Category Archives: Nevada

Online Poker Legislation in Nevada

Independent Testing Labs | Nevada Online Poker

In June of this year The Nevada Gaming Control Board approved two separate companies to act as independent testing labs for interactive gaming. The companies are Gaming Laboratories International, LLC and BMM International, LLC. The Silver State is exhibiting an encouraging amount of forethought as it forges a regulatory framework for online poker.

Outsourcing this work has several important benefits. First, the pace of technological change in both software and Internet access technologies is so fast that government employed regulators will have a very difficult time keeping up. They lack the resources and expertise that super specialized technology companies have. Regulators will be able to leverage this expertise and focus on enforcing rules, setting policy, staying current with the innovations and broad trends in the industry, and certifying the independent testing labs.

According to newly passed interactive gaming laws in Nevada, manufacturers will pick up the costs off the testing labs. Once the equipment or software platform has passed this round of testing it will face a final round of examination by the Gaming Control Board Staff.

The survival of online poker industry will fully depend on the security and fairness of the game. The old world/first wave of illicit poker sites that dominated the early 2000s will not suffice in the new era of legal, state (or federally) sanctioned, and taxed poker. Online poker, with real money wagering, is legal in Nevada now. It will be subject to fierce scrutiny and there will be zero tolerance for shenanigans by site owners and cheaters.

Independent testing labs will be expected to constantly test the security of sites and will be responsible for identifying potential vulnerabilities as early as possible. One can envision these companies tenaciously working to find weak points before the criminals and fraudsters have a chance to exploit them.

The first two companies approved by Nevada have longstanding reputations within the gaming industry. Gaming Laboratories has, over the past two decades, tested and certifed gaming devices in hundreds of gaming jurisdictions worldwide. Interactive gaming and online poker are relatively new fields, however the company does have some experience in testing online gaming systems. Both companies are gearing up for this new business by expanding their facilities and hiring more staff.

Nevada Online Poker Regulations

A Closer Look at ‘New Regulation 5A’, Nevada Gaming Commission

When the proposed New Regulation 5A was put forth by the Gaming Control Board in 2011, it identified the key aspects of online poker from a governing body perspective. Whatever the rules and regs that had been followed in the past, by the Alderney Gambling Control Commission (British Channel Islands), or the Kahnawake Gaming Commission (Mohawk Territory in Canada), the Nevada version will surely and quickly become the gold standard. In this post we’d like to take a look at some notable parts of the regulations.

First off, it is made clear that for any interactive gaming system to operate legally in the state it must first be approved by the gaming commission. The minimum internal controls are referenced in parts 5A.060 and 5A.070 with regard to security protocols, most importantly the requirement that a list of persons with access to any part of the system must be maintained with the Gaming Control Board. Player verification is also covered in this section and more fully in 5A.110 (including age and location verification).

To address concerns over the possibility of money laundering using online poker accounts, 5A.120 prohibits money being transferred into an account from one financial institution and then subsequently withdrawn out to another institution. Nor can players transfer funds, via their online accounts, to any other players.

Probably the most important section of the document to poker players, in the wake of the Full Tilt and Absolute Poker scandals, is 5A.125 which sets forth the reserve requirements for player accounts. By law, the operator of a poker site must maintain a reserve in “cash, cash equivalents, an irrevocable letter of credit, a bond, or a combination” to protect players’ funds. The reserve has to equal the sum of all combined player funds held in interactive gaming accounts. This demonstrates the importance of player/consumer protection to Nevada’s gaming commissioners. The section goes on, in great detail, to provide specifics on how the funds are to be maintained, and if necessary drawn upon at the behest of the chairman.

Reserve requirements need to be calculated by each licensed online poker site on a daily basis. If the value of the reserve is not sufficient to cover the requirement in any 24 hour period, the site has to: 1) notify the chairman in writing; and 2) indicate the immediate actions that will be taken to correct the deficiency. All records regarding the reserve and player funds have to be examined by a certified public accountant on a monthly basis, and the findings have to be reported to the board. This type of required financial backing and oversight is what players who entrust their money to sites deserve.

These are just a few highlights of the main topics covered by Reg 5A. For those interested in learning more, the full text of the regulations can be found here.

Nevada Online Poker MICS

What are Minimum Internal Control Standards?

Online poker, by it’s very nature, will present new challenges for regulators and jurisdictions that are already well on their way to formalizing laws and codes for the industry. Let’s consider another very important reason why Nevada should lead the way and become the hub for online gaming in the United States, and poker in particular – Nevada’s Minimum Internal Control Standards (MICS).

The Nevada Gaming Control Board has established a strong foundation of guidelines and defined terms with the passage of the MICS. System operating standards, player protection, record keeping and security are the predominant subjects covered. Standards are set for items ranging from the maintenance and location of the physical servers that underpin gaming websites, to how player funds are to be segregated and processed during transfers.

The Nevada Online Poker MICS provide very specific rules on the subject of access and remote access to the different layers of the overall system. The layers broadly include: the operating system, computer servers, network infrastructure, application software, databases and other components. The Gaming Control Board is well aware of the complexity of running and maintaining online gaming businesses and understands that this complexity provides ample opportunities for cheating, fraud and theft. Only expressly permitted IT workers and employees are given access to certain facets of the system and detailed access logs are to be maintained. (For example, IT personnel are prohibited from having any administrative access to specific player account info such as deposits, withdrawals and balances.) Random audits will occur to ensure that access rules have been maintained and appropriately logged. These detailed procedures make sense because segregating access among the different parts of the system and maintaining access logs will deter fraud and will make any potential security breaches easier to detect in as short a time as possible.

Default and administrative accounts, which can enable fraud, are controlled and must not be enabled for remote access. This is key since cheaters would need to also bypass physical access controls to use these accounts. Passwords for such accounts must also be changed regularly as prescribed. Modification to software, operating system, network and database applications are subject to the change control process which creates a record of any modifications made and notes the individual responsible for these changes.

Another area of concern for regulators is the management and oversight of player funds maintained by the operator of the site. Obviously no one in the poker world wants to witness a debacle like Full Tilt ever again. But even barring such gross examples of malfeasance there are still potential problems that need to be considered. The MICS stipulate “that funds deposited into an interactive gaming account from a financial institution shall not be transferred out of the” account “to a different financial institution”. Also, transferring funds between authorized players is not allowed. There are also rules governing the transfer of funds between players’ online accounts and accounts maintained at affiliated brick and mortar casinos.

It is, in fact, near the end of this iteration of the MICS in paragraph #159 (out of 163) that the required reserve fund is touched upon. The poker playing public will be interested to know that at least once per quarter, the “interactive gaming account balance summary report” is reviewed to ensure compliance with Regulation 5A.125. This regulation requires that player funds are held in segregated, audited accounts and that the amount of the reserve is equal to or greater than the sum of all player accounts. This alone demonstrates the importance of player protection to the experienced commissioners and regulators in Nevada.

With such a clear head start and its pedigree as the world’s leading authority on all matters related to regulated gaming, Nevada is in a perfect position to lead the way and help foster online poker as a legitimate industry. The details will take a lot of time and work, but interstate compacts will soon be accepted as the best way to grow the industry and maintain high standards for player protection and proper taxation.

Nevada Online Poker 2012

Why Nevada Should Lead…the new era of online poker

Even though most in the online poker industry, poker sites and players alike, desire full fledged federal laws to govern the industry, the reality is that it is just not going to happen in the short term. Online poker initiatives at the federal level, such as the language that senate Majority Leader Harry Reid tried to add to a tax bill last year, have stalled. There isn’t a lot of broad national support for this type of legislation.

2012 being a presidential election year makes things even more difficult since a majority of the electorate either: a) doesn’t care; or b) is morally opposed to any type of gambling. So politicians don’t see a benefit in taking up the cause. Another headwind is created by all of the competing interests that are opposed to the expansion of gaming online in general. These range from Indian tribal casino operators to state lotteries. These are just some of the reasons why many observers, including this author, contend that successful implementation at the state level in Nevada (and then possibly New Jersey) will serve as a catalyst for federal legislation. So intrastate online poker will be rolled out first.

Earlier this year Governor Brian Sandoval ordered the long dormant Gaming Policy Committee to convene on the issue of online gaming, specifically poker. The committee is made up of: the governor, the chairmen of the Gaming Control Board and the Nevada Gaming Commission, various gaming executives, and members of the state legislature. The stated goal is to address the changing landscape of gaming in general and the effect of new technologies on the industry. One of the first statements attributed to the governor to come out of the committee proceedings dealt with the absolute need to protect players and prevent underage gambling. For now, the new interactive gaming regulations are limited to poker.

Probably the strongest argument as to why Nevada should lead focuses on its expertise in gaming. It’s a fact that no place in the world has more experience in regulating and hosting a thriving gaming industry. The existing regulatory framework and enforcement infrastructure can be modified and expanded to deal with all of the new aspects and challenges of maintaining a vibrant, controlled and fair online gaming industry. In fact, through its Gaming Control Board, Nevada has already demonstrated the need for technological innovation by setting standards for “independent testing labs”. The state regulators will outsource the testing and compliance of high tech software and platforms to these private companies which must demonstrate and maintain strict standards. This preeminence in the field will ultimately lead to compacts with other states and the beginning of interstate poker–leaving the administration and regulation of the industry in the capable hands of the Silver State.

Check back soon – ameripoker.com will publish comprehensive articles that look at the different important parts of the new interactive gaming regulations.

It makes sense, also, that the largest and most successful casino companies in the world would want to have a presence in online gaming. Las Vegas is home to these companies that view online poker as both a new source of revenue and a new channel to acquire and serve customers. The proposed regulations stipulate that applicants for interactive gaming licenses must be current casino license holders in the state or be affiliated with a license holder.

Large casino brands are significant factors and players will benefit from doing business with large, public companies rather than shady off-shores. The requirement of a reserve fund to protect players’ accounts is one of many safeguards called for in the legislation. Other significant items include protections against underage gambling and the availability of resources for people with gambling problems.

The Poker Players Alliance and established international poker sites are pushing for federal laws to govern online poker and would like to avoid a scenario where states all have their own set of regulations. In a perfect world, laws at the federal level would create the conditions for sites to compete on the national stage – with players ultimately choosing their preferred site to play on.