The status of online gambling in Ontario has undergone significant changes in recent years, leading to the establishment of a competitive and consumer-protective iGaming market. This article provides an overview of the key developments and milestones that have shaped the landscape, from the government’s intention to open the market to the opening of the market itself. By adopting a standards-based approach, the Alcohol and Gaming Commission of Ontario (AGCO) has set the stage for a regulated and vibrant online gambling industry.
The Path to Regulation
In 2019, the government of Ontario expressed its commitment to creating an online gambling market that would be both competitive and focused on consumer protection. This intention was reiterated in the 2020 Budget when it was announced that the AGCO would be granted the authority to manage and conduct iGaming activities, as well as regulate the market. To facilitate this, the AGCO established a dedicated subsidiary called the “conduct and manage” entity, known as IGO, to oversee the relationship between the government and private iGaming operators.
Consultations and Standards
In March 2021, the AGCO initiated consultations with the gaming industry, including offshore online operators, with the aim of bringing as many of them as possible within the regulated framework. Simultaneously, the AGCO developed a standards-based approach to regulation, setting out broad principles and goals for the industry. These standards, known as the “Standards,” serve as a foundation for operators to meet and maintain regulatory requirements. While providing some guidance, the AGCO empowers each regulated entity to determine the most effective methods of meeting the Standards.
Market Opening and Licensing
July 2021 marked the release of the AGCO’s online gaming Standards to the industry for comment. Subsequent amendments were made until October 31, 2022, but the core Standards were in place when the market officially opened on April 4, 2022. In the fall of 2021, the AGCO began accepting applications from potential operators, suppliers, independent testing laboratories (ITLs), and independent integrity monitors. On the opening date, licensed operators with signed agreements with IGO were permitted to participate, even though the number of operators at that time was limited.
The Road Ahead
With the market now open, Ontario’s online gambling industry is poised for growth and competition. The shift from a government monopoly to an open licensing, taxation, and regulatory model is a significant step towards creating a dynamic and inclusive market. The AGCO will continue to oversee the industry, ensuring compliance with the established Standards while providing flexibility for operators to innovate within the regulatory framework.
iGaming Market: Structure and Operations Unveiled
It is important to note that the term “licence” is used instead of “registration” in this context, as the industry is more familiar with the former term.
To operate in Ontario, operators, GRSs (Gaming-Related Suppliers), ITLs (Integrity Testing Laboratories), and independent integrity monitors must be registered with the AGCO (Alcohol and Gaming Commission of Ontario). However, affiliates and payment service processors are not required to register.
There are no residency requirements, and non-Canadian entities can be granted licences by the AGCO.
Unlike other jurisdictions, there is no limit on the number of licences that will be issued, and operators are not required to partner with or be connected to any land-based operators.
The application process for operators consists of two tracks. First, the operator must apply to the AGCO for registration as a gaming operator. Second, they must establish a commercial relationship with IGO (iGaming Ontario). For GRSs, the process is single-track, requiring only a licence from the AGCO.
Operators who were already serving players from Ontario (participating in the Ontario grey market) when they submitted their applications were allowed to continue doing so until their regulated Ontario sites went live. IGO ensured a seamless transition from the grey market to the regulated market. However, this grace period ended on October 31, 2022. Operators with pending applications or registered but not yet live are closely monitored by the AGCO to ensure they have ceased their grey market operations. Failure to comply may result in termination of applications or cancellation of the operator’s registration.
From a structural and legal standpoint, IGO must be the entity providing gaming services, not the operator. The operator enters into a comprehensive Operating Agreement with IGO, which delegates all legal responsibilities as the operator of the gaming site to the actual operator (acting as an agent for IGO).
IGO acts as a conduit between operators and their customers, as well as between operators and other government regulatory authorities, excluding the AGCO. IGO does not aim to generate revenue and passes any tax burden on to the operators without significant additional costs. Operators are required to deposit their gross gaming revenue (GGR) into a separate bank account and transfer the funds to a dedicated IGO banking account. As IGO is the legal income earner, it is responsible for paying income tax (20%) on all revenue generated by licensed iGaming sites. While it is not mandatory for operators to use a Canadian bank account for holding GGR, it is recommended to avoid commingling funds.
There is ongoing confusion regarding whether IGO should impose a 13% goods and services tax on the cost of online gaming services provided to operators’ customers in Ontario. IGO has confirmed that they will not pass this burden on to the operators. However, questions remain regarding whether operators need to charge IGO HST for the services provided to them. This matter involves complex issues related to reciprocal tax treaties.
Within three months of their site going live in Ontario, operators are required by IGO to obtain insurance. Unfortunately, Canadian insurers do not cover operators providing online gaming services, even under an AGCO licence as an agent of the Crown. IGO and operators are still grappling with this issue, and extensions of time are being provided to operators to find suitable insurance. Changes to this requirement are anticipated within the next six months.
Initially, there was uncertainty about the level of separation operators needed to maintain between their primary/global .com site and the site exclusively for Ontario players. Surprisingly, the AGCO and IGO have allowed operators to segregate Ontario players on their .com site, as long as it complies with the Standards and all other regulatory requirements for a regulated Ontario site.
Operators must obtain separate licences for each brand they intend to use in Ontario, unless they can demonstrate that their customers have a unified account across all sites. Meeting the AGCO’s criteria for unified accounts has proven challenging. This requirement results in an additional annual fee of $100,000 per site, and the AGCO also imposes annual cost recovery charges, which are currently around $200,000. The industry hopes that the cost recovery fee will significantly decrease in subsequent years.
The issue of liquidity remains a challenge. Ontario does not allow regulated sites to accept players from outside the province for games played on these sites. This restriction discourages major operators in the poker and daily fantasy sports spaces from operating in Ontario. As a result, some operators have obtained licences to operate online sportsbooks while waiting to see if this restriction will be lifted within the next six months to a year.
How can Szilaghi Consulting help you get your Online Gambling License?
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