New Regulatory Requirements in Germany - How to Seize the Opportunities

The GlüNeuRStV, the new State Treaty on Gambling, is the first step towards a modern, market-driven gambling regulation in Germany. The treaty tries to ease the previous strict prohibition policy in the gambling sector, which has proven to be ineffective in the digital age. However, the GlüNeuRStV will pose challenges for future gambling regulation. Let’s have a look at the most contentious issues.

• The treaty provides for a central authority that will be responsible for market surveillance, compliance with regulations, and certification. Its establishment will require a suitable location and considerable time and resources. It is therefore questionable whether it will be operational in time for the planned entry into force of the GlüNeuRStV on July 1, 2021. This means massive legal uncertainty for providers applying for a license. It particularly affects those products that will be permitted for the first time under the GlüNeuRStV (e.g. virtual slot machines). For now, there is no detailed information about a possible transition period before the future gambling authority is up and running.
• The detailed regulations in the GlüNeuRStV on sports betting and gambling form an excessively rigid regulatory framework based on the current status quo. It prevents an appropriate reaction to future market developments and is not designed for disruptive technological changes. Consequently, the probability that Fintechs will enter the market with new innovative business models and therefore supersede the treaty before it is even in place is quite high.
• At the same time as establishing the central gambling authority, the GlüNeuRStV provides for the development and implementation of three complex and system-critical databases (limit file, activity file, new blocking file). The technical, coordination and financial effort for complex real-time systems is immense; the default and liability risk is high, including for providers; and data protection authorities are raising concerns. By introducing a monthly cross-provider limit of € 1000 and appropriate checks to prevent parallel gaming, player protection should be strengthened. On the other hand, this would require detailed analysis of the consumption behavior of each individual, not only the high risk players, who they may want to exclude.
• Additional topics that are part of the heated discussion concern restrictions on advertising for virtual slot machines, online poker, and online casino games, which is limited to 9pm to 6am, and for sports betting where advertising is prohibited right before the transmission of live sports events. Furthermore, IP blocking might not be a suitable way to reliably prevent users from accessing pages that fail to observe regulations.

From our point of view, many of the measures envisaged are not suitable, nor practical, for ensuring a higher level of player protection. At the same time, however, they are designed in such a way that the controls come at the expense of satisfactory gaming participation (user journey) by customers and lower conversion rate by providers.

How to seize the opportunities

The issues described above lead to a very insecure situation for gambling and betting providers who might not have the necessary knowledge and skills to implement the necessary controls.  They need to find someone with an extensive knowledge of the regulations in different countries and the right service provider who is able to provide a compliant solution for every situation and jurisdiction.

Additionally, they have to take into account their limited IT resources to implement all the different processes, have workflows with a consistent look & feel, and data storage that fits their business cases while being compliant at the same time. A very cost intensive but necessary procedure.

Ideally, gambling and betting providers could rely on just one connector which provides all the tools in one solution. This is what we call strategic flexibility. In this scenario, the provider would be able to switch tools on or off according to its current and future business models and regulatory requirements. The approach would include easy access to a workflow engine that allows flexible management of the different tools according to conversion results and cost issues. The offering will be rounded off with a leading-edge technical connection from one back end to the other, relieving the pressure on IT resources.

 

The diagram shows the described approach from user registration to player activation, relying on the functionalities provided by a multi-service platform. As best practice, this process contains a fraud check early on in the customer interaction to verify multiple accounts, fake names, and detect other fraud patterns. Consequently, cost intensive KYC checks such as PEP and Sanction List checks or video identifications are performed only on ‘good’ registrations. Depending on the result, the identification process starts with a reliable data check, based on databases such as CRIFBÜRGEL. A positive result initiates authentication; alternatively, an ID scan for offering temporary play is another option. This approach ensures that additional verification costs are restricted to the genuine potential customers.

Change as an opportunity for business growth

Being compliant is challenging. At the same time, successful, responsible companies recognize it as a chance to automate and simplify processes. Information service providers such as CRIFBÜRGEL are playing an important role in supporting this transformation process and providing leading-edge solutions to optimize KYC procedures, comply with AML and CFT regulations, undertake risk management, identify potentially fraudulent activity, and improve and upgrade business rules to ensure regulatory compliance. We want the operators to focus on their core competencies and we focus on ours, the compliance stuff.