Guide to KYC & AML Compliance and Responsible Gambling for Betting

A comprehensive breakdown on compliance for bookmakers
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As international AML laws and local gambling regulations become stricter and access higher penalties, even experienced bookmakers face the problem of staying compliant with new requirements. Here, we will talk you through general KYC & AML compliance as well as certain specifics for bookmakers.

How stricter monitoring of regulators leads to higher penalties

Being KYC & AML compliant may seem like an easy task; however, overconfidence and lack of knowledge can usually lead to mistakes and, as a result, to regulator dissatisfaction.

Recently, many well-known operators suffered huge money losses for failing to stop money laundering and protect their problem gamblers. Ladbrokes Coral, a British gambling company, was fined £5.9m last year, California Card Club and CG Technology in the US were charged $8m and $12m respectively, and Australian gaming operator, Tabcorp, received a $45m fine.

KYC & AML compliance for betting: from general requirements to specifics

Although AML laws are the same for all industries, betting still has some specifics since the chances of coming across money laundering are higher in this sector than in others.

Money laundering in betting takes two forms:

  • Criminals use bookmaker platforms to change money from criminal activities to “clean” money by placing low-outcome bets.
  • Money obtained from illegal sources is used to sponsor betting as a leisure activity.

The following is our breakdown of general requirements for KYC & AML compliance for bookmakers.

AML compliance program. To prevent betting from becoming a source of crime, a company has to develop a thorough AML compliance program—a program that defines how the company detects, accesses, and reports financial crime. The topic of the AML compliance program in itself is extensive, so if you would like to read more about it, please check out our step-by-step guide.

Customer Due Diligence (CDD). Before a customer is allowed to bet, a company has to conduct a check called Customer Due Diligence. For CDD, a company obtains the customer’s information to verify their identity and evaluate whether they are involved in any crime.

Enhanced Due Diligence (EDD). In cases where the chances of coming across money laundering are higher, companies apply what is known as Enhanced Due Diligence. In our experience, many businesses tend to think that EDD is carried out quite rarely; still, bookmakers, in particular, should not underestimate the importance of EDD since they often encounter high-risk clients. One of the most vital components of EDD for betting companies is checking clients’ source of funds. Sportsbooks must ensure that these funds do not come from illegal activities.

Now we’ve gone over general KYC & AML requirements for bookmakers, let’s dive deeper into a specific concept for betting called responsible gambling.

How to detect and prevent problem gambling

The spread of various social policies around the world impacted all spheres of life, including gambling and betting. Responsible gambling is a relatively recent concept that requires bookmakers, casinos, and entities alike to prevent players from developing a gambling addiction.

KYC as part of a responsible gambling program. At present, CDD is needed not only to detect money laundering, but to protect customers. The two most essential aspects of KYC in terms of responsible gambling compliance are:

  • Checking the customer’s age: Bookmakers must ensure no minors are allowed to bet. As age restrictions differ from country to country, a remote sportsbook has to know the various age limits across all jurisdictions it operates in.
  • Checking the source of funds: Betting companies must ensure that customers do not spend more than they can afford. To do so, the company should check publicly available information concerning the salary of a particular customer, calculate their living costs, and estimate how much they can spend.

Problem gambling behavior. Bookmakers have to track players’ activities and make sure they do not develop a gambling addiction. Various signs that show they have become addicted include:

  • Chasing losses: they try to recoup the money they lost by placing new bets.
  • Playing for high stakes, i.e., placing high-outcome but risky bets that can easily make them lose all their money.
  • They frequently complain about losing.

You can learn more about other triggers in the Gambling Commission’s guide on interaction with customers.

Gambling addiction protection. Regulators require bookmakers to be transparent and convey the message that betting is a form of entertainment, not an easy way to make money. Some additional ideas a sportsbook can implement to ensure mindful betting:

  • Educate customers (through videos, blog posts, etc.) about the possible dangers of gambling.
  • Advertise mindfully: make sure ads do not provide false information or appeal to minors.
  • Create opportunities (e.g., special buttons) for customers to exclude themselves from using the platform.

Now, to have a greater understanding of KYC & AML compliance requirements, let’s discuss some popular betting jurisdictions in detail.

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Betting regulations around the globe

As many betting regulations become stricter, some businesses consider moving to more “tolerant” jurisdictions. Others, on the contrary, choose more reputable regions to attract customers. We’ve broken down several popular betting jurisdictions for all bookmakers that want to start a business in another country.

Australia

Australia is a reputable gambling jurisdiction with quite strict compliance requirements.

Gambling regulation: All states and territories of Australia have their own gambling regulation.

Authority: The Australian Communications & Media Authority (online betting).

Age restriction: 18 years.

Overview: Since there is no single regulator for land-based gambling, the division between betting and gambling, as well as different requirements, vary from state to state. The law known as the Interactive Gambling Act prohibits online gambling but allows online betting.

Bookmakers need a state-issued license to operate in Australia. The betting environment depends on each state or territory, but Australia, in general, has one of the world’s stringiest gambling regulations with a strong focus on responsible gambling. Therefore, you can consider Australia if you want to open a company in a very reputable region where people are highly engaged in betting.

Gibraltar

Gibraltar is one of the most popular and established gambling jurisdictions, along with Isle of Man, Malta, and Alderney. Some of the most popular gambling operators, such as Ladbrokes and Betfair, are based there.

Gambling regulation: The Gambling Act.

Authority: The Gibraltar Regulatory Authority.

Age restriction: 18 years.

Overview: Gambling in Gibraltar includes betting, gaming (casinos, etc.), and lotteries. The territory is one of the most reputable betting jurisdictions with a well-developed infrastructure for remote betting and gambling. Also, Gibraltar offers low taxes and no VAT charges. All these factors make Gibraltar an attractive spot for gaming and betting operators. Gibraltar-licensed bookmakers can provide remote services globally. However, since the regulation in the country has strict compliance requirements, only well-experienced gambling providers can operate there.

The UK

The UK has one of the most well-known gambling regulations in the world. The jurisdiction is famous for its strict requirements, transparency, and thorough protection of vulnerable gamblers.

Gambling regulation: The Gambling Act. Principal AML regulations are the 4th and 5th European Anti-Money Laundering Directives.

Authority: The Gambling Commission.

Age restriction: 18 years.

Overview: The Gambling Act divides gambling into gaming, betting, and lottery. All gambling operators, including offshore bookmakers, must obtain a local license. Starting from April 2020, UK citizens will not be able to use credit cards to wage since credit cards pose a financial risk to problem gamblers, allowing them to spend more than they can afford.

The UK is known for its high AML compliance standards as well as well-developed responsible gambling policies. Therefore, you can consider opening a sportsbook in the UK if you are not afraid of strict requirements and huge penalties for non-compliance, and want to operate in one of the most globally recognized gambling jurisdictions.

The US

In 2018, the US government struck down the Professional and Amateur Sports Protection Act that only permitted betting in Nevada. Now each state can decide whether to make betting legal in its territory.

Gambling regulation: The Unlawful Internet Gambling Enforcement Act and The Interstate Wire Act.

Authority: Each state where gambling is legal has its own regulator. FinCEN supervises AML compliance in all sectors, including betting.

Age restriction: 21 years (in majority of states).

Overview: Currently, one can open a sportsbook in 11 states, including Nevada, New Mexico, and Oregon. Allowed forms of betting and requirements vary from state to state. For instance, in New York, you can only offer land-based betting services. See the list of allowed betting services and requirements by state here. Necessary responsible gambling measures also differ from state to state, with self-exclusion tools being the most common.

When sports betting became legal in many states, its regulation also got much stricter. Nevertheless, the US is a promising place to open a sportsbook. At present, Americans illegally wage more than $150bn a year on sports, so the recent legalization of betting makes it possible for bookmakers to tap into this number.

China, Hong Kong, Macau

Gambling is prohibited in the whole of mainland China, except Macau. The only legal form of gambling is two lotteries: welfare lottery and sports lottery. Other than sports lottery, sports betting is against the law.

Gambling regulation: The Criminal Law (China), The Gambling Ordinance (Hong Kong), Macau Gaming Law (Macau).

Authority: The China Sports Lottery Administration Centre (China), Hong Kong SAR Government (Hong Kong), The Gaming Inspection and Coordination Bureau (Macau).

Age restriction: 18 years (China and Hong Kong), 21 years (Macau).

Overview: While gambling and betting are prohibited (except the sports lottery), in reality, illegal gambling thrives in China, bringing in extreme profit for both inland and offshore operators. If you want to operate in China legally, you have to get a license from the sports lottery regulator, but application requirements are rigorous. However, since the 1.4 billion population of China is quite fond of sports betting, the revenues you can get from operating in the country may be worth overcoming the hurdles.

Hong Kong. Gambling in Hong Kong, except for certain games such as Mahjong and Tin Kau, is currently prohibited under the regulation called the Gambling Ordinance. Betting is allowed, but The Hong Kong Jockey Club has a monopoly on it. Thus, Hong Kong is perhaps not the best place to start your betting business.

Macau. Macau, the only place in mainland China where gambling is allowed, can be the gambling capital of the world, but is hardly a desirable place for bookmakers since the Macau Jockey Club has monopolized the whole betting sector.

The European Union (EU)

Gambling regulation: There is no single gambling regulation in the EU, but 4th and 5th Anti-Money Laundering Directives (AMLD) regulate AML compliance in all spheres throughout the Union.

Authority: Every country within the EU has its own regulator. Organizations are not obliged to join the European Gaming and Betting Association, but it is still quite a respectable entity that promotes AML compliance and safe gambling.

Age restriction: 18 years (in most countries).

Overview: The Directives unite all gambling, betting, and other similar activities under the term “gambling”. Both the 4AMLD and 5AMLD are now in force, but the 5th amends some articles of the 4th. While the Directives are a common regulation for all European countries, each country has its local AML regulation that aligns with the Directives.

Both Directives entail close interaction between EU Member States. As a result, if a company fails AML compliance in one European country, it can be held accountable in the other.

Jurisdictions within the EU range significantly in terms of reputation and affordability. Some of them make it easy to obtain a license (think of Curaçao), while others, like Malta, have more costly but more reputable licenses.

Malta

Malta is a highly prestigious betting and gambling jurisdiction.

Gambling regulation: The Gaming Act.

Authority: The Malta Gaming Authority.

Age restriction: 25 years (locals), 18 years (foreigners).

Overview: In Malta, the term “game” is used when speaking about gambling. The term encompasses two types of games: a game of chance (an activity, the outcome of which is determined by chance), and a game of skill (an activity, the outcome of which is determined by the use of skill). Betting belongs to games of chance.

Malta is famous for its secure business environment, high AML standards, and strong player protection, so requirements for a Maltese license are quite strict and include several independent compliance audits. You can consider