% of the population was classified as ‘problem gamblers’.
“Internationally that percentage is very low”, he maintained; the UK was the least affected, with Australia, Singapore and Ireland being the top three jurisdictions for problem gambling.
Anti Money Laundering (AML) activity is a growing consideration too, although it was suggested eGaming had relatively little. Keith Bristow, chairman of the year-old Gambling Anti-Money Laundering Group representing 70% of the UK sector, admitted there was a risk the eGaming sector could be exploited by criminals working hard to ‘clean’ their money through gaming. “The scale of money laundering generally is huge. We are not talking about small amounts of money; certainly in the UK it runs into billions, not millions [of pounds Sterling].”
Collaboration needed
Now eGaming firms needed to work collaboratively on AML and study how members could share information and experiences – putting inter-company competition aside – on a legal basis, given the UK Regulator was demanding the sector should do so. “The industry is low risk from a money laundering view point, but we can always do better”, Bristow conceded. “I am not seeing rampant money laundering through online gaming.”
The Group intends publishing a report with suggestions for action later this year as part of transparent consultation, but requests from other jurisdictions to join the Group were been rejected for the time being. “Whilst people want to know how we are tackling this issue, there is less interest in where the money comes from in the first place – through mobile phone use, banks, etc”, he declared.
Gibraltar also is looking to improve further its Gaming law. Minister Isola said: “Our gambling review got side tracked, but we are picking up all the issues around Brexit to put us in an even better place for the next 10-20 years.” In 2016, the government consulted on the internet block chain, Bitcoins and other virtual currencies, and as a result will publish by summer “a consultative document on the framework for legislation covering the gaming and financial services sectors, because the technology overlaps both sectors.”
As part of that review, the proposal is to establish later this year a new, enlarged structure to strengthen and broaden the scope of regulation and licensing of the gaming sector.
In parallel the government is looking to appoint a successor to Phil Brear (60), who is retiring at end-October after eight years, but he will then play a leading consultative role “to ensure continuity of approach”.