Are regulators ready for blockchain innovation?

As an industry, we’re good at talking about innovation but it’s fair to say we have a patchy record when it comes to embracing cutting-edge technologies in recent years. We’ve tended to do just enough, and just in time, to ensure betting and gaming as an entertainment form remains relevant to the masses.

The latest of these potentially game-changing innovations is blockchain. We’ve seen the initial crypto hype bring about the first steps of mainstream understanding, but most industries have lacked the relevant use cases that have allowed for mainstream adoption.

However, with increasingly tightening player protection and responsible gambling legislation coming to the fore of late in established markets such as the UK and Australia, blockchain seems to be gift-wrapped for those not just looking to expand revenues where they’ve faced squeezed margins, but also to demonstrate to the regulatory bodies managing them that they can position the player as the primary priority.

FunFair, one of the largest and most credible blockchain projects in gambling, has looked to push this agenda to various regulatory bodies with mixed results to date.

Suspicious minds

As with any new technology in an established market, it’s perhaps understandable that there will be suspicion from incumbent stakeholders, but this often leads to risk-averse approaches that can stifle innovation, and in the case of blockchain, this has seen some regulators taking longer to appreciate its benefits than others.

The Malta Gambling Authority, for example, prioritised its fast-tracking, with the introduction of the blockchain sandbox and ‘Blockchain Island’ rebrand, along with support from leading government officials and an open-arms approach to blockchain as a key player in the future of a successful gaming industry.

Gibraltar is heading in a similar direction. The gambling regulator is looking to facilitate the use of blockchain for gambling in a similar way that the new distributed ledger technology licences allow for financial service business in the jurisdiction.

In the UK however, the Gambling Commission has seemingly offered a lukewarm reception to blockchain. At a recent briefing to industry lawyers they raised concerns around KYC and AML controls on the use of cryptocurrency, valid in my opinion. Perhaps more controversially though, they provided some doubt on whether they would accept operators positioning key equipment on the blockchain. While the former, already anticipated by Funfair, is not overly challenging, to mitigate the latter would prohibit almost all of the envisaged uses of blockchain gambling technology in the UK.

To give it its due, the Commission did commit to providing more substantive guidance in “the coming weeks and months” but this was caveated with the explicit adjoiner that they would not provide a blueprint for blockchain compliance with existing regulation.

Companies like FunFair, who have frequently stated their desire to be a good actor in this space, actually crave regulation and regulatory frameworks that allow for flexibility when it comes to use of a revolutionary technology such as the blockchain, while still upholding the core licensing objectives of player fairness, player protection and the active avoidance of any criminal activity related to gambling practices.

Missed opportunity

It seems a missed opportunity on the Commission’s part that it hasn’t looked to establish the sort of project analogous to the MGA’s, especially considering the generally blockchain-friendly wider UK regulatory environment as evidenced by the Financial Conduct Authority’s sandbox.

The player-focused advantages that blockchain brings surely merits some effort by the regulator to explore how the existing regulatory regime could adapt to it. It takes player protection to a new level, allowing players to hold full control of their wallets, while ensuring ‘provably fair’ means just that, with a record of all gaming events held, immutably, on the blockchain.

A more sceptical approach, while understandable from a regulator under pressure, could dissuade blockchain projects from looking to establish themselves in the UK which is a pity given the very real threats to the UK’s position as a innovation hub post-Brexit.

The team at FunFair are reluctant to go into detail about what is, after all, a privileged application process. What you can infer though, is that UK consumers are in the medium term at least, unlikely to enjoy the benefits of guaranteed fairness and self-custody of funds that a FunFair-style implementation of a blockchain platform would bring.

Suffice to say, FunFair will continue to actively engage with all relevant regulatory bodies, in order to achieve licensure in top tier jurisdictions as soon as appropriate legislation allows.

James Harrison is advising FunFair on corporate strategy, having previously held senior roles at Gaming Realms and AlchemyBet during his 17 years in the gaming and tech industries.