Recent Developments in the Regulation of Online Gambling in Canada

Pouya Makki, Robert Zalcman, Neel Patel
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January 27, 2022
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Canadian Gaming Law Framework

Existing Legal Framework

In Canada, commercial gaming and betting is largely prohibited unless it is “conduct[ed] or manage[d]” by the provincial government.

According to the Criminal Code, provinces can license third parties to conduct or manage various gaming activities excluding those “operated on or through a computer, video device, slot machine or a dice game.”  

Only the provinces, themselves, can conduct and manage the gaming activities mentioned above including online gaming.  

Given this, most provincial governments have launched their own digital gaming (iGaming) platforms typically operated by provincial lottery corporations.  

Foreign Operators

Despite existing provincial iGaming platforms, roughly $4 billion is spent annually by Canadians on unlicensed offshore websites for sports betting alone.  

However, even though these offshore iGaming platforms are potentially unauthorized to service Canadian clients, Canadian authorities have not appeared interested in prosecuting foreign operators without assets or physical presence in Canada (e.g. Poker Stars, Bodog).  

Ontario – A Novel Gaming Approach

The Ontario Government recently introduced a framework allowing a subsidiary of the Alcohol and Gaming Commission of Ontario (AGCO), called “iGaming Ontario”, to conduct and manage internet games in the province which are provided through private gaming operators who enter into commercial agreements with iGaming Ontario.  

This approach is intended to create an iGaming market and allow third parties to provide online gaming offerings.  

To ensure that this activity does not contravene the Criminal Code, iGaming Ontario will continue to be responsible for conducting and managing iGaming, but will do so through private operators, as opposed to licensing third-parties to conduct and manage iGaming themselves. Essentially, iGaming Ontario would be “lending” its iGaming “license” to registered third parties.

Below, we lay out some key elements of the proposed framework, particularly as it applies to iGaming platform operators.

Registration

General: All parties interested in operating iGaming platforms (Operators) are required to register with the AGCO. Registration opened for applicants in Fall of 2021.

Responsibility: Operators have an ongoing responsibility for key decision-making activities, gaming site compliance obligations, and authority to retain gaming site suppliers.

Fees: Operators will be charged an annual registration fee of $100,000 per gaming site in addition to other charges and fees.  

Operating Multiple Sites

Operating more than one distinct iGaming site would require a separate application for each site. To avoid the need for multiple registrations, Operators should allow users to access the entire site with uniform login credentials and to transact using a single e-wallet, have common branding within the site, and limit itself to a single operator for the site and all related websites or mobile apps.

Registration Requirements

Registration requires some or all of the following:  

  • Entity Disclosure: e.g. Corporate documents, financial statements, list of iGaming suppliers
  • Personal Disclosure: e.g. Officer, director, and 5%+ shareholder know-your-client (KYC) information
  • Registrar’s Standards Gap Analysis: Essentially, an internal analysis of how applicant intends to comply with the Registrar’s Standards for Internet Gaming (Standards), which have the objectives, among others, of maintaining standards related to entity management and accountability, promoting responsible gaming, and ensuring game integrity and fairness
  • Control Activity Matrix Submission: Essentially an independent audit of applicant’s Gap Analysis
  • Technology Compliance Confirmation: Applicants must provide confirmation that their technology solutions are compliant with applicable Standards
  • Commercial Agreements with iGaming Ontario: Applicants need to enter into an agreement with iGaming Ontario which addresses items like advertising and other restrictions, anti-money laundering (AML) requirements, etc.

Potential Legal Issues Associated with Ontario’s New Gaming Approach

After a review of iGaming within the province, Ontario’s Auditor General recommended that the provincial government “take appropriate steps to ensure compliance with the Criminal Code” before launching its new gaming scheme.

The Auditor General noted that although iGaming Ontario will ultimately be “conducting and managing” these new digital games, a good amount of decision-making power and risks lie with Operators. Thus, there is a legal risk that iGaming Ontario will not satisfy the “conduct and mange” threshold set out in the Criminal Code.

The Auditor General also noted possible conflict of interest concerns stemming from iGaming Ontario’s goal of generating revenue for the province from the activity of registrants and the AGCO’s goal of regulating registrants.

Lastly, the Auditor General voiced concern about the “limited public information” available regarding steps iGaming Ontario will take to ensure the integrity and fairness of games offered by Operators.  

Government Response

The Ontario government responded by stating that it “will take any additional steps it considers necessary to address any legal risks associated with the proposed framework for Internet gaming in Ontario.” 

The province also argued that iGaming Ontario and the AGCO are developing conflict of interest policies to address the conflict of interest concerns.  

Finally, the province pointed to standards it set out in its iGaming framework (e.g. Gap Analysis, Technology Compliance Confirmation, etc.), and the establishment of an “iGaming Compliance Unit” and “Customer Care and Dispute Resolution Policy” in response to the Auditor General’s concerns around the fairness and integrity of games offered, and stated that it will work to ensure that these types of details are made available to the public.

Ontario’s new iGaming framework is a potential “game changer” for the online gaming industry in Canada. It remains to be seen how this iGaming model will influence the development of other new approaches to gaming regulation in Canada.

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