First published in the Spring 2011 issue of European Gaming Lawyer.

Jersey has not been a place that many have associated with the gambling industry in the past, being rather more famous for a fine breed of cattle, a world class financial services sector and providing the name of a slightly better known state in America where gambling services are significantly more developed. 

For once, however, the island of Jersey has pipped its younger sibling to the post and developed a licensing regime that does not, as yet, exist in the Garden State. An e-gambling licensing regime was voted into law in March 2011 and came into effect on St Patrick’s day to a fair amount of rejoicing from the business community that had been lobbying in its favour for a number of years.

For those unfamiliar with Jersey, the island is located in the Bay of St Malo to the north-west of France and is the largest of the Channel Islands. Jersey has given its allegiance to the Crown of England since 1204 and in return has received successive Royal Charters confirming local customs and civil liberties.

Of particular importance to the island has been the confirmation of its own judicial system and freedom from process of English courts and other important privileges, including fiscal autonomy. To that end, Jersey is not part of the UK or subject (without consent) to UK laws so that in matters of domestic competence, such as gambling regulation, the UK does not represent Jersey.

The agreed political and legal status of the island is a British Crown Dependency.  Jersey is also not part of the European Union, but does have some obligations in accordance with Protocol 3 to the 1972 Treaty of Accession under which the UK joined the European Communities.  

Since Jersey is not part of the UK or part of the European Union, it has no representation in the UK Parliament at Westminster or in the European Parliament.  Islanders are not entitled to vote in UK or European elections. The non-statutory or customary law of the Bailiwick of Jersey derives from Norman customary law, although it has not in all respects developed in an identical fashion.

The legislation passed by the States of Jersey, the Island’s Parliament, frequently draws on English legislation as a blueprint with such local variations as are appropriate, but at different times has also drawn on developments in the Civil Code in France and on other legislation adopted in France and Commonwealth countries.

Government policy

In examining Jersey as a new entrant into this changing market, it is important to realise that all new law and regulations and legislative proposals, including the formation of the e-gaming provisions and the establishment of the Jersey Gambling Commission, have followed the criteria agreed at the Ascot Intergovernmental Conference on Remote Gambling. 

Jersey, as a signatory to the communiqué issued after the conference, pledged that all legislative reform would follow the key guiding principles of keeping gambling crime free, promoting fair, transparent and responsible gambling and ensuring that the young and vulnerable are protected. The application of these key requirements in respect of e-gaming, including duties of suspicious activity reporting, software testing, age verification, self exclusion, technical standards and social responsibility requirements, were all included within the new licensing regime.

Change in the island’s gambling legislation has been under way since 2008 when the States gave clear support to the Minister for Economic Development for updating the island’s regulatory system as well as broad modernisation of the industry. A first step was the creation of an e-gambling licensing regime limited to disaster recovery provisions. This created the model allowing for the evolution to a full licensing system approved this year. The Minister published his policy on gambling in October 2009. In that document, he noted his adherence to the Ascot principles that should apply to gambling business of all types.

These core licensing principles were incorporated into the articles of the Gambling Commission (Jersey) Law that the Minister presented to the States in 2009. That law created an independent regulator fully separated from government along established international practice, which came into being in October 2010. It also created a Social Responsibility Fund for the provision of education, prevention of problem gambling and research.

Any e-gambling company seeking to become licensed in Jersey will be expected to provide the Commission with a detailed plan of its social responsibility programme and how it intends to put it into effect. While the Gambling Commission (Jersey) Law provides for a social responsibility levy, it is expected that companies should voluntarily agree to make a donation to the fund and the Commission will make review of this core licensing objective one of its premier tasks. 

The Commission receives advice on the use of the fund from its Social Responsibility Panel, with representatives of the industry, together with health professionals and an independent chair. Work is now proceeding to conclude the modernisation programme with the delivery of a new gambling law setting out new products and services that the industry might offer as well as adopting a more proportionate set of standards and requirements to reduce bureaucracy across the other industry sectors. 

The Minister believes that the core strengths of the island that have made it a world leader in financial services will also appeal to quality e-gambling brands. These strengths are good quality regulation and effective licensing, competitive taxation and business-friendly, stable and effective government. Jersey offers an educated and well skilled workforce with resilient and scaleable infrastructure. 

While Jersey is coming late to the market, there is still opportunity, not least in the quality sector that the island seeks to attract. The Jersey government has thus embraced reform as a means of economic diversification and e-commerce and particularly e-gambling remains the key strategic opportunity, other than financial services, in terms of mass, growth potential and global reach.

The legal framework

As noted, the Jersey Gambling Commission has a duty in the performance of all of its functions to have regard to its guiding principles adopted within its enabling law and on top of these the Commission also has powers under the Gambling (Jersey) Law and Regulations. Although that legislation is now quite dated, having been adopted and adapted since the 1960s, the Gambling (Remote Gambling Disaster Recovery) (Jersey) Regulations of 2008 created a licensing system that is modern, comprehensive and fit for purpose. 

The 2008 regulations introduced a series of controls upon local companies that offer hosting facilities. They have a number of duties and obligations placed upon them to show that they are fit and proper and report gambling activities to the Commission to ensure that only licensed activity can indeed take place.

Hosting companies need to be in possession of a hosting facilities licence and, in order to receive one, undergo a full probity investigation. Typically, these concentrate on criminal and financial health checks, both at the company level and of its key staff, directors and ultimate beneficiaries. The regulation provides for access to information relating both to the company applying for the licence and its linked or subsidiary companies. 

Probity is undertaken on a cost recovery basis and fees are not refundable. In the event that a probity check uncovers any form of criminal links, undeclared convictions or adverse history to indicate that the candidate is unable to prove that they are fit and proper, they will, of course, be denied a licence.

The second set of controls captured companies that wished to place their e-gambling disaster recovery systems in Jersey. The same probity checks as for the hosting company applied, but the Commission was also given powers to add any other conditions to the licence that it considered necessary.

As well as the detailed requirements of the Jersey Gambling Commission, e-gambling operators are also subject to other legislation. In line with Financial Action Task Force recommendations and compliance prior to the IMF review of Jersey’s regulatory standards in October/November 2008, the business of operating a casino was included within the Money Laundering (Jersey) Order 2008 (the MLO). What is meant by the business of operating a casino was defined, by amendment, in paragraph 5 of Part B of Schedule 2 of the Proceeds of Crime (Jersey) Law 1999 and specific thresholds were put in place via Article 4 of the Money Laundering (Jersey) Order 2008:

(e) a transaction amounting to not less than €3,000  carried out in the course of operating a casino; or

(f) two or more transactions carried out in the course of operating a casino -

(i)  where it appears at the outset to any person handling any of the transactions that those transactions are linked and that the total amount of those transactions is not less than €3,000 euros, or

(ii) where at any later stage it comes to the attention of any person handling any of those transactions that clause (i) is satisfied.

Identification measures now apply under the MLO where a business relationship is formed or a one-off transaction is conducted. Article 4 of the MLO defines a one-off transaction for the business of operating a casino - and applies to both terrestrial and online transactions. Where a person carries on the business of operating a casino, then they must register under the Supervisory Bodies (Jersey) Law 2008 (the SBL) - level one registration. 

This involves a fit and proper assessment and use of the extensive powers that are available under the SBL. While the Jersey Financial Services Commission (JFSC) is the current designated supervisory body for the business of operating a casino, this will be transferred to the Jersey Gambling Commission in due course after amendment of the MLO.

Main amendments to the licensing regime

Although the Minister is developing a new primary law and regulations, for practical purposes it was decided to amend the existing Disaster Recovery Regulations to allow for permanent provision of e-gambling from Jersey. This had the advantage of not requiring Royal Assent via the Privy Council, which will be needed for the forthcoming new law. 

The new regulation thus preserves the disaster recovery provisions as previously mentioned, but the Commission also has a new duty to publish and take into account a statement of its policy on the granting of licences, including the independent testing of games. The Commission must also take into account and publish any forms of gambling for which licences will not be granted. For clarity, the amendment provides a new title, that of the Gambling (Remote Gambling) (Jersey) Regulations 2008.

A new fee regime has been introduced and while the disaster recovery operator’s licence remains at the £5,000 annual fee, for a general remote operator’s licence, all first year fees are charged at £35,000. The fee starts at £35,000, but increases to £70,000 if the operator’s yield from remote gambling reaches £1m and to £140,000 for a yield of £6.5m or more. The fee is charged by reference to the previous year’s yield under the licence or under any general remote operator’s licence held in the year before a new or replacement licence is issued.

The regulation sets the procedure for establishing the yield, which is the amount brought in from customers by the gambling after deduction of the amounts paid out to them. The Commission can estimate yield if the operator does not provide details and to charge the highest fee (or a lower fee if appropriate) if an avoidance tactic has been used to reduce the amount.

The new regulation also provides for supplementary conditions. They can refer to, and require compliance with, codes of practice. The Commission must publish standard conditions which are to be imposed unless there is a particular reason otherwise, but may also impose non-standard conditions. 

Supplementary conditions must cover the issues set out in Regulation 11A(8) as to: systems for informing customers about help with problem gambling, about chances and about regulation by the Commission and systems for checks on customers; record keeping, including monitoring for excessive use of disaster recovery (where applicable) and timely provision of details of annual yield for calculation of fees; use of remote sites and controlling devices, including connections with other providers of remote gambling; equipment, including software and its testing; systems for employee checks; and maintenance of systems.

They may also cover any other issues including, but not limited to, those set out in Regulation 11A(9), such as stakes, prizes, information for customers, approved equipment suppliers, staff training and provision of an address for service of documents.

A new definition was created, related to “providing gambling services” in Article 1(2)-(4) of the Gambling Commission (Jersey) Law 2010 and to the offence of illegal gambling created by Article 2(2) of the Gambling (Jersey) Law 1964. Remote gambling is “conducted” if a business provides a non-business customer, the punter in other words, with a service consisting of remote gambling or facilitating remote gambling by the customer.

Paragraph (5) ensures that involvement in remote gambling will not need a licence if it is too tenuous to constitute the offence under the Gambling (Jersey) Law 1964. For example, no licence is needed by those who provide general internet access, hardware or software or other services to operators or their customers, who then independently use those services to gamble remotely.

The regulations were also amended so that where a licence is being renewed on expiring after three years, a reduced fee can be charged if checks do not need to be repeated, bearing in mind the ability to rely on previously obtained information, and no further investigation fee can be charged unless there has been a significant change. This amendment complies with the Commission’s duty not to inflict unnecessary burdens on the industry. 

The new regulations also require the Commission to publish standard conditions along with its policy on when they will be imposed. Although all forms of gambling (such as betting, gaming and lotteries) may have remote equivalents, the Commission’s published policies will set out which forms of remote gambling may be licensed.

Notably, the regulations repeal the former duties and functions of the Minister (with the exception of order making powers) and transfer them to the Commission while the Commission’s powers to require compliance with a code of practice are de-criminalised.  Thus while contravention of a code is not itself a criminal offence, it can still lead to non-criminal sanctions such as suspension or revocation of the licence.

Conclusion

The Commission believes that the adaptation of the existing regulation has presented a flexible and effective licensing regime, not least because of the adoption of conditions linked to codes of practice modeled on the equivalent regime in the Gambling Commission (Jersey) Law 2010. The driving motive in respect of non-compliance is to arm the Commission with a route other than a prosecution referral and seek compliance by a regulatory toolkit containing:

• the suspension or revocation of a licence
• service of a compliance notice
• refusal of application for a new licence or for alteration of a condition
• plus any other existing discretionary power to which the breach of code could be relevant

The adoption of conditions subject to a code of practice also has a more practical element and that is to move away from fossilising technical requirements in legislation.  The Jersey Gambling Commission is thus committed to working with the industry to ensure that regulatory requirements reflect best practice and provide sufficient protection not only for the island’s international reputation and the needs of clients, but also support the corporate governance of its licensees. 

Thus far two local data centres have undergone probity investigations and received hosting licences with a third to follow and a probity exercise for the island’s first operator’s licence is currently under way. The Commission, both at board level and within the executive aims to be practical and realistic as it moves forward. 

It still has a huge job to do, both in terms of finalising and consulting on the licensing conditions and codes of practice, as well as completing the Minister’s programme of legislative reform, of which this forms an important part. Jersey still has some way to go before it catches up with its American cousin, but for the online space at least, it’s moving ahead and looking forward to the challenges.