Trial-and-error: the Hessian toleration regime fails

Trial-and-error: the Hessian toleration regime fails

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Guest post by Dr Joerg Hofmann, Senior Partner at Melchers Law, Germany, and Immediate Past President of the International Masters of Gaming Law

In an email circulated this Tuesday, the gambling regulator of the German state of Hesse, the Ministry of the Interior, informed the sports betting industry that the toleration regime “has been suspended for the time being”. Notably, the suspension was announced on the last day of the formal toleration application deadline – the decision therefore clearly marks an emergency stop which followed a court order issued by a local administrative court.

Under German administrative laws, a “formal toleration” is a (revocable) promise of the regulators not to enforce against an entity operating without an official licence. It, however, does not entail the legalising effect of an actual, full licence. It appears that the guidelines and requirements for the toleration procedure, which were published by Hessian regulators in late August this year, were detrimentally influenced by third-party-interests – presumably those of the regulators that form part of the Gambling Committee. This committee consists of the leading regulators of the sixteen German states and so far has not really been supportive of modernising German gambling regulation – quite aptly, certain members of the Gambling Committee have therefore even been referred to as “ayatollahs of gambling regulation” in the German press.

The proposed toleration procedure essentially extended the restrictive regulatory approach set out in the Interstate Treaty on Gambling in that online casinos were not covered and restrictions to in-play betting were impending. Further, it was not guaranteed that submitted corporate data would not be mis-used e.g. utilized in the context of enforcement efforts taken by other states. Sports betting operators that failed to apply until 15 November 2016 were threatened with enforcement and fines up to 500k EUR.

We had warned that the toleration regime was most likely to fail due to its lack of a legal basis and the fact that the “rules on services” which formed part of the toleration requirements were not notified to the European Commission. It feels like a déja vu that the regulators seemingly did not want to listen to legal concerns and, once again, had to be stopped by the courts. The Administrative Court of Wiesbaden on 9 November 2016 acceded to the claim of a sports betting operator filed against the state of Hesse, reasoning that the tolerations have no legal basis.

What to make out of it? If German regulators continue to apply the trial-and-error approach in gambling regulation, the status quo is likely to persist for a little longer.

Coming soon: The Second Treaty “Amending” the Interstate Treaty on Gambling…