Dmitry Hotsyn: Dive into Ukraine's proposed changes to the gambling industry

On October 3, a draft law titled "On Amendments to the Gambling and Lottery Laws" was registered with the Ukrainian Parliament: https://itd.rada.gov.ua/billInfo/Bills/Card/42880.

On November 2, members of the parliament's tax committee recommended the draft law for approval in its first reading. This indicates that the draft law has successfully passed all preliminary stages and is now eligible for consideration by the parliament in its initial reading. If approved during this stage, the parliament will proceed with further deliberations.

In the following sections, we will provide a detailed analysis of the current draft law.

This proposed law can be divided into two primary aspects: a detailed framework for the gambling sector and adaptations to lottery requirements in response to the current wartime conditions.

Let's delve into the proposed changes, starting with lotteries.

The current legislation in Ukraine has effectively granted a monopoly to lottery operators who have been established in the market for a minimum of three years to qualify for a license. Furthermore, Ukraine has not issued new licenses in this sector for many years, instead extending those issued in the mid-2000s. An attempt to legalize gambling in 2020 required the adoption of new licensing conditions and a competition to identify new operators.

What does this draft law suggest?

If adopted, it would allow companieswithout prior experience in Ukraine to obtain a license to operate lotteries. This provision opens the door for foreign lottery operators to compete in the Ukrainian market, drawing upon their experience in other countries. The draft law also introduces the obligation for existing operators to pay license fees until a new competition for licenses is held, effectively leveling the playing field. Additionally, it prohibits operators from conducting activities in temporarily occupied territories, both online and offline.

The existing Ukrainian lottery legislation imposes substantial infrastructure requirements on operators, such as having at least 5,000 points of distribution for lotteries and electronic terminals for accepting bets.

The draft law temporarily abolishes this requirement during the period of martial law, which is currently in effect in Ukraine.

Now, let's shift our focus to the proposed changes in the gambling sector.

The draft law aims to establish additional requirements for licensees, introduce new grounds for license cancellation (e.g., non-payment of taxes and license fees), tighten requirements for the impeccable business reputation of key officials of licensees, regulate the procedure for conducting inspections by the Gambling Commission, and grant the Commission authority to control unlicensed online gambling. It also addresses the issue of liability for violating reporting requirements.

Comment from 4H Agency:

Gambling

In our assessment, the emergence of this draft law can be attributed to the relatively young state of the Ukrainian market. Starting from scratch to regulate any industry poses significant challenges, and it's difficult to establish comprehensive rules from the outset.

Moreover, the limited experience of various Ukrainian government bodies in dealing with the gambling sector, including the Gambling Commission, Tax Service, and National Bank, has shed light on the inadequacies and gaps in the existing regulatory framework. This realization has played a pivotal role in prompting the formulation of this draft law.

It's evident from the text of the draft law that no fundamentally new regulatory instruments are being introduced in the gambling sector. Instead, the proposed changes represent a logical extension of the Ukrainian authorities' ongoing efforts to address concerns related to operators with ties to Russia and to enhance the tools for monitoring the activities of licensed operators.

Lotteries

When it comes to lotteries, the situation is notably more complex than in the gambling sector. The proposed changes can be categorized into two primary groups:

• Changes aimed at enhancing the position of existing operators within the market, taking into consideration the challenging economic environment and the security concerns of citizens during times of conflict. These changes notably encompass the proposed suspension of the requirement for infrastructure among licensees and the prohibition of operations in temporarily occupied territories.
• Proposals that challenge the historically established regulatory framework, particularly regarding the potential issuance of licenses to operators lacking prior experience in organizing lotteries in Ukraine.

In contrast to the gambling industry, if the draft law is enacted, it is anticipated that the lottery market will experience more extensive transformations. Lawmakers are finding a middle ground with licensees, recognizing the hardships they face due to the ongoing conflict, while also streamlining the process of license fee payments. Concurrently, legislators are welcoming foreign investment, potentially intensifying competition for the limited number of available licenses (remember that the number of licenses remains restricted to three operators).

The opening of any market typically has a positive impact on its development. If these changes are embraced, Ukraine could elevate its lottery market by transitioning from local competition to a global stage.

In conclusion, it's worth noting that the Ukrainian market grapples with several challenges. At 4H, we are pleased to observe that the discourse surrounding the regulation of gambling and lotteries in Ukraine continues to evolve. In our view, this ongoing discussion offers an opportunity for comprehensive regulation in the sector, benefiting all stakeholders: players, the state, and operators.

Based on our experience in Ukraine, we recognize that draft laws often differ from their adopted versions. Therefore, we will remain vigilant in monitoring developments and keeping all concerned parties informed.

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