Assignment Task
QUESTION 1 – To expand globally, companies would need to consider evaluating and analyzing the micro- and macro-economic environment of local and foreign jurisdictions to increase product demand for the purposes of attaining commercial targets. In order for local and foreign jurisdictions to make an informed decision on a companyabout a company, they would need to understand the company’s financial position.
Stakeholders are reliant on financial information or otherwise to make informed decisions based on the financial rules and regulations that are in place. A lack of global standards can result in stakeholders being disadvantaged in one individual market, and “loopholes being exploited by criminals”.
A global standard will ensure stakeholders will have a common understanding of the required and what is expected from of them. Furthermore, it will ensure transparency, accountability and efficiency within financial markets. Transparent information must be relevant, comparable and quality assured so thatallowing customers canto make informed economic decisions. Accountability and responsibility will be established amongst all stakeholders, allowing regulators to operate more effectively and efficiently when monitoring and enforcing regulations.
An example of a global standard set for all publicly traded companies is the International Financial Reporting Standards (IFRS). All publicly traded companies are legally required to publish their financial reports in accordance with an agreed accounting standard. The mission statement set by IFRS supports the underlying benefits to serve the public interest to establish trust, growth, and long-term financial stability.
QUESTION 2 – In relation to the online gambling industry, two initiatives, General Data Protection Regulation (GDPR) and roll-out of a Player Management and Pre-commitment System (PMPS), will be discussed within the South African online gaming context. GDPR differs from the PMPS initiative, in that as with GDPR there was no consultative process with the regulatory body.
Implementation of GDPRIn terms of Regulation (EU) 2016/679 (“GDPR”), Article 44; transfer of customer personal data which is undergoing processing or is intended for processing after transfer to a third country will be required to comply to GDPR. South African companies that meet this requirement, will need to comply to GDPR, effective 25 May 2018. Non-compliance with the regulation may result in reputational damage to the organization’s brand and more importantly, it could have a significant impact on sales of goods and services with the EU indirectly affecting commercial viability of the organisation.
However, from an organisation perspective the following implementation approach was considered and applied for GDPR:
The organization evaluated whether it had adequate resources with the skill, knowledge, competency and aptitude to guide the company toward meeting GDPR requirements (Albi Dode1, 2018)
Thereafter a risk-based approach was initiated to understand:
The operational department areas affected by GDPR;
The roles and process owners responsible for identifying risk and implementing controls to meet GDPR requirements;
The Risk Management Framework used to identify, analyse; monitor and report risk to senior management for the purposes of ensuring transparency, accountability and independence is maintained while whilst implementing GDPR; and
The GDPR Policy was drafted, and a training plan established for all employees to ensure a data privacy culture was establishedinstituted.
In my opinion, the risk-based approach was central in establishing the GDPR implementation process. It allowed the organization organisation to understand its operational environment which underpinned the GDPR requirements and, resources were utilised more effectively and efficiently to focus on high-risk areas.
In South Africa, at a sector level, an increased cost of compliance related spending was experienced by organizations’ organisations especially by smaller to medium organizationsorganisations. Organizations’ Organisations were required to increase spending on the following to meet the challenging GDPR requirements:
Investment in new technology;
Hire personnel with the required knowledge and skill to manage GDPR;
Forgone opportunity costs, by auditing data processing flows relevant to GDPR;
Implementing GDPR, would necessitate the use of hiring or utilizing utlising in-country legal experts; and
The competitive landscape would need to be considered, as the implication of appending the consent requirement for customers to opt-in to accept the organisations marketing policy would have commercial consequences if not applied consistently by all companies.
Implementation of PMPSPMPS is being considered by the Western Cape Gambling and Racing Board (WCGRB) to identify problem gamblers and to aide customers to play within their financial means. PMPS will be compulsory for customers to pre-commit to responsible gaming parameters before they can initiate gameplay. “To contribute to the economy of the Western Cape in a socially responsible manner”, is one of the three (3) mandates which fall within in the WCGRB’s purview., aAccordingly, the WCGRB can consider PMPS for implementation on its licensed operators.
The engagement with the WCGRB allowed all organizations organisations to express an opinion on the impact that the implementation could have on the commercial operations of the organization organisation and the fiscal implications it could have on the country.
Engagement with the WCGRB established trust and transparency in the research that was being conducted and reinforced the WCGRB’s commitment to ensure customers gamble responsibly.
QUESTION 3 – In South Africa, the Western Cape Gambling and Racing Board’s (WCGRB) methodology for the assessment of a gambling operator will consist of the following regulatory structure:
Gambling companies and key employees will be required to submit a license application for the assessment of “suitability”, “integrity” and will undergo a “fit and proper” review for the eligibility to operate a gambling company in South Africa.
Western Cape Gambling and Racing Act (WCGRA), 1996 provides the WCGRB with powers and functions, “to make and set rules governing the licensing, conduct and operation of any gambling activity”;
In terms of WCGRA, the WGRB have the authority and power to conduct investigations, hearings or enquiries where a licensed gambling company has contravened or failed to comply with the provisions of the WCGR Act, 1996;
Following the outcome of an investigation and/or hearing, an authorised official will compile a findings report for the Chief Executive Officer (CEO) of the WCGRB. The CEO shall refer the findings report with recommendations to the WCGRB. The WCGRB may suggest remedial action or alternatively prosecute the alleged contravention.
To determine suitability, integrity, fit and proper; the WCGRB will need to assess fitness and propriety, to determine whether the business can contribute to the economy of the Western Cape in a socially responsible manner. Muhammad Mukhlis Afriyanto confirms, “Security issues, like crime within the destination country, are an important consideration for investors”. The WCGRB’s role to ensure suitability and integrity is essential for promoting foreign investment at a micro and macro level and furthermore to ensure stability of gambling investment in the region.
Another area of importance, is the assessment of financial soundness and bank guarantees, to secure customer funds. The main objective is to protect customer funds and to instill trust and confidence within the licensing regime of the Western Cape. Failure of gambling company’s and their inability to pay customers can result in the lack of confidence in the WCGRB.
By way of example and to support the WCGRB’s position to review a potential licensee, a few gambling operators such as UltimateBet, Absolute Poker, and Canbet, licensed by reputable gambling regulators, UK Gambling Commission and Kahnawake Gaming Commission (KGC) went bankrupt which resulted in customers not being paid. In Ultimatebet (UB) and Aboslute Poker’s (AP) case, prior to customers not receiving their funds, it was identified by customers that fraud was being committed by AP. As a result, this prompted KGC to investigate Absolute PokerAP for contravention of KGC’s rules. Based on the outcome of the KGC’s findings AP was enforced forced to pay back funds to all affected players and AP werewas fined half a million dollars.
Integrity and fit and proper review of a gambling operator require a broader analysis and understanding.
To ensure that the gambling industry is stable, credible and honest the WCGRB need to investigate and enquire into the conduct of the gambling operators and its senior management. It is important that senior management provide a police clearance certificate, tax clearance certificate and a credit report. The methodology allows the WCGRB to investigate and enquire into contraventions of the WCGR Act, 1996. This supports the WCGRB’s purpose to “inspire public confidence, and trust in an environment free from corruption and unlawful gambling and racing activities.
In addition, the WCGRB should review the experience of senior management to assess whether management have the knowledge, skill, and aptitude to operate a gambling business. In terms of article “Bankrupt List: 15 Gambling Companies That Went Broke or Out of Business”, it was evident that certain businesses failed to demonstrate due care and knowledge to manage a gambling operation which resulted in liquidation.
QUESTION 4 – It is important to establish a causality relationship between the economy and commercial casinos before assessing the impacts of an economic downturn could have on the regulation of the sector. Thereafter we will review, bank failures within South Africa and the proactive measures taken by regulators to curb the impact of the economic crisis (2007 – 2008).
Economic DownturnThe need for commercial casino’s in developing countries are required to aide and alleviate poverty, through job creation. In the context of South Africa, Marinda Pretorius, informs us that government’s main reason for legalizing casino’s “was due to the growth factor of casinos and economic benefits that casino’s can have on historically disadvantage groups”.
“In South Africa, gross casino gambling revenues totaled R17.2 billion in 2014 compared with R497 million in Nigeria and R218 million in Kenya.. Casinos paid R1.8 billion in provincial gambling taxes and levies or 10.4% of their gross gambling revenues in 2014”. It is important to highlight that loss in tax revenue of R110 million was incurred during the 2014/15 period due to illegal online gambling.
It is possible to deduce, that casinos have the potential to generate economic growth based on an expected gambling revenue of R21.9 billion in 2021; and it is a sustainable contributor to grow its own revenue base.
The National Gambling Policy (NGP), 2015 concluded that “the gambling industry makes a significant contribution towards the country’s economy in terms of taxes paid and contributes towards job creation”.
In the midst of the global crisis between (2008/2009), South Africa experienced an increase in unemployment from 22.43% in (2008) to 24.69% (2010) as per table 1 below. In addition, the economic downturn between 2008/2009 resulted in a substantial decrease in average gambling spend per visit from R 294 in 2004/2005 compared to R 221 in thirty-five (35) affiliated casinos in 2008/2009.
Due to increased unemployment and a decrease in average customer spend in affiliated casinos, it is surmised that the outcome would have resulted in a decline in tax gambling revenue during, the 2007 – 2009 period. As a result of the economic crisis (2007-2008), it is assumed that government opted to review new modes of gambling, such as online gambling, for the purpose of seeking new streams of tax revenue generation and creating job opportunities. The Department of Trade and Industry (DTI), appointed a five-member Gambling Review Commission (“the Commission”) in December 2009 to consider new modes of gambling. Please rRefer to Table 2 for an assessment of the timeline of activity whichactivity that supports this view.
Table 1: South Africa Unemployment Rate
In part, the Commission concluded that interactive gambling, and all forms of remote gambling, such as telephone or cellphone gambling should be regulated.
The Commission determined that regulation was required to manage online gambling. If not regulated in a technological and innovation age, preventing online gambling may lead to uncontrolled problem gambling, loss of macro-economic revenue to illegal online gambling sites, potential lost employment opportunities and the proliferation of illegal gambling.
Subsequently, in 2016 DTI confirmed, in the NGP that online gambling will not be permitted. The DTI’s view was that increased problem gambling, the proliferation of gambling, and the inadequate enforcement outweighed the argument of lifting the ban.
In my view, in the absence of a license and regulatory regime for online gambling, South Africa will
lose potential tax revenues to illegal gambling sites,
experience an outflow of money outside of the SA borders,
undergo increased problem gambling due to public access to illegal sites to which the government will have no effective control and monitoring mechanisms.
It is evident that due to the economic downturn, there is an interdependent link between the economy and the need for regulation and/or change to regulation to ensure the protection of customers at a micro-economic and macro-economic level.
QUESTION 5 – Transparency and Aaccountability areis a foundational requirements that should be embedded in any regulatory institution. A regulator should be seen to be transparent and to be held to account, not only in terms of law, butbut also in action, word and deed. This section will focus on Western Cape Gambling and Racing Board (WCGRB) in South Africa and how they ensue transparency and accountability.
“The liberties of a people never were, nor ever will be, secure, when the transactions of their rulers may be concealed from them”, Patrick Henry’s (Founding Father) words are significant and sets the tone of the importance of transparency. If an organisation, cannot be transparent with the power they are entrusted with, society as whole will never be free, as concealment will invoke mistrust within and outside of an organisation.
Transparency
The WCGRB ensures transparency externally in the following ways:
In terms of the Western Cape Gambling and Racing Regulation (WCGRR), Section 8, an organisation can apply for a licencelicense to operate a gambling operation. The licencelicense application must be published in the Provincial Gazette and other printed media for public comment and/or objection. Furthermore, WCGRR, Section 9, provides the public, within a set period, with an option to inspect certain information of the applicant.
In my opinion, this is an important component of the WCGRB’s identity as this process encourages trust with all stakeholders and it inspires confidence with the current licensees. Licensees can also ascertain that the process is fair and consistent for all.
The WCGRB in terms of WCGRR, Section 31, in addition to the above, places a legal responsibility on the organisation to inform the WCGRB of disputes that cannot be resolved between the customer and the organisation but and provides mechanisms for the customers to submit their complaints. Placing responsibility on an organisation in my view was creative, as gambling occurs in many townships and customers may not have access to communication mechanisms to submit their complaints.
Accountability
An independent WCGRB is appointed by the Provincial Executive Council of the Western Cape (PEC). The WCGRB consists of seven members who are not directly involved in the day-to-day operations of the regulator.
The WCGRB is required to employ a Chief Executive Officer (CEO) in terms of Western Cape Gambling and Racing Act, 1996 (Act 4 of 1996). This is an important distinction as there is segregation of duties between the WCGRB and the Chief Executive Office. In my view, this strengthens independence and accountability as there is a clear distinction between reporting lines as it informs all stakeholders that the CEO can be held accountable should duties not be fulfilled in a fit and proper manner.
The CEO is required to report on the fulfilling of the agreed upon strategic objectives to the WCGRB. Due to the separation of powers, the Board can, free from conflict of interest, hold the CEO to account in carrying out of his duties.
The WCGRB is mandated by law to be audited by the independent Auditor-General (AG). Moreover, the AG is required to report to on the affairs, the activities and the financial position of the WCGRB to the Executive Council. The governance reporting structures highlighted in diagram 1 below provides evidence that assurance of accountability is maintained at all levels of management as the Auditor General must review and report their findings directly to the ECP and not the WCGRB.
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