Regulatory Challenges related to Mobile Gaming – Part 2

The first part of this article considers the manner in which gambling on the mobile platform challenges current regulatory frameworks and established rules. The matters discussed relate to licensing and jurisdictional rules, and whether the current regimes are can be adapted to address gaming on mobile devices. The application of the Electronic Money Directive and its application to the mobile network operator is also briefly considered.

The foremost question with regard to gambling in the mobile sphere is whether the licensing regimes in force across the European Union (‘EU’) will hinder or enable this possibility.

At the time of writing, laws regulating the licensing of remote gambling are currently being implemented in an increasing number of jurisdictions across Europe. Many of these laws are therefore in their infancy and may not yet have been faced with questions of mobile gambling. Additionally, no harmonisation of the rules relating to the gaming sector across the EU territory exists at this time.

The existing Maltese remote gaming licensing regime was promulgated in 2004 and was duly implemented through the Remote Gaming Regulations1. Within this jurisdiction, it is clear that neither these regulations, nor the parent act, namely the Lotteries and Other Games Act2, contain any provisions which may preclude the licensing of games in the mobile sphere. Article 2 of the Regulations, in fact, defines ‘remote gaming’ as “any form of gaming by means of distance communications”.

The Maltese Lotteries and Gaming Authority (’LGA’) has issued licenses in favour of both Interactive TV and mobile gaming operators based within the Maltese jurisdiction. Nonetheless, an innovative and ‘different’ proposal will certainly be viewed with caution by the Authority, whose main concerns when evaluating an application are the protection of minors and other vulnerable persons, prevention of fraud and money-laundering and the promotion of responsible gaming. An applicant will therefore need to show that these concerns are duly addressed in the proposed business model.

The gaming operator must establish procedures intended to ensure that the service is not being used by a minor. Due to the fact that pre-paid subscriptions to mobile telephony services can be purchased without registration, this can prove to be problematic. The gaming operator will have to ensure that a player has been through the same type of registration process required to use a remote gaming website, prior to offering the service to that player.

Questions relating to jurisdiction are difficult in any online transaction. They are even more pertinent in relation to remote gambling due to the fact that this activity is illegal or subject to a state-run monopoly in number of jurisdictions. With the added mobility brought about by mobile phone access to gambling, the jurisdictional borders become even less defined.

A practical example would help to evidence this lack of clarity. If a citizen from country B travels to country A carrying his mobile phone, he could use his mobile subscription acquired in country B to play a game on his favourite gambling website. If the laws of country A state that a player that engages in this activity is guilty of an offence, the user would effectively be breaching the laws of country A, possibly even without being aware of doing so.

In this equation there are various links in the delivery chain which can be attributed with fault and/or guilt for enabling the user to complete the gaming transaction. These include (i) the user; (ii) the operator of the gaming website that accepted the citizen of country B playing games from country A; and (iii) the network operator in country A for allowing the user to access the games through its network.

The technological considerations within this simple example are also worthy of consideration, as the medium chosen by the user may have a direct impact on the extent to which the gambling operator can verify the “geo-location” of that user, adding another variable into the delivery chain and further exacerbate the legal uncertainty. Thus, if the player accesses a gambling website through a wireless internet connection in country A, (rather than through his mobile subscription when roaming), then county A’s IP address could be detected by the operator of the gambling website. On the other hand if the player accessed the website through this mobile subscription when roaming, the IP address may not have indicated that the connection was originating through country A, as this will depend upon the roaming system in place between the mobile service providers in the two countries.

Whilst the identification of the IP address is often cited as a possible basis for creating jurisdictional links in internet-related disputes, this argument is not without fault, particularly due to the fact that the IP address can be masked by the user through the use of easily available IP-altering software.

‘Electronic money’ is defined in the second Electronic Money Directive, as “stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions…”3. It is therefore debatable whether the use of the pre-paid ‘top-up’ card for the purchase of value added services would fall within this definition, therefore bringing the mobile network operator (‘MNO’) within the definition of an ‘electronic money issuer’. Indeed, the applicability of the first Electronic Money Directive to MNOs was described by the Commission as “the most controversial issue” in relation to this directive.4 The second Electronic Money Directive has left the definition of electronic money largely unchanged in this respect.

The application of the Electronic Money Directive to the use of pre-paid mobile telephony cards creates a number of problems for the MNO. In the first place, the Article 11 of the second Electronic Money Directive provides that “Member States shall ensure that, upon request by the electronic money holder, electronic money issuers redeem, at any moment and at par value, the monetary value of the electronic money held.” It is an industry-wide policy that unused credit on pre-paid telephony cards is generally not refundable to subscribers. Enforcing this rule upon MNOs would mean an overhaul in the operation of the MNO, as well as a strain on their liquidity reserves.

An additional issue in applying the directive to MNOs is the resulting divergence between the rules applicable to pre-paid subscribers and those applicable to post-paid subscribers. Therefore subscribers to essentially the same services are regulated in different ways: with regulations relating to electronic money being applicable to transactions performed by prepaid subscribers, and telecommunications laws and the contract of service regulating the same transaction performed by post paid subscribers.

The second Electronic Money Directive, however, has ironed out a number of issues which were presented by the first Electronic Money Directive: the Initial capital requirement for authorised electronic money institutions has been reduced from one million Euro (€1,000000) to three hundred and fifty thousand Euro (€350,000). The restriction on electronic money issuers from undertaking other business activities has also been restricted, thus removing a substantial obstacle for the MNOs, which under the previous regime would have been required to set up a subsidiary with the sole purpose of managing the electronic money function.

Whether or not MNOs and MVNOs will require a license as an electronic money institution, and the situations in which this may be required, are specific matters that still require further legal and regulatory clarification.

1 Remote Gaming Regulations, L.N. 176 of 2004, available in English

2 Lotteries and Other Games Act, Chapter 438, Laws of Malta, available in English

3 Directive 2009/110/EC of The European Parliament and of The Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC. This directive replaces “Directive 2000/46/EC of the European Parliament and of the Council of 18 September 2000 on the taking up, pursuit of and prudential supervision of the business of electronic money institutions”, and must be transposed into the national laws of each Member State by the 30th April 2011.

4 Commission Staff Working Document on the Review of the E-Money Directive, (2000/46/EC), Brussels 19th September 2006 SEC (2006) 1049.