Peter Davis, head of Oflot, has asked Camelot for reassurances that a new offshoot called Camelot International Services will not breach the company's licence provisions.
He has asked if the new company would go against Camelot's "single purpose" in running the UK lottery. And if CIS were to provide revenue in the shape of an ancillary activity - such as National Lottery fridge magnets - a share of the profits would have to go to the Five Good Causes.
Finally, Camelot would be in breach of its licence if it was to divert resources away from the National Lottery to the detriment of its proper running.
The development has some bizarre twists. Camelot's initial response to Oflot was that the company was not a Camelot subsidiary as it was owned by Cam-elot's shareholders. As such, Camelot could not be held directly responsible for the business.
A spokesman for Racal Electronics, which has a 22.5 per cent stake in Camelot, said: "Camelot has been receiving a lot of inquiries from overseas on how to manage and establish state lotteries. Clearly, it is interested in looking at how to respond. But there are no plans at the moment for it to expand overseas."
A Camelot spokeswoman said: "CIS remains a dormant company, and it has been set up to respond to inquiries from overseas. We are constantly talking to the regulator, and there is no problem at all for us in this." She added that the regulator had always known of Camelot's intention to diversify abroad.
If Camelot does venture abroad, it may find itself in competition with GTech, its American shareholder, and one of the foremost providers of lottery services worldwide.