Playing by the rules: Why regulators regulate
By Susan Hensel
“If we want our regulators to do better, we have to embrace a simple idea: regulation isn’t an obstacle to thriving free markets; it’s a vital part of them.”
James Surowiecki, Business and Financial Journalist
The gaming industry is subject to a vast array of rules and faces a daily challenge to comply with a maze of varied, often duplicative, and sometimes conflicting regulatory requirements.
Appreciating the scope of this reality, especially for those gaming companies that have a presence in markets spanning the globe, is one of the take-aways from my time as president of the International Association of Gaming Regulators (IAGR) – a position I held for two terms.
Beyond the laws that authorise gambling, there are jurisdiction specific regulations that determine who, what, and where gaming operators and their equipment are allowed to set-up shop and conduct business.
And once operational, those regulations set forth how businesses are able to proceed. Back when we had such things as in-person conferences, there were numerous panel discussions about how all these rules might be harmonised and simplified for the sake of the regulator and the regulated. Those discussions often never made it past the talking stage, leaving us with disparate regulatory models across the many gambling jurisdictions.
At IAGR, we encouraged our members to use the multi-jurisdictional personal history form and another application that was set in motion during my IAGR presidency – the multi-jurisdictional business form. Still, beyond these applications, there is not a lot of cross-jurisdictional, common-rule adoption. The calls for harmonisation have quieted of late as US gaming regulators have been distracted by the introduction of sports wagering and regulators worldwide are focusing on a range of regulatory issues from pandemic recovery to gambling harm.
It is against this backdrop that I submit this article to reflect on just why it is that regulators regulate.
What prompts all those rules and such scrutiny of an industry that has been around it seems forever even if it is today taking on new twists in the form of expanding verticals?
There is one reason for gaming regulation and it is at the core of every decision regulators make.
The goal is not to cause the industry headaches or create a duplication of effort across jurisdictional lines or see who can be made to submit a record number of personal history disclosure forms.
The goal is in fact a simple one – it is to create a sustainable industry. This is at the heart of gaming regulation and it is important to periodically remind ourselves that it is sustainability that defines our mission and drives the requirements with which we must comply.
Without a sustainable industry, gaming companies would be unwilling to make massive investments in brick and mortar operations or employ the large number of employees needed to operate these facilities, and our online gaming companies would not create the necessary and sometimes redundant technological infrastructures that define our digital markets.
Without confidence that gaming is sustainable, there is no point to governments banking on tax revenue, or job creation or having faith a resort casino will attract tourists and their dollars.
Even though gaming regulators do not necessarily act in harmony on the details of how they do things, they do all work to promote the same fundamentals. As gaming as an industry grows around the world, the common underpinnings of regulation remain constant. These fall within five general areas.
First, regulators are concerned with operator suitability. What do we mean by this? As I tell my Gaming Law and Regulation students at my alma mater, Widener University Commonwealth Law School, it is all about protecting the gaming brand. Regulators ensure suitability by seeking to prevent people with shady backgrounds from being involved in gaming. The fact is that gaming has at times operated in the shadows of illegality. By ensuring that operators have clean backgrounds, regulators help to repudiate the old negative stereotypes.
Suitability is based on the theory that the best predictor of future behaviour is past behaviour. If a company’s owners, officers and directors have reputations for acting with character, honesty, and integrity in the past, they are more likely to demonstrate those traits in the future.
That the suitability effort has succeeded is evidenced by the substantial public acceptance of gaming as a legitimate industry throughout much of the United States.
Fewer than five decades ago casino gaming was only legal in Nevada. Today it exists in a great many states.
The second area regulators need to address is that gaming operations are governed by strong internal controls. The internal control development, approval and implementation process can be complex, but it provides critical protections against behaviour that can range from incompetent to criminal.
When something goes wrong in a casino environment, one of the first questions asked is whether internal control procedures were followed? Did someone leave the property with a key? Were access controls violated? Were the chain of command and the segregation of duties respected?
Most problems that occur can be traced to a breakdown in compliance with internal control procedures. A strong commitment to sound internal controls provides the bedrock for operators to cultivate a culture of compliance – and this is the key towards developing a sustainable gaming model.
The third priority of gaming regulation is to ensure the games operate with a high level of integrity. Random number generators must be tested to ensure they actually generate random outcomes, dice must be properly machined and balanced, and decks must have the right number of cards. Players have to trust the games they are playing or they will not continue to play. One argument advanced for legalising gambling is to put a stop to the black market because players have no one to call if the games are unfair.
With legalised sports betting making its way around the world, there are concerns about insider information impacting outcomes, questions about the integrity of officiating and bettor uncertainty about promotional terms and conditions. These examples of potential integrity breaches must be positively addressed so the public understands it is getting a fair shake. For without acceptance by the public, operations will not be sustainable.
The fourth area of regulatory focus is on making sure all taxes and fees are appropriately accounted for and paid. In many places, gaming is an illegal activity unless it is specifically authorised.
In exchange for granting companies the privilege of offering gambling, a jurisdiction’s citizens want something in return. The price is the appropriate payment of taxes and fees set by the jurisdiction. Operators that obtain a privileged license have cleared a substantial barrier to market entry not available to just anyone and accurate tax compliance along with remitting required fees works to legitimise the existence of the operation in the eyes of the public.
Finally, all regulators share a concern for the protection of the vulnerable. The industry should not target advertising at the underage nor should it offer social gaming aimed at training kids to become gamblers when they grow up. Tools need to be available to help gamblers who recognise they have or are developing a problem. These include user defined controls on deposit and betting limits, as well as time limitations, being built into the platforms. Additional protections allow the customer to self-exclude from being allowed to gamble.
The regulator, by ensuring that there are protections for the small percentage of the population who may suffer harm from the gaming experience, adds to the social and political acceptance of the industry, thereby working to ensure its viability for the long-term.
These are the basic principles that guide gaming regulators. They are the building blocks to creating not just a successful jurisdictional gambling industry but also a successful global industry. While we all may question why the industry is subjected to such a wide range of rules, it is worth recognising that regulation, for all its complications, is in fact aimed at achieving a single, harmonised goal and that is industry sustainability.
Susan Hensel was named one of the ten most influential women in gaming by iGB in 2020. She is the director of licensing for the Pennsylvania Gaming Control Board and is former two-term president of the International Association of Gaming Regulators. Susan, who is an attorney, has spoken around the world on gaming law and regulation. All opinions expressed are hers alone.