The Insider’s View: Gambling regulations in Russia - what to expect in 2021

2020 saw a number of changes being made to gambling legislation in the Russian Federation. Some of these changes have entered into force already in 2020 and with even more due in 2021, this year promises to be one of the most important years in the history of gambling regulation in the former Soviet Union.

For the past year, the Russian gambling market saw changes being introduced at an almost disruptive rate. The government has launched a significant overhaul of the regulatory frameworks affecting all aspects of the sports betting market. It felt as if the law-making machine in Russia was firing on all cylinders producing numerous bills, laws and all sorts of other legislative acts. We’ve gone through all of them and picked out the most crucial changes that will have a profound effect on the country’s gambling market:

Limiting wagering to sporting events only. The bill introducing the changes entered into force in late September 2020, restricting sports betting operators to accept bets strictly on sporting events that take place in and outside the Russian Federation. Gone is the ability to bet on the outcome of elections, landing people on Mars and other wagering markets unrelated to sport.

Initiating the new approach to the special contributions’ mechanism. Until October 2020, in order to support national sports, betting operators in Russia were required to contribute 5% of their quarterly GGR (but no less than €165,000) generated through wagers on Russian local sporting events. Starting from October 2020, this requirement has been extended to include international sporting events as well. And in December 2020, the Russian government approved a bill that introduced a different approach to the special contributions’ mechanism. Once it enters into force in late September 2021, the mechanism will require the following:

• Special contributions to be calculated on the basis of “quarterly revenue received by the sports betting operator from its activities in terms of accepting bets, interactive bets in relation to the sports competitions. Wherein revenue means the full amount of proceeds received by the sports betting operator from its activities in terms of accepting bets, interactive bets in relation to the sports competitions”, — a quote taken from the bill itself. It’s important to note that this “revenue”, according to its definition in the bill, is not GGR and should be viewed exactly as indicated in the bill. Unfortunately, its definition created more confusion rather than clarity among the members of the Russian gambling business community.
• The amount of special contributions will be set to 1.5% of the “revenue” defined above, but in any case the quarterly special contribution amount should be no less than €330,000.

Establishing the Unified Gambling Regulator (the “UGR” or “ERAI”, an abbreviation used in Russia) to cover the following tasks:

• retaining and transferring special contributions from sports betting operators to Russian sports organisations;
• identifying and combating illegal gambling online;
• working on improvements to the Russian gambling regulations
• setting up the IT infrastructure to develop and implement monitoring systems with the main aim to supervise the activities of the sports betting operators. Among other the functions of such systems are gathering information on all placed bets, paid and unpaid winnings, all cashier operations of the sports betting operators.

Creation of the Unified TSUPIS. TSUPIS is the Russian abbreviation for the organisations acting as agents between players and sports betting operators with the aim to manage financial transactions and track the amount of funds wagered in order to determine the size of special contributions due for betting operators. Currently, there are two TSUPIS organisations for sports betting operators in Russia operating under the umbrella of self-regulated organisations (which are to be excluded from the Russian gambling landscape as well), but the recent change in the legislation provides for the establishment of the “Unified TSUPIS” which is intended to function under the supervision of the unified regulator replacing the existing TSUPIS organisations.

Introducing the new mechanism for managing the player’s self-exclusion lists. A bill has been recently filed within the Russian government providing that the list of players who expressed the intention to limit their gambling activity should now be maintained by the unified regulator (ERAI) making it mandatory for the sportsbooks to send the information about such players to ERAI. However, it is currently unclear what information (as well as the form and procedure for providing such information) should be provided to ERAI. According to the draft federal law under consideration, these parameters should be determined by the Ministry of Finance of the Russian Federation.

Changes to federal laws to improve the measures of combating illegal gambling. This bill changes the risk profile for operators without a Russian licence in accepting players from Russia, as it removes the potential for doubt in determining whether that operator is operating legally or offshore. In addition to that, the bill introduces black- and white lists of betting operators and payment providers. It’s worth noting that the bill itself lacks clarity and most likely would undergo a number of revisions before it gets approved as it has already made the gambling business community concerned with the ways the bill would be implemented and enforced.

Looking at these changes it becomes clear that the Russian government has made decisive steps to toughen the regulations and put strong emphasis on sport in the sports betting market.

In terms of special contributions, extending the range of events to include the international ones allowed the government to collect larger amounts of the special contributions and direct them towards development of the national sports in the country. In 2020, the amount of contributions increased four times compared to the previous year, notwithstanding the dip in the betting activity in the first half of the year caused by the cancellation of sporting events due to the pandemic.

The new Unified Gambling Regulator and Unified TSUPIS is intended to make the regulatory process more streamlined and centralised making some aspects of operations mandatory rather than optional, which can be illustrated by the change to the mechanism of managing the players’ self-exclusion lists.

Members of the gambling business community in Russia don’t hide their concerns as to the way these changes would actually be implemented and how exactly these new organisations would carry out their regulatory responsibilities.

It’s worth noting that some of the sports betting operators were less optimistic about the innovations in the Russian gambling legislations and some had already decided to withdraw from the market. Others are contemplating different options to keep operating in Russia, but with the most recent bill to increase the control over the financial transactions, it looks as if the government tried to undercut the rogue operators that would inevitably have its effect in the future — either we see more sports betting companies quit Russia or become more sophisticated in bypassing the ever-toughening regulations.

The Russian regulatory saga is far from its end with 11 more legislative acts of the secondary nature coming in 2021 to support the changes introduced by the recently adopted laws. At the moment we can only guess how the regulatory horizon will change by the end of this year.

Although at this point the regulatory future in the Russian Federation looks uncertain, there is still a lot to come in 2021, so let’s brace for a ride that many would call bumpy, but also many would hop in as Russia remains one of the largest and most vibrant betting markets, the one that no major sports betting operator would pass on, if they saw a more transparent, clear and concise way of regulating the industry in the country.

Ilya Machavariani is a gambling and gaming lawyer for Europe, Russia and the CIS and the senior partner at 4H Agency. He has extensive experience advising on gambling issues and advises clients on operating in the Russian Federation and the CIS, on the full range of regulations relating to the activities of gambling operators, as well as drafting the necessary contracts and internal documents. He also handles licensing processes for gambling operators that are entering new markets throughout the world.

Ivan Kurochkin, a partner at 4H Agency, has broad experience on gambling issues, especially in regulatory matters. His work involves advising clients doing business in the Russian Federation on various activities of gambling operators (including bookmakers), focusing on issues related to compliance with gaming licence requirements, applicable AML requirements and issues relating to advertising of gambling operators.