Opinion: How Betfair challenges the misperceptions of an exchange
Despite a number of countries seeing the benefits exchanges can bring, a number of them are still "stuck in the dark ages", says Betfair's Martin Lycka who works in its legal team with specific responsibility for EU Law issues.
Since the launch of their first market, betting exchanges have proven controversial in regulatory circles. There are a number of EU countries currently in the process of regulating the gaming industry, and the issue of regulating betting exchanges is always high on the agenda.
What’s interesting, and challenging for lawyers, is that several countries have taken a variety of approaches to what is essentially the same legal issue. Put simply; exchanges are a legitimate form of betting and banning them is clearly in breach of EU law. Yet despite a number of countries seeing the light about the benefits exchanges can bring, a number of countries seem stuck in the dark ages.
On 6 July this year Cyprus became yet another country to step back in time and revert to steam power, adopting a gambling law prohibiting betting exchanges while confusingly, also permitting all other online betting products. Greece intends to introduce similar prohibition.
Betfair is currently opposing these laws in the EU commission so I thought I would set the record straight and explain why and how we challenge countries who perhaps misunderstand the benefits exchanges can bring to a regulated gambling industry.
Why is it difficult for regulators to see this?
While an innovative and simple concept, the mechanisms of running the exchange can appear complicated to the uninitiated and we are often faced with misplaced assumptions when talking to regulators in certain countries – many of whom have never encountered anything apart from traditional bookmaking systems.
Two fears that typically arise are that exchanges increase the risk of money laundering (because money eventually passes from one person to another) and that they pose a risk to sporting integrity (because people can ‘lay’ an outcome).
We counter the second of these by pointing out that the online exchange is, in fact, the most transparent form of betting in the UK marketplace. Due to advanced technology and audit trails, betting exchanges provide an effective means of tracing and identifying people who try to corrupt sporting events. After all, by their very nature, exchanges maintain a complete digital trail of every single bet.
Betfair has also established its own integrity team to monitor and prevent misuse of the exchange. The team, now seen as an industry leading force, has a number of Memorandum of Understandings in place with sports governing bodies around the world, allowing for information to be transferred in the event of suspicious activity being detected.
The idea that exchange betting can facilitate money laundering is also misplaced. While customers on the exchange do not know the identities of those they are betting “against”, a betting exchange operator will have a full audit trail of all bets. All customer accounts are subject to rigorous ‘Know Your Customer’ (KYC) practices including identity verification checks. The matching of bets takes place in a secure automated framework in which customers are unable to stipulate with whom, how or when a particular bet is matched.
Apart from the standard Anti-Money Laundering tools introduced by all reputable online betting operators, exchange operators also have the ability to effectively monitor both sides of every betting market offered on the exchange. The ability to monitor the lay side of the market gives exchange operators a much better chance of detecting any attempt to launder money.
There is no evidence that online betting generally, including exchanges, are more prone to money laundering than other types of business and in fact there is evidence that the rigorous Anti-Money Laundering processes and transparent nature of exchanges make them higher-risk for criminals considering engaging in these activities. Despite these arguments, some countries are continuing to prohibit exchanges.
So how do we challenge this type of legislation?
Put simply, we argue that a blanket prohibition of exchange betting by an EU Member State constitutes a discriminatory and inconsistent restriction on the free movement of services within the EU.
Firstly, any ban is discriminatory. Betting exchanges are not fundamentally different in terms of the basic standard betting product which allows consumers to request a bet at fixed odds on the outcome of a sporting event. In addition there is no evidence that users of exchange betting are more prone to the risks of financial crime or gambling addiction. As a consequence, there is no reason to treat exchanges differently from other online betting products.
Secondly, any ban is inconsistent: Preventing exchange betting where other online betting products are permitted can be seen as a breach of the consistency principle laid down by the European Court of Justice. Case law requires national gambling regulations to be consistent across all relevant gambling sectors. Although the Member States may decide that an online gambling product, which is essentially different from the other permitted products in the market, may be prohibited, their regulatory discretion does not allow them to arbitrarily prohibit only certain types of the same product, such as online betting.
So what’s the future?
The good news is that we are increasingly seeing a number of countries get it right and introduce constructive gaming legislation that includes exchanges as an integral part of a diverse market. The UK Gambling Act specifically provides for betting intermediary licences which cover exchange betting. Denmark, Italy, Spain and Schleswig Holstein in Germany have all permitted betting exchanges. Denmark and Schleswig Holstein have even already issued online sports betting licences covering exchanges. The Italian government is in the throes of finalising an exchange betting decree which will enable operators to apply for licences.
Betfair’s approach to ensuring this trend continues is to work with local regulators and legislators on the ground, helping them to understand the workings of an exchange betting and assisting the development of their betting regulations. Where this is either not possible or actively discouraged we are forced to make a complaint to the European Commission to ensure that our legal arguments are heard in an official capacity.
Our job is to continue to work with both regulators and legislators and provide them with informed and correct information to help them to create market places that have the best choice and value for the consumer. Ultimately this is the only way to get all betting activity into a regulated market.”