An e-commerce infrastructure

Finance Minister John Dalli addresses the Online Gaming for Malta conference during which he outlines Malta’s position in the e-commerce and e-leisure industries and the infrastructure set up to cater for the growing sector

The development of the online gaming sector in Malta follows from a logical sequence of an economic strategy to place Malta firmly in the e-commerce and e-leisure markets, exploiting a number of advantages which this country has to offer, in particular a good legal, financial, regulatory and ICT infrastructures, and generally lower costs for the carrying out of a commercial operation. Taxation on betting and gaming is also one of the most advantageous, especially when combined with our onshore taxation regime.

This situation has been a build-up of serious investment carried out by government and by the public and private sectors over the past fifteen years.

Late in the 1980s, Malta recognised that economic development in an open, competitive, environment depended on "getting right" telecommunications, widely regarded as the infrastructure of infrastructures. On that basis, during the late 1980s and the 1990s we invested heavily in laying out a new telecommunications network, both internally, and externally, to ensure that the internal network is integrated with international networks through a fibre-optic marine connection to continental Europe and the rest of the world.

Recognising that Malta has a role to play in the field of financial services, we then set out to develop a financial services sector for our country. A packet of legislation was enacted, by consensus, in Parliament whereby the legal basis for financial services was set up, together with the Malta Financial Services Centre, an institution that has been pivotal to the development of financial services in Malta, projecting Malta as an OECD-recognised, serious, low-tax jurisdiction with strong regulatory procedures.

To complement this fundamental telecommunications and financial services infrastructure, in the past few years, we have set out the legal framework and the regulatory framework for electronic commerce and for the information society in general. The Electronic Commerce Act was enacted last year, drawing from the EU laws, the UNCITRAL Model law, and the laws of individual countries such as Luxembourg, Ireland and Australia. That law also includes clauses by means of which our Criminal Code has been updated to take account of cyber-crime, which has become an issue of concern for legislators necessarily on a worldwide scale. Complementing these two sectors, the Maltese Parliament has also adopted, again by consensus, a new law on Data Protection, in an era where the rights of the individual must continue to be safeguarded from the power of electronic means.

With these achievements behind it, Malta did not fail to notice the economic opportunities offered by a developing online entertainment industry, including the online gaming industry which was developing at a fast pace, perhaps somewhat haphazardly, and which was seeking serious jurisdictions within which it could anchor its activities and carry them out in a properly regulated commercial environment.

Indeed one of the major issues with online gaming was, and remains, the issue of regulation. Proponents of not allowing betting and gaming activities to operate online often cite the issue of the difficulty of regulation such activities in the same tight way in which they can be regulated when carried out in land-based operations. Undoubtedly this is indeed a challenge for the regulators, but it is a challenge, which this jurisdiction also decided to take up. We do not believe it is either wise or practical for legislators to ignore the realities of the potential offered by the Internet and ostrich-like refuse to address the situation.

In this spirit, recognising the window of commercial opportunity for Malta to develop a new sector of economic activity, and appreciating the regulatory challenge confronting us in the grasping such an opportunity two years ago we cautiously and tentatively made the first small steps in opening up this new sector of online betting from Malta. As far back as July of last year, the online gaming sector was calculated by some, to consist of over 1,800 sites worldwide, generating between $3 billion and $4 billion annually.

In so doing, in order to avoid having to embark on new regulatory structures at that stage, and in order to flexibly and economically make full use of existing structures we instituted, as a matter of policy, a two-tier licensing system for online betting. The Malta Financial Services Centre offered to carry out the due diligence process, required at a pre-application stage, for qualification to place a full application to the Gaming Board for Malta.

Both entities already existed. The Gaming Board for Malta had regulated land-based gaming activities and already had personnel well versed in the regulatory issues of the sector. MFSC also provides Malta’s Companies Register and therefore was well placed to carry out the due diligence process.

Policy and legal guidelines were laid out in LN 34/2000 issue in virtue of the Public Lotto Ordinance and regulating the operation of betting offices. The objectives of our regulatory regime for online betting were simple: we wanted a simple non-bureaucratic process which however still provided us with the comfort of serious screening of applicants and an effective regulation.

We have so far only allowed particular types of online betting, concentrating on attracting sport book operations and not allowing types of activities such as spread betting.

As the sector develops, the fiscal revenues generated will increase. This, however, is not the only aspect of this sector that interests us. We are interested in a holistic economic development where the Maltese people can put their competitive advantages to the best possible use: knowledge of languages, a cadre of graduates with university education, IT specialists, relatively low-cost business accommodation of high quality, good telecommunication services, strong regulatory bodies, a worldwide network of double taxation agreements, e-commerce and other legal regulation. We are interested therefore in promoting new employment sectors, of achieving new expertise, of developing the service sector at which Malta excels and which is the sector it must continue to foster for the future.

It is now time to take this development further. We shall imminently set up a new Lotteries and Gaming Authority which will, for the first time in our country, be a one-stop regulatory centre for this sector, both for land-based and for online operations. We have enacted a new all-encompassing law which, I understand, will be the subject of discussion in this Workshop, and which provides for the regulation of land-based and online activities some of which now take place in Malta without a proper legal and regulatory framework.

I expect the Authority to change all that. Gaming is not a new reality to Malta. It spans from lotto betting to tombola to lotteries, including our National Lottery. These have been the betting activities that have characterised current and past generations and which have often also been a means of raising funds by and for non-profit organisations. That is an aspect that the new law does not neglect: it continues to give special consideration to non-profit organisations carrying out such activities.

The new Authority has tough tasks facing it. And these are not only regulatory. They are also economic. Like all regulators it should not simply have a policing function but also the function of an economic regulator, fostering activity in the sector, and facilitating the general thrust of entrepreneurship, gradually opening up new sectors of activity.

Some underlying aspects should govern this sector at all times:

Firstly, the fact that bureaucracy should be kept to the minimum does not mean that Malta aspires to become "an easy jurisdiction". We will remain a serious, well-regulated jurisdiction of repute: this is in our interest, and in the interest of attracting and protecting the investment of serious international and national operators.

Secondly, regulation shall include clear guidelines for ethical behaviour with encourages responsible gaming and protects minors.

Thirdly, consumer protection must remain a high consideration, and this includes not only providing for independent, third party review of gaming programs and systems, and ensuring that the gaming operations maintains adequate financial resources to ensure payment of winnings, but also easily-accessible and inexpensive settlement of disputes using alternative dispute resolution methods.

Fourthly, while regulation must be equally of the highest standards for land-based and online operations, the Authority must ensure that online operations must, as is the case today, continue to effectively restrict access only to residents of jurisdictions that permit Internet gaming, ensure that effective mechanisms are in place to restrict access to those of legal age for such activities, and to ensure compliance with the whole gamut of legislation governing the Internet and electronic transactions.

These are challenges facing the Authority that will soon be set up and the country as a whole. I encourage you, as players in this field, to take up these challenges, regulatory and commercial, to ensure that this sector of our economic activity is developed in line with international regulatory and business standards of the highest quality.