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National Council of Legislators from Gaming States Releases Proposed Amendments to Policy Framework for Internet Gaming

The National Council of Legislators from Gaming States (NCLGS) – a bi-partisan organization seeking to provide guidance to states about iGaming regulation – released a revised version of its proposed “Policy Framework for the Regulation of Internet Gaming” last week.

In a press release, NCLGS states the purpose of the framework is to, “…ensure that an effective system is in place for states that allow intrastate Internet gaming…”

The proposed changes reflect comments made by interested parties in the iGaming industry. Issues discussed include player protection, taxation, government licensing, and payment processing, among others. The amendments are scheduled to be “vetted” on January 10 of next year at the NCLGS winter meeting in Las Vegas, Nevada.

Below is an overview of the major issues and comments in the new proposed version.

Player Protections

The first topic discussed in the section on player protections is the safeguarding of player data and privacy.

The previous version of the framework vaguely suggested the adoption of “similar standards followed for online banking.” Comments by Martin Shapiro of PokerXanadu.com propose to strengthen this by specifically providing for the protection of “personally identifiable information” in addition to the obvious protections on financial and account information.

Shapiro also added comments suggesting that regulation be enacted for the purposes of “fraud and theft by site personnel,” as well as “unauthorized use of software aids by players.” These two issues are especially important to the poker community and the way they are handled in a regulated US market should be watched closely.

Finally, the Alderney Gambling Control Commission (“Alderney Commission”) inserted an entire clause for consideration entitled “Extending Player Protections.” It suggests the need for comprehensive iGaming consumer protection that extends beyond the scope of current legislation, and envisions legislation covering “all Internet and mobile games, including non-traditional and non-gambling games.”

Taxation

Unsurprisingly, another comment inserted by Shapiro addressed the key concern of the poker-playing community – that taxation will result in unbeatable games. He writes, “States should take into consideration the negative impact on player participation of over-taxation when determining their tax rates and methods.”

To his credit, that seems like the most polite way for players to ask the government to keep its hands off as much of their money as possible.

Also mentioned is the need to balance the tax rates charged to both online and land-based operators in order to create a level playing field. Canadian web-filtering firm Netsweeper, Inc., brought up the point that a fair tax scheme would not only encourage parity between regulated operators, but also discourage competition from sites illegally operating outside of regulatory schemes online.

On the subject of how online gaming should be taxed, the UC Group Limited/SecureTrading Inc. (“UC Group”) added comments advocating for a point of consumption “net deposit” tax approach for interstate agreements (such as that currently being done in the UK).

Government Licensing

The intrigue surrounding “bad-actor” clauses and the entry of PokerStars into the New Jersey and California markets make another addition by Shapiro – that “gaming site history” should be considered when awarding licenses – particularly interesting.

The UC Group provided language stating that interstate, as well as overseas, partnerships should not be barred by licensing requirements. This is a fairly standard line for iGaming interests. What is interesting to note, however, is that the specific language added to the document seems to imply that a market would not even need to have a proper regulatory framework setup itself, but could simply outsource the whole operation to an existing one while (it can be assumed) it collects the tax revenue generated:

Cross-border compacts, both interstate and overseas, should be accommodated. Some states may not have the resource or expertise to regulate this industry and may wish to utilize the expertise of another state with such expertise and participation in a regime with acceptable consumer protections and remittance of applicable taxes, such as New Jersey and Nevada.”

Such an arrangement would be ideal for the industry, since it could conceivably be used to eliminate the specter of providers having to pay a licensing fee in each and every state. It would also remove barriers to entry due to economies of scale, which could in turn encourage smaller markets to allow access to an already established player pool.

Finally, the Alderney Commission suggested that “data centers or server farms” should be subject to regulation requirements as well.

Payment Processing

As the New Jersey market has proven, the ability for players to deposit and withdraw using their credit or debit cards is essential to the industry. This is already mentioned in the previous version of the document. Comments added by the UC Group make the suggestion that the extension of lines of credit by casinos to gamblers be expressly forbidden.

Perhaps most important for players are additional comments by Shapiro that player accounts should not only be segregated, but that operators should be required to make players whole for any losses incurred due to cheating, fraud, or theft.

The Saga Continues

Even in its final form, this document will be non-binding. However, it gives insight into what those who wish to see state-level governments remain the dominant players in the iGaming industry are thinking about how regulation should look going forward.

Federal legislation does not appear to be forthcoming, in part because of a new Republican congress and in part due to the efforts of Sheldon Adelson. Given that reality, as long as the iGaming industry can fade an outright federal ban, it is state governments that will continue to carve out the regulatory environment going forward.

This NCLGS document is an invaluable platform for the major industry stakeholders to provide feedback about the most important issues facing players, operators, and regulators alike. Developments leading up to the next January conference should be watched closely.

 

 

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Bradley Chalupski

Bradley Chalupski made his first deposit onto an online poker site in 2009 and has been paying rake and following the poker scene ever since. He received his J.D. from the Seton Hall University School of Law in 2010.

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