II-8.5: The french Online Games' Regulator (ARJEL) homologates The Home Games' Pokerstars, after having call off its sort of new game

Context and Summary

In February 2011, the ARJEL asked Pokerstars to suspend its Home Games, which the online gambling site agreed to do. The games were to be suspended indefinitely, until the regulator examined whether or not this new game is compatible with current legislation and the ARJEL’s regulatory goals. In May 2011, the situation has not changed. In the meantime, the regulator wrote to all operators to inform them that any modification to the information provided in their licensing applications must be submitted to it for prior approval.

In early February 2010, it came to the ARJEL’s attention that a licensed operator, Pokerstars, had modified its platform in order to offer a new type of game, called the Home Game. These Home Games allow internet users to organize games of poker with their friends, as though they were at home. This is why these games are called Home Games, despite the non-physical nature of these net-based collective games.

The problem came from the fact that, in order to offer this new type of game, the operator changed certain of its website’s technological parameters. This meant that the website no longer conformed to the parameters that had been submitted to the Regulator with its licensing application, even though such parameters are one of the considerations taken into account by the ARJEL in the attribution of licenses. Furthermore, it was not technologically feasible for Pokerstars to market this game at the time its license was granted, since it required modifications to the website’s code. Therefore, when it granted Pokerstars’ license, the Regulator could not have considered this game’s potential harmfulness to players’ interests, which it must protect according to the law. This is why Pokerstar’s modification of its website’s code causes a problem.

Without accusing Pokerstars of breaking the rules, the Regulator pragmatically requested that the operator suspend players’ access to Home Games, and all promotions related to such games. In what resembles an informal agreement, the operator agreed to indefinitely suspend access to the game until the regulator can compare the technological modifications performed by Pokerstars with the parameters contained in its initial licensing application.

Pokerstars has said in the specialized press that it was disappointed to have to stop its Home Games, but that it was optimistic that this simple delay ‘was perfectly understandable’, because the regulator has to be able to do its work.

On its own website, Pokerstars has left Home Game’s splash page open with the remark:

“In accordance with its supervisory responsabilities, the ARJEL has decided to analyze Home Games’ system in order to make sure it complies with French legislation. This decision has been taken in order to ensure players’ comfort and security.

We do not know how long this operation will take, but we hope to be able to offer you the possibility to play with your friends using Home Games in the very near future.

The Club Managers who qualified to receive freeroll tickets will be contacted at a later date.

Please pardon us for this temporary inconvenience. We thank you for using PokerStars.fr. The existing Home Games Clubs will be saved in our database with all of the information they contain (members, history, statistics).”

Four months later, this part of the operator’s website still shows the same message, and , the ARJEL is continuing its investigation.

On May 12, 2011, The Board of the Regulatory Authority authorized a new version of the home games’ software and authorized the provision of this new sort of game. This decision specified that this is justified because the game does not go against any legal disposition. However, because the Home Games allow any player to choose his opponent, some risks exist. This is why it is appropriate to oblige Pokerstar to restrict access to Homes Games to players whose accounts have been approved by Pokerstars. Provision of these games is authorized conditionally upon the respect of access to the game restrictively to this category of players.

Brief commentary

It is possible to regulate using formal rules, such as sanctions or injunctions. This can be useful when Regulatory Authorities are new, because they have to establish their control over the industries in which they have to maintain a balance, such as the balance between competition and the protection of individuals.

But, this traditional use of law defined by its force is not necessarily appropriate when operators’ mobility is extreme, as in the present case. Indeed, the Internet is a virtual area in which it is extremely difficult for regulators, police officers, and judges to capture people who can vanish and reappear at any moment, in any place.

For example, the ARJEL decided in early May 2011 that the games offered by unlicensed operator Bet 365 would not be available from France. But, this British operator could simply continue to accept bets from French players who were enrolled before the industry was regulated, or who live outside of France.
This is why effective regulation takes on the form of a contract, or at the very least a ‘conversation’. In the present case, the regulator requested, instead of ordering; the operator agreed, instead of obeying. Furthermore, the operator takes care to point out that while it believes it is within its rights to provide such a game, it concomitantly recognizes the legitimacy of the regulator’s action.

Is this an angelic vision of regulation? Most certainly not. First of all, the reticent operator who refused to accept the regulator’s “request” would have to deal with a different sort of authority: the recalcitrant operator could be faced with a series of injunctions and sanctions. Therefore, a rational operator, aware that the regulator is able to harden its stance and take the path of litigation, will prefer to cooperate.

Secondly, the fact that there is only one regulator is extremely important: in a normal trial, as in normal administrative procedures, the recalcitrant economic agent might hope to come before a different judge, or a different official, the next time around. In this case, the regulator always remains the same, and has a very long memory. Therefore, cordiality is the rule. This case allows us to understand that it is not only a contractual atmosphere, but also a diplomatic atmosphere, that governs the relationship between operators and regulators.

The second very remarkable aspect is the decision itself, not so much because it conditions authorization of the game based on programming modifications to a website providing a new type of game, but because it resorts to the new technique of “approval with reserves”. Indeed, Article 2 of the decision explicitly states that the “provision of Home Games is authorized only to players whose accounts have been definitively approved by the operator.” It seems that this is the first time that a regulator has used the technique of approval with reserves, but on May 26, 2011, it used it again concerning the Beturf company’s offer of a betting game called “Le 5”, which is only approved if bets are taken only on races approved by ministerial decree and which are approved for complex betting.

The difficulty that has already appeared in financial regulation comes from the following question: if these reserves are not obeyed by the operator who has received such an authorization, what will the consequences be? Will it be non-conformity, rendering the authorization invalid? Will it be a breaking of the rules, which justifies disciplinary proceedings carried out by the Disciplinary Commission?

The question is important because these are two different types of procedures. In the first case, due process does not apply because it is a simple observation that a required element no longer exists. In the second case, due process applies because disciplinary procedures are analogous to criminal proceedings. The issue is so important because the ARJEL’s disciplinary commission recently handed down a decision on June 6, 2011, in which it refused to punish an operator even though the regulatory authority’s Board of Directors had requested that disciplinary proceedings be opened against the operator. The President of the Authority immediately stated that he would appeal this decision before the Council of State.

This is the first time that the Board of Directors of a regulatory authority attacks its own Disciplinary Commission’s decision before the State Council: in reality, the authority is attacking itself. Indeed, a similar arrangement has been defined for the Autorité des Marchés Financiers (AMF — French Financial Markets Authority) by the Banking and Financial Regulation Act of October 22, 2010, but has not yet ever been applied.

Here, we observe that an event in the gaming industry can serve as an example for other industries, such as finance. We shall see whether this appeal—supposing that it does not violate the constitutional principle that one can not be judge and party at the same trial—reestablishes harmony in regulatory judgment proceedings, which had been perturbed by the functional distinction made between pursuit, investigation, and judgment within each regulatory authority, or whether, on the contrary, it will augment the disorder (1).

1. For a more detailed analysis, cf. FRISON-ROCHE, Marie-Anne, QPC, autorités de concurrence, autorités de régulation économique et financière : perspectives institutionnelles, , in ROUSSILLE, Myriam (dir.), QPC et droit des affaires : premiers regards, n° spéc. des Petites Affiches, n°194, 29 sept. 2011, pp.25-35.