KYC for Gambling: What It Is and Why It’s Crucial

In 2022, the UK-based Entain Group was fined a staggering 17 million pounds (USD 21 million) for failures in social responsibility and Anti-Money Laundering (AML) failures at its online and land-based gambling businesses.

The following year, the Federal Court of Australia imposed an AUD 450 million (USD 300 million) fine on Crown Resorts for violating the country’s Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (“AML/CFT Act”). 

Aside from heavy regulatory penalties, the gambling industry also faces significant losses due to fraud. According to Statista, casino and sports betting apps lost around $1.2 billion between January 2022 and February 2023 alone. 

The online gambling market is predicted to reach USD 153.57 billion by 2030, further attracting money launderers, fraudsters, and other financial criminals. That’s why all gambling operators should bet on a reliable KYC solution. Even better, gambling platforms should consider a full-cycle verification solution, which would undoubtedly prevent regulatory fines, financial losses, and reputational damage. 

This article examines KYC in the gambling industry, “no KYC casinos”, client retention techniques, and more. It also covers why KYC is crucial for all gambling platforms and how to build a proper flow.

Know Your Customer in casinos and why it’s needed

Know Your Customer (KYC) is a process that financial institutions and other regulated entities (including gambling operators) use to verify the identities of their customers and assess the potential risks associated with them before entering into a business relationship. The KYC process helps prevent identity theft, fraud, money laundering, terrorist financing, and other illicit activities.

KYC is crucial for the gambling industry for several reasons:

• Regulatory compliance. Many jurisdictions have strict regulations in place to prevent activities like money laundering, fraud, and underage gambling. Implementing KYC procedures helps gambling platforms comply with these regulations and maintain legal and ethical operations.
• Fraud prevention. KYC helps prevent fraud by ensuring that the individuals participating in gambling activities are who they say they are. This includes verifying the accuracy of personal information provided, such as names, addresses, payment details, and sources of funds.

Suggested read: iGaming Affiliate Fraud and How to Prevent it—Complete Guide 2024

• ML/TF prevention. Verifying the financial details of customers through KYC helps gambling platforms ensure that they are not unknowingly facilitating financial crimes, including money laundering and terrorist financing (ML/TF).
• Underage gambling prevention. KYC procedures are essential for verifying the age of users to prevent underage individuals from participating in gambling activities. This is a critical aspect of Responsible Gambling practices.
• Responsible Gambling. KYC is part of the broader effort to promote responsible gambling. By knowing their customers, gambling platforms can identify potential issues related to problem gambling behavior and take appropriate measures to address them. Problem gambling is an especially significant issue in Australia, and authorities there take serious steps to combat it:

Suggested read: Gambling and Betting in Australia—A Complete Guide 2024

• Risk management. KYC also serves as a risk management tool for gambling platforms. It helps them assess the level of risk associated with each customer, which is valuable in identifying and preventing potential issues before they escalate.
• Customer relationship. KYC helps financial institutions and other regulated entities build trust with customers by ensuring the safety and security of their transactions. It strengthens the institution’s reputation and demonstrates a commitment to ethical and responsible business practices.

No KYC casinos: Why platforms without KYC expose themselves to huge risks

Many players like the idea of a “no KYC casino” or a “no ID casino”. They’re often perceived as “easier to use” and faster to get started with, since the onboarding process skipped altogether. Some players also enjoy the privacy of not having to provide ID, therefore avoiding personal data leaks and misuse of their data. On the other hand, fraudsters and money launderers can have a field day with “no KYC casinos,” which provide a perfect environment to commit financial crime. 

Here are the risks that gambling operators face when they don’t implement KYC: 

• Fraud. No KYC makes it easier for criminals to use fake identities or engage in fraudulent activities on the platform. 
• Money laundering and/or terrorist financing (ML/TF). Without proper KYC, gambling and gaming platforms may become facilitators of ML/TF activities. KYC helps to ensure that sources of funds are legitimate and compliant with AML regulations.
• Underage gambling, problem gambling and non-compliance with regulations. 
• Security threats. “No KYC casinos” may be more susceptible to security threats and hacking attempts. Proper identification procedures help secure user accounts and prevent unauthorized access.
• Reputational damage. Failing to implement KYC measures can lead to loss of trust among users. News of fraudulent activities or regulatory violations will harm the platform’s reputation, resulting in a decline in user confidence and partner trust.

KYC in online casinos: How it works

Casino KYC requirements include a series of identity checks that players must complete before they can start gambling. These include:

• Account registration and provision of basic information

Users create an account on the online casino platform by providing basic information, such as name, date of birth, address, and email.

• Document verification

Users are required to submit official documents to verify their identity. Depending on the jurisdiction, this may include a government-issued ID (passport, driver’s license), proof of address (utility bill, bank statement), etc. In some cases, Liveness Detection is also needed to confirm a player’s identity.

• Proof of address

Some casinos are also obliged to verify the address of the clients depending on the requirements of the jurisdiction they are based in.

• Age verification

Online casinos enforce age restrictions to ensure that only individuals of legal gambling age can participate. Users may need to provide documentation proving they meet the minimum age requirements.

• Payment method verification

Users need to verify their payment method, which may involve confirming details of credit/debit cards or other financial instruments. This step helps prevent fraud and ensures that funds are deposited and withdrawn securely.

• Source of funds verification

Some online casinos may request this for large transactions, clients subject to Enhanced Due Diligence (like PEPs), or for individuals from high-risk countries or industries. This is usually needed to comply with AML regulations. All provided documents and identity data should then be thoroughly reviewed by the casino’s compliance team.

• Ongoing monitoring

It’s advisable that casinos conduct ongoing monitoring of user activity to detect any unusual or suspicious behavior. This helps in identifying potential issues related to problem gambling or fraudulent activities. In case a red flag is identified, gambling operators are recommended to file a suspicious activity report to their local Financial Intelligence Unit (FIU).

How to retain “no KYC clients” while still conducting KYC

Apart from educating customers on why the KYC process is extremely important, gambling platforms are recommended to build the most user-friendly flow possible. Here’s how:

• Simplify the process. Design a straightforward KYC process with minimal steps and easy-to-understand instructions. You can consider non-document verification, like Sumsub’s Non-Doc or GDV solutions, if the jurisdictions you operate in allow them.
• Guarantee security and privacy. Emphasize to your users about the privacy and security of their personal information when passing the KYC process.
• Build a user-friendly interface. If document uploads are needed, create an intuitive and user-friendly interface for submitting them, making the process simple for new users or those unfamiliar with such procedures. Ensure that the KYC user flow is also mobile- and tablet-friendly.
• Add progress tracking. Implement a progress tracking feature so that users can monitor their KYC verification steps and see how far they are in the process.
• Offer educational resources. Additionally, you can create FAQs or video tutorials to guide users through the KYC process.
• Ensure user support. Offer responsive customer support to assist users with any issues or queries related to the KYC process.

The steps above will ensure a smooth and enjoyable KYC process for clients who are hesitant to undergo KYC, while maintaining high pass rates for gambling platforms.

Tips on how to stay compliant

Staying AML-compliant is crucial for online casinos to operate legally and responsibly. Here are some tips to help online casinos maintain AML compliance:

• Implement an Anti-Money Laundering Policy. An AML policy includes measures to stop criminals from disguising illegally obtained money as legitimate income.

Suggested read: Anti-Money Laundering (AML) Policy: Step-by-Step Guide (with Template)

• Appoint a Money Laundering Reporting Officer (MLRO). Gambling operators need to nominate an MLRO responsible for ensuring the protection of internal systems and controls against money laundering. This includes receiving disclosures regarding suspicious activity and deciding whether to file external suspicious activity reports (SARs).
• Implement KYC procedures. Establish robust Know Your Customer procedures to verify the identity of users during the registration process. This includes verifying their identity, age, and source of funds.
• Implement transaction monitoring. Implement automated systems for transaction monitoring to detect and analyze patterns of suspicious transactions. Unusual or large transactions are an ML red flag and should be properly checked.
• Implement ongoing monitoring. According to Sumsub’s internal statistics, most fraud cases occur after the KYC stage, so it’s important for casinos to conduct ongoing monitoring of user activity to detect any unusual or suspicious behavior.
• Conduct regular audits and assessments. Conduct regular internal audits and risk assessments to ensure that AML policies and procedures are effective and up to date. This helps in identifying areas that may need improvement.
• Collaborate with regulatory authorities. Stay informed aboutAML regulations in the jurisdictions where your online casino operates. Keep in touch with regulatory authorities to ensure compliance with local laws.
• Educate and communicate with customers. Clearly communicate AML policies to customers, explaining the necessity of the KYC process. Inform clients about the casino verification process and how to complete all the steps.
• Train staff. Train staff to enable them to detect and identify transactional and/or behavioral abnormalities that may raise suspicion of money laundering.

FAQ

• What is KYC in gambling?

  KYC in gambling refers to the measures implemented by platforms to verify and authenticate the identity, age, and financial information of their users. By verifying the identity of customers, KYC can prevent fraud and money laundering, reducing the risk of activities like identity theft and suspicious transactions. Additionally, KYC facilitates Responsible Gambling by allowing operators to track customers’ gambling behavior, identify potential problem gamblers, and implement measures such as setting deposit limits or offering self-exclusion options.

• What is the KYC policy for online casinos?

  The KYC policy for online casinos may vary depending on the jurisdiction, but usually involves procedures to verify the identity, age, and financial details of users. This includes steps such as document verification, age verification, and ongoing monitoring of user activity. The aim is to ensure regulatory compliance, prevent fraud, and maintain a secure and responsible gambling environment.

• When should a casino file a SAR?

  A casino should file a Suspicious Activity Report (SAR) when it identifies transactions or activities that appear suspicious, potentially indicating money laundering or fraud. In some instances, the appointed Compliance Officer must submit a report explaining the reason they think the activity was not suspicious or vice versa.