Navigating Change

Heathcliff Farrugia, the new CEO of the Malta Gaming Authority (MGA), shares his thoughts on Malta’s brand-new Gaming Act, the MGA’s test environment for blockchain and cryptocurrencies, as well as the need for greater international cooperation on crime prevention and gambling addiction.

As the new CEO of the MGA, what are your priorities for the coming years?  

2018 was a milestone year for the MGA, with the introduction of the new Gaming Act in August. From a supervisory perspective, our priority is now to ensure that licensees implement their new obligations and comply with the new requirements, especially those relating to Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) activities. I think it is becoming increasingly important to make sure that regulators are properly equipped to conduct their work and are able to enforce regulations. The new Gaming Act has increased our regulatory powers, placing a stronger emphasis on the compliance and enforcement function, while allowing us to further raise the bar in player protection. Over the past five years the MGA has done a lot of great work, and I definitely want to keep building on our past achievements. While we are one of the largest iGaming jurisdictions in the world, we don’t consider the size of the sector as a measure of success. We look at our effectiveness in ensuring that players are protected and that the sector is kept free from crime. At the same time, we are focused on the future, and we want to ensure that innovation does not dry up – both from a regulatory perspective but also within the industry itself. Technology advancements related to blockchain technologies and cryptocurrencies have promising potential, and it is certainly one of our priorities to position the MGA on the forefront of regulatory innovation in this space.  


How would you describe the transition to the new Gaming Act? 

It was quite a smooth transition, especially with regard to the streamlining of the licensing structure from a multi-licence system to a two-licence system: a business-to-business licence and a business-to-consumer licence. These two licences now cover different types of activities across multiple distribution channels. Previously, we managed over 600 licences; we now have close to 300 licences with the same number of operators. Some operators returned up to 18 licences and received one or a maximum of two in return. At the same time, the decision to move towards a risk-based approach to regulation has helped us become more efficient and effective in our supervisory function. We are now rating operators in different risk categories, which are subject to different levels of compliance checks. This allows us to allocate resources where they are needed and respond better to problems as they arise. We believe that a one-size-fits-all approach to regulating the industry doesn’t make sense any longer. The sector has evolved quite a bit since Malta’s first gaming law was introduced in the early 2000s. The overhaul was much needed. Overall, I would say we had very few teething problems because the transition was very well planned. However, while 1st August 2018 was the day the Gaming Act came into force, it doesn’t mean that the work stopped there. Operators still require support and technical guidance, and we are currently working to make sure there is more clarity about the new rules and regulations. 


What other challenges did the new framework bring about for operators? 

Beyond the changes in the licensing structure, a key change was the phasing out of the key official role. Licensees are now required to identify the persons responsible for the key functions within their companies. Such persons are, in turn, required to undergo the MGA’s scrutiny in order for us to assess their fitness and propriety. We are now looking at a number of individuals such as the CEO, CFO, CTO, CMO, legal and compliance officer, and of course, the Money Laundering Reporting Officer. Other important changes relate to new obligations that have arisen under the Fourth Anti-Money Laundering Directive given that in 2018 iGaming companies became subject persons. 


How are you ensuring companies adhere to their AML obligations? 

We set up a new Anti-Money Laundering Unit, which is conducting on-site and off-site inspections and reports any findings to the Financial Intelligence Analysis Unit (FIAU). Our officers have received extensive training by local and international experts in Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) activities in order to make sure that they have the necessary capability, skill and capacity to conduct effective assessments. Through inspections, which are conducted together with FIAU, our job is to ensure that operators have all the necessary policies and procedures in place to comply with the AML regulations, including proper due diligence checks and reporting of suspicious transactions. Final inspection reports are then sent to the FIAU, and they will take further action where needed. 

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Based on your past inspections, how are iGaming companies performing in terms of AML checks? 

Most operators take this very seriously and are doing all the required checks. However, there were some operators who weren’t prepared enough; at least not to the levels expected by the MGA. The Fourth AML Directive and the implementing procedures outline exactly what is required from subject persons, hence we expect full and proper compliance. 


Several iGaming companies were accused of suspected links to the Italian mafia, and the MGA has been criticised for not cooperating with the Italian authorities. What’s your opinion about such criticism? 

The prevention of criminal infiltration is one of our top priorities. However, I’d like to point out that the MGA does not normally receive cooperation requests from Italian authorities other than its counterpart gambling regulator in Italy. Requests from law enforcement or financial intelligence units are sent to the corresponding authorities in Malta. Naturally, we provide any relevant information to the Maltese authorities. I can say that our due diligence checks are of a very high standard, and in fact, a number of applicants are refused a licence on the basis of failure to meet fitness and propriety standards. Others are detected as part of on-going checks, and we take immediate action if something comes up. Our international cooperation efforts are ongoing, and in fact we are currently in the process of establishing a stronger relationship with Italy’s Guardia di Finanza, with the help of Malta’s police, which will see us working even closer with Italian agencies. We are not excluding exploring similar agreements with other law enforcement agencies in future.  


Responsible gaming is another area of concern. How are you planning to improve player protection? 

We are working on a new self-exclusion system for players, which would give players the possibility to block themselves from all Malta-licensed iGaming operators. Today, iGaming operators licensed by the MGA are already obliged to offer self-exclusion tools to their players; however, there is no unified system in place, and an excluded player can seek the services of different operators, while being excluded from some others. We are aware that this is a gap in the protection offered within our regulated environment, and we are committed to working towards a system which will give the possibility to players to self-exclude across all licensed gaming channels, be it land-based or remote. It is an ambitious and complex project, and we have already seen some interesting technology solutions that could support such a project. We are also open to collaboration with other countries, and ideally, we will come to a stage where we have a unified self-exclusion system for all of Europe.  


You had a number of other big projects planned to make the way you regulate more efficient, including automated reporting. What’s the status of these projects? 

In January 2019, we will start rolling out our enhanced automated reporting platform for land-based operators. In 2020, we plan to introduce this for the iGaming sector too. Another important project we worked on is the sandbox for cryptocurrencies and blockchain technologies, which was published in October 2018. As of 1 January 2019, we will start accepting applications for the use of cryptocurrencies as a method of payment by our licensed operators and also allow the use of DLT as a technology.  


Can you tell us more about the sandbox for DLT and cryptocurrencies? Do you see big demand from the iGaming industry? 

Yes, there is strong interest. When we started working on this project, we issued two public consultations and were impressed by the large number of operators who wanted to help us. We received feedback from more than 70 operators. A number of operators were keen to explore the acceptance of cryptocurrencies as a method of payment, while others were assessing the use of DLT as a technology, perhaps by partnering up with existent blockchain providers.  Overall, our mission is to be at the forefront of gaming regulation while embracing innovation, but we have to ensure a safe operating environment and assess risks and implications properly. Hence, we decided to implement a sandbox framework, which would involve introducing cryptocurrencies and blockchain technologies within a controlled environment. We made it very clear that proper KYC checks are required in the sandbox. We cannot accept anonymity. We will be working hand in hand with the Malta Financial Services Authority (MFSA), who will regulate virtual financial assets and exchanges, as well as the Malta Digital and Innovation Authority (MDIA) that will be approving technology service providers. We envisage that this framework will run until end of October 2019, although it could be extended. 


The industry highlights HR and banking as the biggest challenges of operating in Malta. Is there anything the MGA can do to help the industry resolve these issues?  

In terms of human resources, I think demand will keep exceeding supply. We have kicked off a number of educational initiatives and partnerships to nurture more local talent, but the solution for the time being is importing talent and attracting foreign professionals to work in Malta. The situation with banking is a bit more complex as the banking issues are not exclusive to Malta. Gaming companies using an MGA licence are allowed to use both licensed credit institutions, as well as licensed financial institutions.  

Looking to the future, where do you want Malta’s iGaming industry to be positioned? 

We want to continue to be seen as a well-regulated jurisdiction that does not stop innovating. The iGaming industry is being influenced by blockchain technologies, which could turn out to be the industry’s next big thing. Hence, I think Malta’s drive to position the country as the ‘blockchain island’ will pay off in the near future. I also believe that in the coming years video gaming, eSports and traditional iGaming will keep converging more than ever before. New generations of players are interested in new forms of games, which might require new forms of regulations. I am confident that Malta will remain a forward-thinking gaming jurisdiction that responds to new realities. We will periodically review the regulatory performance of the sector and our new Gaming Act, and if needs be, we will make adjustments to ensure that consumers and the integrity of the industry are protected. 


Heathcliff Farrugia was appointed CEO of the Malta Gaming Authority in April 2018. He holds a Masters Degree in Business Administration (MBA) from the University of Leicester, UK, and is specialised in business management, operational efficiencies, strategic planning, and regulation. Throughout his professional career, he held various senior executive positions both within the private and the public sector. In 2014, he joined the Gaming Authority in the role of Chief Operations Officer (COO) and was appointed Chief Regulatory Officer in 2016.  Prior to joining the MGA, he spent the largest part of his career in the telecoms industry, specifically with Vodafone Malta, where he occupied various managerial positions.



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