Act on the organization of gambling amended

2022 September 12.
Author: Dr. János Rausch Dr. Balázs Unger
  • Media and Telecommunications

The new regulation, effective from 1 January 2023, will allow foreign companies to enter the market legally, thus increasing competition among online gambling organizers.

According to the decision of the Court of Justice of the European Union, the fact that until now the only organizers who have been able to obtain a license to organize online casino games are those who operate a casino on the territory of Hungary under a concession constitutes a discriminatory restriction and infringes the principle of providing services.

A June proposed law will significantly change the rules for the organization of online gambling in Hungary. Act XIX of 2022 follows a decision by the European Court of Justice establishing that the legislation is not in compliance with EU law, which compelled the Hungarian legislator to proceed. Dr. János Rausch and Dr. Balázs Unger of Bán, S. Szabó, Rausch & Partners presented the main elements of the amendment, affecting online casino and card games as well as sports betting on the internet.

Current legislation

In Hungary, under the previous legislation, all gambling services required a license from the state tax authority. This license was primarily held by the Hungarian state-owned Szerencsejáték Zrt. (with the exception of horse racing betting) and, in the case of horse racing betting, by the Hungarian state-owned Lóversenyfogadást-szervező Kft. Other companies were able to obtain the required license for the provision of gambling services only if they had been granted the right to do so in the framework of a public concession tender. Only holders of a concession to operate a casino located in Hungary could organize online casino games.

The initial case

An indirect background of the submitted legislative proposal is that the British company Sporting Odds Ltd. offered online casino gaming services in Hungary without a relevant concession and license, in connection with which the Central Management of the National Tax and Customs Administration, as the authority, imposed a penalty of HUF 3,500,000 following an audit in January 2016. Sporting Odds considered that the Hungarian legislation applicable to the sector was contrary to EU law and therefore appealed to the Administrative and Laboure Court of Budapest against the decision of the tax authority which it contested.

No concession tender has been launched for the activity carried out by Sporting Odds. Although the Concession Act gives the Minister of National Economy the right to provide a concession contract without a public tender, given that the license to organize online casino games requires not only a concession contract but also the operation of a casino in Hungary, Sporting Odds was not legally able to provide casino gaming services in Hungary in the first place, given the Hungarian regulatory environment.

In light of the above, and the fact that the Ministerial decision to grant the concession cannot be reviewed by the national courts as it does not constitute a decision of public authority, the Administrative and Laboure Court of Budapest suspended the appeal proceedings brought by Sporting Odds and referred the matter to the Court of Justice of the European Union for a preliminary ruling on the compatibility of the above legislation with EU law.

Decision of the Court of Justice of the European Union

In its decision, the Court of Justice of the European Union ruled that the fact that only organizers operating casinos under concession in Hungary are able to obtain the license required to organize online casino games constitutes a discriminatory restriction on operators from other EU Member States and infringes the principle of providing services.

In addition, the element of the concession tender system according to which the Minister of National Economy is not obliged to launch a concession tender and the rule according to which certain “qualified” bidders (those who have been operating gambling activities in Hungary for at least 10 years) could obtain a concession without a tender is contrary to EU law, as it is not transparent in its application and makes it difficult for bidders established in other Member States to submit a tender application.

The Court of Justice of the European Union ruled on 28 February 2018 that the Hungarian online casino gaming regulation in the above-mentioned area is in breach of European Union law, which forced the Hungarian legislator to modify the current regulation.

Content of the Act

As a consequence, Act XIX of 2022 on the “Amendment of Certain Laws on Economic Regulation” was adopted, which, among other provisions, attaches particular importance to the liberalization of the regulation of online gambling in order to harmonize it with the principles of the European Union.

The most significant amendment to the Act provides that the gambling supervisory authority (which is no longer the National Tax Authority but the Authority for the Supervision of Regulated Activities, hereinafter referred to as the “SZTFH” or „Authority”) will grant license for the organization of online betting to any entity originating from the EEA – thus, the legislator has not set a ceiling on the number of licenses that could be issued, only those companies will have their requests for a license rejected that were involved in illegal organization of gambling in the territory of an EEA State in the five years preceding the submission of the application. As regards the secondary legislation containing the detailed requirements for obtaining a license, the SZTFH will decide at a later date. Unfortunately, the adopted legislation did not introduce the same level of liberalization for online casino, but only clarified the existing provisions by regulating its provision from abroad, therefore it is not yet possible to speak of a full liberalization of online casino gaming without a concession.

Online Casino requires a Hungarian IP address

Under the legislation, online casino games will only be available to players connected from a Hungarian IP address, and the gambling organizer will be obliged to ensure continuous monitoring of this,” explains. This provision again contains some discrimination, as it is not clear exactly why casino gaming could only be accessed from a Hungarian IP address. In addition, the server for the organization of the online casino game must be located in an EEA state, with continuous remote access to the Authority.

Detailed rules have also been developed for payment service providers under the Act, in particular with regard to the provision of current information in the public register of gambling organizers maintained by the public authorities and in the event that the Authority imposes a restriction on a gambling organizer. The Authority could impose an administrative fine on the payment service provider if it has not complied with any of its obligations, as detailed in the Act, in relation to the remote gambling organizer. This includes, for example, the case where the authority imposes a restriction on a payment account for organization of prohibited gambling, where the payment service provider holding the payment account will be the primary party subject to the restriction, but the sanctioned party is the gambling organizer, who will be banned from the activity by the Authority.

Expected impact of the Act

Under the Act, from 1 January 2023, any company from an EEA member state will be able to carry out online gambling activities in Hungary in the future, subject to the relevant license in the case of online betting and the relevant concession in the case of online casinos, and the number of licenses that could be issued will not be limited in the case of online betting activities, thus providing an opportunity for new market players to enter the market.

“The new regulation would allow foreign companies to enter the market legally, thus increasing competition between online gambling organizers, but in view of the public register of gambling organizers – as a means to create transparency – their future control will be stricter” – conclude the experts of Bán, S. Szabó, Rausch & Partners.