The hallmark of an effective regulatory structure is the ability to embrace efficiency and progress without compromising the underlying structure. Such a balance poses a continuing challenge for regulators. If a regulator embraces advancement but fails to regulate it effectively, the integrity of the industry can be jeopardized.
In contrast, if a regulator exercises too much oversight, innovation can be stifled, and the industry becomes stagnant. Fortunately, Nevada continues to strike this balance time and time again.
The most recent example is the Nevada Gaming Control Board’s (NGCB) introduction of its “Approval Categories for Equipment and Systems Initiative” (the ACES Initiative or ACES).
As explained below, the ACES Initiative is designed to further Nevada’s goal of providing gaming equipment manufacturers an environment that is conducive to the efficient and effective deployment of gaming system modifications to meet the dynamic needs of their customers and the gaming industry.
Prior to November 1, 2023, modifications to the regulated components (controlled objects) of a Cashless Wagering, On-Line Slot Metering, Race Book, or Sports Pool system (system) or other previously approved associated equipment submitted to the Technology Division were required to undergo a pre-approval inspection by a registered independent testing laboratory (ITL) to ensure compliance with the Nevada regulatory structure.
However, effective November 1, 2023, the modifications for associated equipment will be processed and approved based on the specific category the modifications fall into, which may not require a pre-approval inspection by an ITL.
To get to this point, the NGCB examined what gaming manufacturers previously submitted in their modifications requests as well as reviewed the actual changes that were made. This exercise revealed that a majority of said changes were either not regulatory in nature or of a lower risk from a regulatory standpoint (e.g., optimizing a database).
The board, and its Technology Division, also hosted two regulatory workshops in 2023 to delve into this issue further. The focus at both workshops, according to Chair Kirk Hendrick was, “[to try and] put in regulation reform that streamlines business and doesn’t provide any hinderance to it.”
Specifically, with regard to ACES, Chief Barbee noted the following, “What we’re looking at is taking a more risk tolerant approach to software that is being deployed.” Accordingly, the NGCB identified three category types to classify changes.
Category 1 is for changes to functionalities or features unrelated to a Nevada regulatory requirement and thus have no regulatory impact in Nevada. These changes may be necessary as a result of non-regulated features being contained in a controlled object. Common examples include, but are not limited to the following:
- Features or functionality specific to other jurisdictions not currently in use in Nevada;
- Installer changes;
- W2G updates;
- Adjustments to non-regulated reports or forms;
- Database optimization, indexing, version compatibility changes;
- Graphical changes such as those related to the user interface; and
- Non-gaming system interface changes such as those related to lodging, food and beverage, or retail systems.
Importantly, Category 1 changes do not require a pre-approval inspection by an ITL or administrative approval of the chair of the board prior to development. Instead, (i) the manufacturer must notify the Technology Division of the changes prior to deployment[1] (such a notification must include the list of changes made along with the nomenclature and SHA1 hash of the resultant changed objects), and (ii) the Category 1 changes must be inspected by an ITL and the inspection results must be provided to the Technology Division within 180 days of notification to the Technology Division or as part of the next Category 3 modification submission, whichever comes first.
Of note, if a company is incorporating any Category 3 changes as noted below, they will be able to incorporate any Category 1 or Category 2 changes that have occurred since the last change.
The next level of change is Category 2, which are changes impacting regulated objects. In particular, these are modifications to a controlled object that contain regulatory changes that do not have a revenue reporting impact, do not introduce previously unapproved features or functionalities, and would not otherwise be considered a Category 3 approval. Notable examples of changes that are encompassed include:
- Player tracking, promotional, or loyalty system changes;
- Communication handling or system architecture;
- Changes to regulated forms;
- Reconfiguring how information is displayed to the operator or patron; and
- Non-critical field issues.
In regard to the approval process, while Category 2 modifications do not require a pre-approval inspection, they do require approval by the chair prior to deployment.
The process for Category 2 modifications is as follows: Category 2 modifications are to be submitted to the Technology Division in accordance with Regulation 14.260. While inspection results are not required to be included in a Category 2 application for modification, they may be included at the manufacturer’s discretion.
Rather, Category 2 modifications must be inspected by an ITL and the results provided to the chair within 180 days of approval or as part of the next Category 3 modification submission, whichever comes first. The Technology Division’s goal is to review and approve Category 2 modifications within five business days of the receipt of a complete application. As noted by Chief Barbee, “[w]hat we are looking for with the ACES Initiative is to eliminate wait. There will be less trips to the ITL.”
The third, and final, Category 3 is for changes to the most critical and regulated components. These are modifications to a controlled object that introduce new features or functionality, have a revenue reporting impact, or materially impact the operation of a system. This would include, for example:
- Changes to regulated reports;
- Cashless wagering modifications;
- Cage & Credit modifications;
- New payment methods;
- New bonus schemes; and
- Changes related to a condition placed on the system by prior
Category 3 modifications follow the typical rules. That is, Category 3 modifications require both a pre-approval inspection by an ITL and approval by the chair prior to deployment. Category 3 modifications must be submitted to the Technology Division in accordance with Regulation 14.260 and need to include the inspection and certification results of an ITL.
Equally important, all changes to a controlled object since the last Category 3 approval, to include Category 1 and Category 2 modifications, must be inspected and certified by an ITL and included within the approval request for the current Category 3 modification.
Further, it is important to note that Regulation 14.300(2) still requires prior written approval of the chair for an associated equipment modification. Accordingly, including a Category 2 or Category 3 modification in a Category 1 change will be considered a violation of this regulation. Further, the ACES initiative does not change the emergency modification approval requirements or process of Regulation 14.300.
In conclusion, the NGCB has described the ACES Initiative as “forward looking” and “exciting.” The board has acknowledged that many manufacturers in the industry have become software development companies and several more will be going to software as a service at some point in the future.
The board anticipates the ACES Initiative will allow companies to roll those changes out in a more expedited manner. As Chief Barbee noted, “We’re hoping that this gives [companies the] flexibility to provide support to [their] customers, for the dynamic needs of the industry, and align with the internal software development processes.”
The ACES Initiative is the latest example of the board’s continuing efforts to adapt its regulations to the ever-evolving gaming landscape and further solidifies Nevada’s position as the gold standard of gaming.
If you have any questions regarding the ACES Initiative or the approval process for gaming system modifications, please contact Karl Rutledge at KRutledge@lewisroca.com, Glenn Light at GLight@lewisroca.com, or Salma Granich at SGranich@lewisroca.com.
[1] Category 1 change notifications are to be emailed to ACESnotifications@gcb.nv.gov.
