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BREXIT: the process so far and what will be the impact on the online gambling industry?

Andrew Cotton's article was first published by Canadian Gaming Lawyer in Summer 2017.

Written by Andrew Cotton
17/07/2017

On 23rd June 2016 the UK electorate voted by a proportion of 52% to 48% to leave the European Union (EU). The Cameron government made a manifesto commitment to hold an in/out referendum to settle the question of the UK’s membership, hoping that the “re-negotiation” of several conditions of membership would stem the rise of the UK Independence Party and secure a vote to remain. David Cameron and his advisers clearly misread the mood of large areas of England and Wales, which voted heavily to leave. Scotland voted to remain along with Northern Ireland and the implications of the split vote are as yet unclear given that it has resulted in the Scottish First Minister’s demand for a second independence referendum. In the following paragraphs I will review the background to the triggering of the Brexit process, which occurred on 29th March 2017, and then highlight some of the issues for the online gambling industry. However, it is likely to be some time before the full implications can be assessed.

Commencing the Brexit Process

Not only was the referendum result unexpected but it soon became clear that the Cameron government had made no contingency for a leave vote and the first step by the government was to establish a Department for the Exiting of the European Union. The Department was charged with reviewing all legislation that would be impacted by the UK leaving the EU and also drawing up details of the revised arrangements that would need to be negotiated with the other member states during the two year period permitted under the Lisbon Treaty. The Treaty, which was signed by all EU members in December 2007, established a formal process for a member state to leave the EU and was implemented in December 2009. It is Article 50 of the Lisbon Treaty that governs the process.

Following Theresa May’s election as the new Conservative Party leader she was invited to form a government by Her Majesty the Queen. The new Prime Minister made clear from the outset that “Brexit meant Brexit” and that she would implement the will of the people to leave the EU. However, for a period of several months in the autumn of 2016 the Prime Minister and government provided no detail of how the Article 50 process would be conducted. When pressed the government repeatedly stated that as no member state had ever left the EU it was not possible, at that stage, to provide detail of the government’s negotiating position or when the process would be commenced. When the government finally announced that it would use powers under the “Crown’s Prerogative” to give notice under Article 50 by the end of March 2017, proceedings to judicially review the Secretary of State’s intention to proceed in that manner were initiated by interested parties.

The Gina Miller case – the constitutional position in the UK [1]

On 3rd November 2016 the Divisional Court ruled that as a matter of the constitutional law of the United Kingdom, the Crown, acting through the executive government of the day, has no power to use its prerogative powers to give notice pursuant to Article 50(2) for the UK to cease to be a member of the EU. An Act of Parliament was required to authorise the government to give the requisite notice.

The decision was unsuccessfully appealed by the government, under agreed fast track arrangements, to the Supreme Court. The Supreme Court’s judgment was delivered on 24th January 2017. The UK joined the then European  Communities in 1973. The court had specific regard to the European Communities Act 1972 (“1972 Act”), which gave effect to Community law in the UK and conferred rights on British nationals and also non-British EU nationals exercising EU Treaty rights. The European Union Referendum Act 2015, which implemented the Conservative party manifesto commitments in the 2015 general election to hold an in/out vote made no provision for the consequences of either outcome of the referendum. As a result the Supreme Court ruled that the requisite  change in the law could be made in the only way in which the constitution permitted, namely parliamentary legislation. As a result of the decision the government laid the European Union (Notification of Withdrawal) Bill before Parliament, which had its first reading in the House of Commons on 26th January 2017. The Bill completed its parliamentary passage on 7th March 2017 and received Royal Assent and became law on 16th March 2017.

The Article 50 Process

One of the issues that the UK government, and indeed the other 27 member states have faced is that Article 50 is short and contains very little detail of the process that shall be followed where a member state notifies its intention to leave the EU. It comprises only 5 paragraphs.

The first states

1) Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements;

Paragraph 2 reads:

2) A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with the State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union……It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

The article also provides that the European Treaties will cease to apply to the State in question from the date of the entry into force of the withdrawal agreement, or two years after the notification in paragraph 2, unless the European Council and the Member State unanimously decide to extend the period.

Theresa May triggered Article 50 on 29th March 2017 in a six page letter to Donald Tusk, President of the EU Council[2], which was hand-delivered by UK’s Envoy to the EU, Sir Tim Barrow. On 31st March President Tusk issued the guidelines referenced in Article 50(2) to the other 27 member states [4]. Two paragraph worthy of specific note:

“The United Kingdom’s decision to leave the Union creates significant uncertainties that have the potential to cause disruption, in particular in the UK but also in other Member States. Citizens who have built their lives on the basis of rights flowing from the British membership of the EU face the prospect of losing those rights. Businesses and other stakeholders will lose the predictability and certainty that come with EU law. With this in mind, we must proceed according to a phased approach giving priority to an orderly withdrawal.

In these negotiations the Union will act as one. It will be constructive throughout and will strive to find an agreement. This is in the best interest of both sides. The Union will work hard to achieve that outcome, but it will prepare itself to be able to handle the situation also if the negotiations were to fail.”

What is the UK’s position during the negotiation period?

The UK remains a full member of the EU until the Article 50 process concludes and during that period is required to implement all EU legislation, in accordance with its treaty obligations. The government has already announced that the next Queen’s Speech, announcing legislation for the next parliamentary session will include a “Great Repeal Bill”, which will primarily repeal the 1972 Act but will also preserve EU legislation that has been implemented as UK law under the 1972 Act until parliament can scrutinise whether the legislation is to be retained.

What will be the impact on cross-border gambling?

At this stage it is too early to predict with any certainty the impact on the gambling industry. Under current arrangements gambling is excluded from the Directive on Electronic Commerce and the European Court of Justice has repeatedly ruled that member states are able to implement their own licensing regimes for gambling services, having regard to the differing political, moral and religious views on gambling throughout the EU. There is no requirement for mutual recognition of remote gambling licences between member states and this was one of the issues raised in the challenge to the implementation of the new remote licensing regime introduced by the UK government by the Gambling (Licensing and Advertising) Act 2014 (“2014 Act”).

The Gibraltar Betting and Gaming Association was granted permission to judicially review the legislation introduced by Secretary of State for Culture, Media and Sport and the regulatory regime imposed by the Gambling Commission [5]. The Administrative Court held that the regime set out in the 2014 Act for the regulation of remote gambling in Great Britain was neither unlawful under domestic law nor a disproportionate restriction on the freedom to provide services guaranteed by Article 56 of the Treaty on the Functioning of the European Union (“TFEU”). Ironically, given Brexit, the legislation was passed to remove the recognition of the laws about gambling in other European Economic Area (“EEA”) member states, Gibraltar and the white-listed jurisdictions that were approved when the Gambling Act 2005 was implemented.

Indeed the status of Gibraltar and the fact that it will leave the EU at the same time as the UK is one of the key current issues for the online gambling industry. Most of the largest remote gambling operators into the UK market are based in Gibraltar. In excess of 12,000 staff employed in the industry on the Rock live in Spain and have to commute over the border every day. The UK government have recently confirmed that they will protect the rights that Gibraltarians enjoy but the potential impact on the online industry is enormous should Spain close the border, as has happened before. The Spanish authorities have recently installed new controls at the border and are currently undertaking enhanced and time consuming passport checks, which often result in 4 hour delays in staff reaching their Gibraltar offices. Additionally, the guidelines issued by the European Council under Article 50 have effectively given Spain a veto over the arrangements that need to be agreed by all member states. Spain also has issues over the differential tax rates that apply either side of the border. In the past few weeks one of the largest operators based in Gibraltar has signalled that it is reviewing whether to re-locate to another EU jurisdiction.

Another critical issue that has to be addressed is the requirement in several EU jurisdictions for the operator to be based in the EEA and/or requirements for servers to be based within the EEA. It is extremely unlikely that the interests of the online gambling industry will be high on the UK government’s agenda for the negotiated arrangements to be addressed under Article 50. The industry is therefore going to have to take the lead in persuading EU gambling regulators to negotiate on-going reciprocal arrangements.

Lastly, there is the question of what EU legislation will be maintained by the UK once it leaves, given that over the past 40 years so much EU legislation has been applied as UK law, as required by the Treaties. Inevitably some EU law will need to be maintained if the UK agrees to remain part of EU-wide organisations and UK producers and service providers will need to continue to comply with EU requirements for goods and products if they are to continue to sell into the EU. It is acknowledged that most EU consumer protection legislation is likely to be maintained in the UK. Indeed, those now licensed by the Gambling Commission are required to comply with the UK’s consumer protection laws in transacting with UK customers and not the laws of the jurisdiction in which they are established.

There are two specific areas which are the subject of recently revised EU legislation and that directly impact on gambling operators throughout the EU, namely Anti-Money Laundering controls and Data Protection laws. The UK is required to implement both the 4th AML Directive (“4AMLD”) and the General Data Protection Regulation (“GDPR”) during the two year negotiation period. Draft legislation to transpose the 4AMLD into UK law is about to be laid before parliament and is required to be implemented by 26th June 2017. The GDPR, being a regulation, takes direct effect in all EU states on 25th May 2018. The regulation introduces requirements for gambling service providers to register under data protection laws in those jurisdictions within the EU where they transact with customers, replacing the current requirement to register in the EU jurisdiction in which they are established and hold customer data. In turn, this will then require the UK to negotiate, as part of the Brexit arrangements, specific recognition of the UK’s data protection requirements as being “adequate” under the provisions of the regulation and treating the UK as a safe harbour when data is moved in and out of the UK. Conclusion The Brexit process has now been triggered but it is far too early to predict, with any  certainty, the impact on the European remote gambling market. Hopefully, in 12 to 18 months’ time, once the negotiation process has advanced, it will be possible to provide greater detail of the matters that will impact on gambling operators who transact with customers in Great Britain, once the UK leaves the EU.

  1. R. (on the application of Miller) v Secretary of State for Exiting the European Union [2017] UKSU 5
  2. https://www.gov.uk/government/publications/prime-ministers-letter-to-donald-tusk-triggering-article-50
  3. http://g8fip1kplyr33r3krz5b97d1.wpengine.netdna-cdn.com/wp-content/uploads/2017/03/FullText.pdf
  4. http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex:32000L0031 see Article 1 Paragraph 5 for exemptions
  5. Gibraltar Betting & Gaming Association Ltd v Secretary of State for Culture, Media and Sport QBD(Administrative Court) 10 October 2014. Neutral Citation Number: [2014] EWHC 3236 (Admin), Case No: CO/3807/2014

Contact the Author

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Andrew Cotton

My key specialisms are in betting & gaming, liquor licensing and regulatory law. In addition to the licensing of premises I advise clients on the UK’s remote gaming licensing regime and assist them with their applications to the UK Gambling Commission. I assist clients with a variety of regulatory compliance issues and apply my operational experience, gained in-house at the Rank Group, advising on all aspects of gambling regulation, including anti money laundering and social responsibility policies. I am a member of the International Masters of Gaming Law and the Society for the Study of Gambling.

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