Where Gambling and Financial Services Collide

The Irish Government published the Gambling Regulation Bill 2022 in December 2022. The legislation, once enacted, is intended to consolidate gambling legislation in Ireland and to reform the regulation of the industry. Among other changes, the Bill establishes the Gambling Regulatory Authority of Ireland (GRAI). The GRAI is intended to serve as a new one-stop shop for the regulation of the gambling industry in Ireland.

We examine the potential crossover between gambling and financial services. At first glance, the Bill may not seem of concern to those operating in the financial services space. However, the line between activities that are considered gambling, and those that can qualify as financial services is not as clear as might at first appear.

Negotiating the thin line

In the UK, concerns around the dividing line between gambling and financial services arose after the creation of the UK Gambling Commission. This led to the Memorandum of Understanding between the Gambling Commission and the Financial Conduct Authority. This MOU has allowed for the sharing of information between the bodies as well as support for each body’s approach to the regulation of their respective industries. It also provides scope for consultation on areas of mutual interest.

The potential for overlap between gambling and financial services was exemplified by a UK Treasury Committee Report issued in May 2023 on the crypto industry. The cross-party group recommended regulating trading and investing in unbacked crypto assets by retail investors as gambling, rather than as a financial service. In deciding to recommend this approach, the UK Treasury Committee considered the characteristics of unbacked crypto assets. In particular, they referenced the price volatility and the lack of inherent value or societal purpose of those assets. The Treasury Committee felt that this made trading and investing in unbacked crypto assets more akin to gambling than to financial services.

UK regulation has thrown up other examples that highlight the issues at play. One example is binary options. A binary option is a type of options contract in which the payout will depend entirely on the outcome of a yes/no proposition. At one stage, binary options were regulated in the UK by the Gambling Commission, before they were brought under the FCA’s remit under their regulation of Contracts for Difference, or CFDs (financial instruments). In Ireland, binary options are clearly regarded as financial instruments, even though their sale to retail investors is prohibited by the Central Bank of Ireland.

Spread betting is a further example. This is a financial product that allows market participants to bet on the direction of the price of a financial instrument, or on the market at large, without any ownership of the underlying instrument or market. In the UK, the provision of spread betting services is regulated by the FCA. Despite this, the UK Government taxes the proceeds of spread betting as if it were gambling.

Analysing financial contracts as possible gaming services has a long history, dating back to the 18^th century and the introduction of the requirement for insurable interest in life assurance contracts under the Life Assurance Act 1774. More recently, the emergence of credit derivatives as a recognised category of financial instrument was hampered for years by doubts as to whether such instruments could either be unenforceable under gaming legislation, or void as insurance contracts without insurable interest. Given the constant emergence of new categories of financial instrument, this area of analysis shows no signs of disappearance.

Conclusion

In Ireland, the regime for the regulation of gambling is not yet as developed as it is in some other jurisdictions. The Gambling Regulation Bill 2022, once enacted, may therefore put perimeter issues into sharp focus. It remains to be seen if there will be any engagement between the GRAI and the Central Bank of Ireland and how the potential crossover between gambling and financial services will play out.

We expect the Gambling Regulation Bill 2022 to be signed into law later this year.

Our Technology team will host a webinar entitled “Gambling Reform in Ireland: Introducing the New Legal and Regulatory Requirements” on 18 October 2023. To register, please click here.

If you require further information on the matters raised in this article, please contact a member of the Financial Services Regulation team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.