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The regulation of online gaming in Ontario: What we know so far

By Noah Walters

In the November 2020 Budget, the Government of Ontario announced that the province would establish a regulated internet gaming (iGaming) market through iGaming Ontario, a subsidiary of the Alcohol and Gaming Commission of Ontario (AGCO). The AGCO will serve as the regulator of the market, while iGaming Ontario will be responsible for the rollout of the market by developing and executing commercial agreements with each prospective market participant. The AGCO’s role as regulator will remain independent of the iGaming Ontario’s commercial role in the conduct and management of the iGaming market.

This announcement was made possible after the federal government introduced single-event sports betting legislation, Bill C-218, the Safe and Regulated Sports Betting Act (the Canadian Bill), which amended the Criminal Code to grant provincial governments the power to determine when and how to conduct and manage single-event sports betting offerings within each province. While certain forms of sports betting, such as parlay betting, have long been legal in Canada, betting on the outcome of a single sporting event has been restricted under paragraph 207(4)(b) of the Criminal Code. Bill C-218 amended the Criminal Code to remove the long-standing prohibition on betting on the outcome of “any race or fight, or on a single sport event or athletic contest.”

The newly established Ontario iGaming market is set to launch on April 4, 2022. The move will be the first of its kind in Canada, with predictions that it could become one of the biggest gaming markets in North America.

Guide to participating in the Ontario iGaming market

If you are a company interested in carrying out iGaming activities in Ontario, the first step is to submit an application to the AGCO using the AGCO online portal. The application process distinguishes between applicants iGaming “operators” and iGaming “suppliers”. Generally, the path to participating in Ontario’s iGaming market can be broken down into three stages:

  1. The preliminary assessment
  2. Processing the application with the AGCO
  3. Executing a commercial agreement with iGaming Ontario

We elaborate on each stage below:

(1) The preliminary assessment

In this first stage of the process, an applicant needs to determine whether they are an iGaming “operator” or iGaming “supplier”. This determination is driven by the applicant’s business activities and is significant because operators and suppliers are subject to different obligations. As a result, the registration costs also differ.

Registering as an iGaming operator

Registration as an iGaming operator is required for entities that operate an iGaming site in Ontario. While the term “operating an internet gaming site” isn’t accompanied by an exhaustive list of activities that fit within the scope of the phrase, the AGCO explains in the Internet Gaming Operating Application Guide that operating a gaming site means having ongoing responsibility for the gaming site as a whole, including

    • Key decision-making activities;
    • Meeting compliance obligations for the gaming site, and
    • Having authority to retain suppliers in relation to the gaming site, like choosing whether Gaming Related Suppliers (GRSs) are used and which GRSs are used.

Notably, if an applicant intends to operate more than one distinct internet gaming site, they will be required to submit a separate application for each site.

An iGaming operator is required to pay a CA$100,000 annual fee per gaming site. Fees are non­refundable and must be received by the AGCO before an application will be processed. The iGaming operator will have to pay the additional and undisclosed cost of the investigation that the AGCO carries out to assess the operator’s application.

Registering as an iGaming supplier

Generally, an operator can be distinguished from a GRS, whose primary role does not allow them to exercise a measure of control over the gaming site as a whole. Rather, and as set out in the Internet Gaming Supplier Application Guide, a GRS is defined as an entity that “manufactures, provides, installs, tests, maintains or repairs gaming equipment or who provides consulting or similar services directly related to the playing of a lottery scheme or the operation of a gaming site”. For registration purposes, the AGCO will classify suppliers in accordance with the degree of their involvement in the business of an operator. These classifications are set out in the Gaming Registration Fee Schedule as, for example, “Manufacturer of Gaming Equipment”, “Supplier of Gaming Equipment”, or “Non-Gaming Related Supplier”. A GRS’ classification will inform the scope of registration requirements applicable to a particular GRS, as well as the associated costs. Generally, the more involved the GRS is in the business of the iGaming operator, the more onerous the registration requirements and the higher the cost to register. The AGCO has the discretion to determine whether and how a GRS qualifies for registration, and carry out that determination in a reasonable manner, focusing on the activity that the company or individual will be engaging in, and not the category of business.

An iGaming supplier is required to pay a regulatory fee of CA$2,000, CA$3,000, or CA$15,000, depending on how it is classified by the AGCO during the registration process. iGaming suppliers will also be required to pay an additional investigation cost prior to processing their application.

(2) Processing the application with the AGCO

This second stage of the process is the most comprehensive, and consists of demonstrating compliance with relevant laws and gathering all of the requisite documentation and information that the AGCO requires. To demonstrate compliance with relevant laws, operators in particular are required to provide a “Registrar’s Standards Gap Analysis”, in the form of a plan that identifies and addresses an applicant’s compliance against the AGCO Registrar’s Standards for Internet Gaming and the Gaming Control Act, 1992. Information and documentation requirements are extensive and different for operators and suppliers. The following chart summarizes the requirements for each type of applicant.

 

(3) Executing a commercial agreement with iGaming Ontario

Lastly, the applicant must develop and enter into a commercial agreement with iGaming Ontario to formalize their relationship with the province. The agreement will set out reps and warranties as they relate to the information and supporting documents provided by the applicant to the AGCO during the registration process. Through these commercial agreements, the government will also receive a share of the revenues generated by iGaming operators and suppliers.

During this stage the applicant will be required to submit policies, programs and procedures that balance key government objectives such as consumer protection, anti-money laundering, and red-tape reduction. With respect to anti-money laundering requirements, Ontario is developing its own regulation structured around the threshold requirements established under the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA); these regulations will include additional AML obligations for registered gaming operators. Additional requirements are set out in iGaming Ontario’s AML Policy and Operational Guidance, and include:

  • Knowing your client requirements, including identification requirements,
  • AML reporting requirements, including reporting on politically exposed persons, suspicious transactions, and prohibited players, and
  • iGaming operator system requirements, amongst others.

Dentons FinTech group is a national, multi-disciplinary team with experience navigating the opportunities and challenges of Canada’s gaming sector. For more information on our group, or assistance with the new iGaming market in Ontario, please reach out to Noah Walters.