Risk vs Reward: The Key Factors Influencing Gaming Regulation Computronix

Risk vs Reward: The Key Factors Influencing Gaming Regulation

The rapid growth of online gambling across North America is creating an unprecedented opportunity for government agencies that license and regulate legalized gaming in their state or province. In New York State alone, a 51% tax rate on mobile sports wagering yielded $163.6 million in just three months of regulated online sports betting. The revenue outlook is much the same in Canada with Ontario (the most populated province) expected to generate nearly $75 million in revenues over the next three years from the province’s recent regulation of the online sports and casino gaming sectors.

For government regulators striving to meet their primary mandate to ensure that gaming is operated with honesty and integrity in the broader public interest, this surge in demand creates a Catch 22 situation. On one hand, state and provincial agencies are keen to capitalize on the obvious revenue potential from a host of emerging online offerings that are transforming their traditional bricks-and-mortar gaming portfolio. On the other hand, many agencies are being asked to do more with less with operational budgets and staffing increases lagging behind the rapid growth of their products and services portfolio. To address this situation, gaming agencies across North America are almost unanimously embracing a movement towards technology automation and organizational transformation with these overriding mandates boiling down to two key initiatives:

  1. The consolidation and streamlining of regulatory bodies within a unified regulatory framework
  2. The implementation of a risk-based approach to gaming licensing, regulation, and compliance.


Online Innovation Driving Regulatory Consolidation


For most jurisdictions, the regulatory bodies that govern gaming products arose holistically, with the various horse racing, lottery and casino commissions that we know today reflective of the regulations and requirements unique to each of these wagering opportunities. While this regulatory specialization undoubtedly made sense when such offerings presented solely as bricks-and-mortar and/or ticket offerings, it is less applicable now (and borderline antiquated) as these activities became available online via ‘one-stop-shopping’ wagering websites. To properly address this new marketplace, gaming agencies at the state and provincial level across North America are progressing with strategic plans to consolidate their various regulatory commissions within a single overarching gaming commission. Some agencies, such as AGCO (Alcohol and Gaming Commission of Ontario) took it a step further with this singular organization responsible for the regulation of a diverse portfolio including alcohol, gaming, horse racing, and cannabis.

To support this broad range of products and services, AGCO undertook a sweeping enterprise-wide business transformation and modernization program in 2015, the “Regulatory Assurance Solution” (“RAS”) initiative. RAS updated the corporation’s operating model to a consolidated, risk-based/risk-centric program incorporating streamlined go-forward licensing and enforcement business processes. Through this transformation, AGCO sought to redefine the way it managed itself and its approach to regulating the gaming and liquor sectors in Ontario, positioning the agency to be flexible, transparent, and adaptable in a constantly changing environment anticipated to include an expanded mandate from new lines of business. A multi-phased project incorporating the enterprise deployment of a Powered by POSSE solution across all AGCO departments, the project provided AGCO with a  new “iAGCO” Customer Portal, a new Staff Portal (back office system), an integrated iPhone-based Mobile Enforcement component, and extensive ad-hoc reporting, real-time dashboarding, and business intelligence services.

Further south in the beautiful Caribbean, the Betting, Gaming & Lotteries Commission of Jamaica (BGLC) is pursuing a similar path to streamline their regulatory infrastructure. Presently engaged in a project to implement an enterprise-wide Powered by POSSE solution, BGLC’s strategic plans envision the formerly autonomous Jamaica Gaming & Racing Commission (JRC) and Casino Gaming Commission (CGC) under the same roof with BGLC, with all parties benefiting from the process re-engineering and workflow automation afforded by their new Gaming Management Information System (GMIS).


The Advantages of Regulatory Reinvention


Consistent with the forward-thinking innovation of AGCO and BGLC, gaming agencies across North America are increasingly incorporating regulatory consolidation and reinvention efforts into their strategic planning and IT initiatives, with the numerous business benefits summarized as follows:

  1. Commission consolidation facilitates the resultant elimination of aging and costly legacy systems.
  2. Central commission model enables the implementation of a single enterprise gaming software solution.
  3. Centralized software solution equips data availability and transparency for all pertinent stakeholders, internally and externally.
  4. Agency-wide data availability populates rich reporting tools initiating a data-driven regulatory model.
  5. A data-driven model empowers regulatory reform and the resultant process re-engineering and streamlining.
  6. Data-driven regulatory model enables gaming agencies to implement a risk-based regulatory approach.
  7. Streamlined regulatory model eliminates silos between product lines, improving the customer experience and increasing the speed to market for new products.

Gaming Agencies Embracing Risk-Based Regulation


In an effort to focus resources to deliver a modernized approach to gaming regulation in a rapidly evolving industry, gaming agencies like AGCO have embraced a risk-based approach to regulation.

Under this approach the regulatory focus shifts from requiring gaming registrants to comply with a prescriptive set of rules and regulations, to providing standards that must be achieved.  In short, a risk-based approach to regulation is one where rules and regulations are applied to a sector in a practical way, only if required, rather than a blanket obligation to conform even when they are not applicable or relevant. In most cases, these standards are drafted at a high level of generality, with the aim of capturing the purpose behind the rule. This offers greater flexibility for regulated entities to determine the most efficient and effective way of meeting the outcomes required, which in turn helps reduce regulatory burden and support market innovation.

Gaming Regulation

What are the Advantages of a Risk-Based Approach?


For a start, it is much more efficient for operators and service providers. They can drive their businesses forward in a safe and secure environment, without the burden of over-regulation. The online gaming industry for example has grown rapidly in recent years, but those operating in the sector have struggled to adapt their businesses to the rules and regulations in each market.  Partially due to a lack of harmonization in the regulatory models, there are not enough examples of multiple jurisdictions taking a uniform approach via a common framework. In contrast, a risk-based model helps to smooth the path for businesses entering multiple markets by relieving some of the regulatory pressure resulting from this patchwork approach. This has a knock-on effect for all stakeholders, particularly banks and payment processors familiar with the due diligence and compliance oversight facilitated by a robust risk-based approach.

For agencies like AGCO, this is a fundamental change that delivers a modernized approach to gaming regulation, allowing the agency to focus its resources on key risks and maintaining game integrity, while providing a degree of business flexibility and efficiencies for the industry. Ultimately, the goal is a regulatory framework that is simpler, more flexible, and better focused on the mitigation of regulatory risks and the achievement of clear regulatory outcomes.

Key Disciplines for Implementing a Risk-Based Approach


Once a gaming agency adopts a risk-based regulatory approach, they are embracing a model that regulates gaming by using its powers where appropriate, for example to attach conditions to licenses to moderate their impact on the licensing objectives. These code provisions facilitate a number of automated triggers when a new assessment is required and/or when an existing one requires review. As such, an agency considering a similar approach should keep in mind the following disciplines required to implement a coherent and consistent risk-based model:

  • Risk-based Enforcement
    More resources are focused on the operators with a higher risk profile and/or previous compliance issues.
  • Risk-Based Licensing and Registration
    Applications for gaming licenses are reviewed and assessed with a view to identifying and mitigating risks, including the use of conditions, where appropriate.
  • Monetary Penalties
    Administrative sanctions can be leveraged where a licensee or registrant pays a specific amount as a consequence of a breach of the Gaming Act, and where a more severe sanction is not warranted under the circumstances.
  • Standards-Based Regulation
    Shifts the focus from requiring registrants to comply with a specific set of rules or processes, which tend to be prescriptive in nature, towards the broader regulatory outcomes or objectives they are expected to achieve.
  • Education
    Increased emphasis on education and training for external stakeholders as a means of fostering a compliance-focused culture within the regulated industries. The goal is to prevent licensees and registrants from committing infractions by helping them to better understand their regulatory framework and how best to comply within it.

From Risks to Rewards…


Given their role as a key revenue generator for state and provincial governments, today’s gaming agencies are being asked to respond quickly and effectively to fully monetize the emerging opportunities in their industry. For growth focused agencies like AGCO, this challenging remit includes the introduction of new gaming channels, multi-lane lottery sales, new gaming sites, a greater focus on consumer protection and responsible gambling, and increased private sector involvement. In order to achieve these aims, AGCO plans to continue its ongoing transition towards risk-based, outcomes-based, and compliance-focused regulation. Building on its experience with foundational programs such as Risk-Based Licensing and Registration, and Risk-Based Enforcement, and consistent with its strategy of integration and convergence, AGCO will develop a framework to guide the consistent use of risk-based methodologies and approaches across all lines of business.

The focus is much the same for BGLC where similar strategies for regulatory streamlining and risk-based regulation are driving an impactful innovation strategy designed to maximize both current and future gaming opportunities in Jamaica.

Ironically, as gaming agencies across North America progress business plans to maximize the revenue returns afforded by the industry’s rapid diversification, they find themselves embracing the best practices of the very customers these products serve, particularly those knowledgeable bettors who beat the odds to win on a consistent basis. Much as the savvy bettor focuses their attention on those wagering opportunities where they can apply their specific experience and expertise, modern gaming agencies are focusing their attention as well—consolidating previously disparate regulatory commissions and legacy systems into a centralized governance infrastructure operating within a unified regulatory framework empowered by data-driven insights. Moreover, just as savvy bettors appraise their risks to maximize potential rewards, modern gaming agencies are embracing similar disciplines with the ongoing shift to a risk-based regulatory model involving a clear and consistent focus on optimizing resources and efforts to properly mitigate risks while simultaneously pursuing the most beneficial business outcomes for all stakeholders.


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