How Parimatch aims to turn the regulatory grey markets of Eastern Europe into regulated gambling hubs

In a recent interview with our sister publication EGR Intel, Parimatch CEO Sergey Portnov claimed the Cyprus-headquartered operator was being “overhauled from the inside out by people who are willing to break the rules”.

Willing to break the rules is a statement that may cause a stir among online gambling regulators reading this article and a healthy note of scepticism among the firm’s competitors. Indeed, a reputation for breaking the rules is not something any betting operator would welcome if it was extended to regulation, particularly one with eyes on the more lucrative, highly regulatory attuned markets of Western Europe.

But despite this grandiose statement from its CEO, Parimatch’s partner and legal director Maksym Liashko says the company chooses to stay within the regulations rather than pushing the boundaries. Explaining the Parimatch philosophy in this area, Liashko says the operator prefers to be proactive rather than reactive when dealing with compliance. Qualifying this stance, he says such proactivity is about “engaging constantly with regulators and other parties who work with AML and KYC officers so that all our actions are carried out responsibly and to the right deadlines”.

Liashko highlights the role the company’s 350 IT staff play in sharing insights concerning regulatory coordination, something which he thinks comes in handy when bringing new products to market. “It is imperative to be aligned with the regulator at the concept level for any new products or processes,” he adds.

Flexible platform

IT has understandably played a significant role in Parimatch’s biggest new project, the relaunch and redesign of its new sports betting platform, the development of which began in 2017 and is slated to be launched in 2020. As Liashko explains, there was no direct compliance influence on the redesign, as the prime focus of the new sports betting platform was developing the brand.

Despite this emphasis on brand, Liashko highlights a resulting upsurge in business efficiency which in turn has enabled efficiencies in its consumer interface. “This new interface will provide a flexible platform to support any changes that we need to make to meet new regulatory changes,” Liashko adds. Indeed, Parimatch’s sports betting partner firms are in line to become the first beneficiaries of this upsurge, aiding their compliance with regulations.

As a business, Parimatch operates under local licences in Cyprus, Belarus and Kazakhstan. The business has partners in Russia that work under the franchise with Parimatch retaining all the rights to the Parimatch trademark and software, operating under the local licence.

As Liashko explains: “We also operate in other countries in the CIS region under the international licence as the local legislation of those countries allows that. However, we are eager to obtain local licences as soon as such possibility appears.”

Grey market exposure

Working within so-called grey markets, which lack the regulation of the more established players in western Europe, while lucrative in terms of lack of competition, can come with their own pitfalls. None more so when that business tries to expand into the more regulated markets.

Many regulators in these markets look less favourably on licence applications from operators with grey market exposure, the assertion being these operators are not “whiter than white” in their dealings. In 95%-100% of these cases, the assertion is an unfounded one, and many of the industry’s biggest names operate in both grey and white markets.

But if push came to shove and regulators in more advanced egaming markets refused to deal with operators with grey market exposure, would companies like Parimatch give up these operations for a shot at markets like the UK? No, not really, because as Liashko explains, the issue of what constitutes an unregulated market has yet to be resolved, because of the individual interpretation of the regulators affected.

“We have local licences in the countries where we operate. We also have international licences, which means citizens in certain countries can use our website with no restriction. This has been wrongly perceived as unregulated,” Liashko adds.

Outlining the Parimatch approach to regulation, Liashko explains that, in his experience, a lot of markets have similar regulatory frameworks “when you take the rules as they are on paper”. Parimatch looks at individual markets as any business would on a case-by-case basis.

Parimatch’s legal director advocates case-by-case style thinking on both sides of the argument, asserting that it should extend to both operators and regulators alike. In the case of licensing, Liashko believes there should be detailed individual vetting of operators, for example “analysing the volumes of GGR a company has, where it operates and with what licences”, rather than a more general one-size-fits-all assessment.

Discussing the UK market specifically, Liashko highlights it as being an extremely mature market with regulations which are far more intricate and sophisticated than its European counterparts. It is this sophistication which he believes has resulted in a worldwide market where the emerging jurisdictions are having to play regulatory catch up.

Regulators and operators can often have different expectations as to what compliance with regulations entails, as evidenced by the frequent instances of the two butting heads in regulatory rulings and legal disputes across the world. But for Parimatch, the most integral part of compliance in its approach is achieving a “win-win-win” style approach to compliance, satisfying the interests of the company, the regulator and most importantly the player. And each party must be satisfied for all to benefit.

Striking the right balance

That is the ideal, but as he explains, there are instances where a company aims to satisfy both the regulator’s requirements and players’ rights, but the drive towards satisfaction proves not to be operationally practical. In those cases, Liashko explains: “We aim to strike a balance where players’ interests are considered. For example, we always consider factors like service usability and ease of registration.”

Hypothetical scenarios aside, giving up what are essentially its core operations for a potentially uncertain run at the higher profile markets of Europe would be a hugely risky move for Parimatch. A less risky move for the business would be to encourage regulators in those markets further towards better regulation. Liashko asserts Parimatch’s stated aim to have good working relationships with regulators in all the countries in which it operates.

“We have frequent meetings with all the leading market players, and the regulator is interested in our opinion on market developments, such as upcoming innovations. We get advance warning on such developments, allowing time for feedback, preparation and implementation,” he adds.

Knowledge sharing

Expanding on this point, Liashko highlights several examples where these regulators have asked Parimatch to present to regulators from other countries about developments in their own legislation. As part of this drive towards assisting regulators, Parimatch has instituted its first dedicated team of experts to share their perspectives on regulation.

Regulation forms part of the Parimatch approach to that other great industry pillar, responsible gambling, centrally in the expansion of the business into new markets. To explain, Liashko uses the example of Parimatch’s home market of Cyprus where the regulator imposes Know Your Customer (KYC) requirements, maximum bet limitations and restrictions on the maximum deposits and withdrawals.

“In other markets we also have a player activity model, which flags up to our support managers if there is a significant deviation from a normal player behaviour of a particular account, in which case the support managers would contact the customer to discuss and clarify the significant change in their behaviour,” Liashko adds.  These changes can be things such as an increase in the frequency of bets, the size of stakes, shifts in betting patterns, and even changes in the choice of sports which a customer bets on.

Parimatch’s self-proclaimed business model is to be an industry disruptor, breaking up the market share of established market big boys and becoming an established force of its own. While this may enhance the business’ bottom line, the rush to disrupt may see the company make compromises in areas like responsible gambling and compliance.

However, the paramount philosophy in Parimatch’s aim to challenge the likes of bet365 and William Hill across the world is one of increasing brand awareness through marketing strategies, not through the company’s approach to compliance. Despite this emphasis on brand awareness, Liashko asserts the second part of being able to challenge the big operators is maximising the value of the company in the long term, something which compliance can play a very big part in achieving. “We know that robust compliance is essential to building value and, in the long term, greatly facilitates the relationship between a company and a player,” Liashko adds.

The methodology of how an operator enters a new market differs greatly between operators, but most will analyse the regulatory requirements of the target jurisdiction, see how their systems would react to these restrictions and plug any gaps. Parimatch uses the same approach, as any lack of platform readiness and subsequent changes post-entry opens up the company to making costly mistakes.

“That is why the issues that can be managed with automation have to be solved before entering the market. If we receive the approval from the regulator, we assume that we’ve met the requirements and there is no risk of human error in those cases,” he explains.

Developing markets

Speaking about potentially developing markets for Parimatch during the rest of 2019, Liashko highlights Belarus and Ukraine as being key areas of importance. In the case of Belarus, legislation was recently passed allowing the operation of online casinos in the central European hub. Although Parimatch is meeting its obligations by being certified as a software product, it is having difficulties in getting its partners to do the same.

Expanding on this difficulty, Liashko adds that it is “not so much technically difficult as it is difficult logistically to certify all our B2B partners for our online casino operations. They need to be verified to support our operations in Belarus. We are concentrating on this regulatory aspect this year”.

In addition to its efforts in getting its partners ready for online casino operations, Parimatch is connecting to existing KYC databases and training its operational teams ahead of the launch of operations.

In the case of Ukraine, Liashko highlights the recent expressions of support for gambling reform from the Ukrainian president as being a key marker in the potential road to a new market. He believes new legislation specifically allowing betting and egaming will soon be adopted, as there is a “significant impetus” for the development of the industry in Ukraine due to its economic benefits.

Explaining Parimatch’s role, Liashko adds that the company is “making great efforts to share all our knowledge about the regulation of gambling in different countries and the preparation of draft laws to support any reforms”.

Liashko says Parimatch is taking a proactive approach to enabling this process and is actively involved in the working group preparing the new draft laws on sports betting. “We’ve also made it known that we are ready to participate in other working groups to share our practical international ‘know-how’ on the regulatory landscape,” Liashko adds.

In addition to these two markets, Parimatch’s home market of Cyprus is an important one due to the periodic discussions about online casino regulation. “We already have operations in Cyprus and would look to secure a licence for the operation of online casinos if this were to become regulated. For the moment, we are fully focused on increasing market share in the countries where we already operate.”

Much of the Parimatch approach to regulation and compliance has a lot in common with the more established sports betting operators of Europe, in so much as they all conform where they can, collaborate where they must and comply where they need to do so. If Parimatch is to be mentioned in the same vein as the industry’s biggest names, then this is something that must, and based on all the evidence, probably will continue going forward.