The online gambling and betting industry, also known as the iGaming industry, keeps experiencing strong growth in both existing markets as well as in new ones. Although the exact numbers are always hard to verify, Statista, the statistics portal, mentions an expected global revenue change of +12.9% for 2024, and a compound annual growth rate of more than 6% until 2029.
With more than one hundred billion to be earned, this expansion does not only come with increased competition in the form of new operators trying to claim their piece of the pie, but also with increased regulatory scrutiny.
As gambling comes with several significant risks, it requires laws, rules and regulations to deal with these risks, and being compliant with these rules is where compliance comes into play.
Gambling and regulations
Gambling has a long history of being regulated, although the reasons behind it have changed over time. At first, reasons often were moral or religious; gambling would appeal to those who can least afford to lose, something that we can even see today. Or it could be seen as promoting greed, materialism or worse, a lack of trust in god.
Later, authorities started to try to balance the financial opportunities gambling brings as a source of revenue for the state, with the negative consequences such as addiction and debt, but also the criminal elements it attracts, from cheating and rigged games, to loan sharks and money laundering.
Nowadays, more and more countries have regulated or are regulating gambling, especially since online gambling, where borders virtually do not exist, has become a multi-billion euro industry in most countries.
In general, the regulation starts with a licensing structure that is managed by a national gambling authority. In the process of obtaining a licence, a plethora of rules and regulations must be incorporated to the company structure. We can divide these into the following categories:
- Anti-Money Laundering (AML)
- Data Protection
- Game Fairness
- Fraud & Security
- Responsible gaming
- Advertising and Marketing
The most responsible online casinos make sure to be transparent about how these rules and regulations affect customers. Customers, who understand why they need to provide all kinds of official and sensitive documents, are more willing to take their own responsibility and cooperate.
Compliance: Maintaining your licence and building trust
Compliance means keeping up to date with all relevant laws, regulations, guidelines and industry standards. First in order to acquire a licence necessary to operate, and second to maintain that licence. Being non-compliant can lead to hefty fines, and in the worst case to a licence being suspended, or even revoked, thereby effectively putting a company out of business.
In day to day business, compliance has three distinct goals:
- Avoid and reduce legal risks
- Protect employees and customers
- Build and maintain a good reputation
Making sure these goals can be achieved requires constant work. Not only can regulations and guidelines change, so do the threats that face employees and customers. When it comes to matters such as fraud & security and data protection, for example, the threats constantly change and evolve. Social engineering and phishing, as another example, are serious threats that need to be dealt with quickly and effectively, but always within the legal and regulatory frameworks.
Compliance also builds trust, or rather, non-compliance creates distrust. Organisations that are known to be compliant will be recognised as trustworthy and reliable partners. Compliance could even enhance its level of trust by going above and beyond the minimal criteria set, however, the question then quickly becomes: how does it affect the bottomline in both the short and long-term?
As an example, we can look at the ‘duty of care’ that gambling operators have. There are situations in which operators are required to obtain a ‘source of wealth’ from their customers. This is both to assure that the customer can afford to deposit, but also that their money has a legal source as money laundering is, and has always been, a great risk in gambling. If an operator goes beyond compliance and applies the applicable rules stricter than necessary, not only would the process itself cost more, a likely outcome would also be that more customers will be found that cannot be allowed to play.
According to a Challenges in Compliance Survey, these ‘source of funds checks’ are considered to be the most difficult challenge that compliance professionals in Europe face.
Why is compliance such a big topic
Compliance might sound like an open door; of course companies must adhere to the law, just like any citizen must. However, as mentioned before, the stakes in iGaming and gambling are high and the landscape of complex regulations and risks constantly evolves.
Let’s look at some of the different topics in which compliance plays a large role. Although all topics are essential parts of a complex structure, we have divided them into the topics that mostly affect the operator as an organisation, and those that directly affect the customers.
Compliance Matters Affecting the Organisation
Just like in any industry, most of the work that eventually leads to the product or service that is sold happens behind the scenes, out of sight of the customer. When a customer registers an account or makes a deposit, all they are interested in is how quick and easy the process is. The chance that they would give a single thought to how their data is processed is very slim.
Examples of these topics are:
- Anti-Money Laundering
- Data Protection
- Fraud & Security
Anti-Money Laundering
Gambling has always been a way for criminals to launder money, if the source of the money that is wagered is unclear, the money is clean as soon as it is marked as ‘casino winnings’. For this reason strict rules are in place when and how operators are required to investigate transactions and customers.
Data-Protection
Online privacy is one of the most debated topics in the past few years. Especially when dealing with sensitive information such as official documentation and financial data, customers rely on professional organisations using the best available technologies. However, the safest and newest technologies are generally more expensive, so regulators dictate minimum requirements to assure that data is at least as safe as can be reasonably expected.
Fraud & Security
Due to the amount of money and valuable data that circulate in the gambling industry, and the possibilities for money laundering, there is a never ending war and arms race going on. Although casinos technology is on par with that of banks, and can be considered safe, neither side is sitting still and constantly develops new attacks and defences against those attacks.
One only has to look at how generative AI has been evolving to imagine the effects it has on document and identity fraud or social engineering. A language model as ChatGPT can even be used to analyse bonus terms and conditions which could lead to bonus abuse – one of the biggest problems in this category.
Compliance Matters Affecting the Customer
When it comes to the customer, the most important topics that directly affect them are:
- Verification
- Game Integrity
- Marketing
- Responsible Gaming.
Verification
Verification entails all matters of KYC (know your customer). This does not only means checking a players age and identity to prevent underaged and excluded persons from playing, but also the aforementioned source of wealth check.
The way that this affects customers, is that they will have to provide copies of official documents such as IDs, proof of address and bank statements. Unfortunately, customers are hesitant to supply such information for varying reasons. This is unfortunate because it leads to situations where customers cannot withdraw money or use their account until such documents have been received and approved.
Game Integrity
Game Integrity, sometimes called Fair Play, ensures that the offered games are fair and safe to use. A player must be able to trust that the chances of winning are as advertised and that games are not rigged, nor incentify them to overspend. This also addresses, for example, how such information must be presented to the customer. If regulations dictate that information must be ‘easy to find and understand’ without any further details, the question becomes if customers, operators and the authorities interpret ‘easy’ in the same way. Are operators prioritising profit by interpreting the terms to their advantage, or do they pick the customers side? Taking the customer’s side would not only mean playing it safe towards regulatory consequences, but to enhance their brand and reputation.
Marketing
The way information is conveyed to (potential) customers is especially important when it comes to marketing. Without specific rules, gambling operators have shown that they have no problem presenting gambling as something that could bring you riches and make you successful and popular in life. Only by setting strict rules have authorities managed to force those operators to present gambling in a more realistic way, as a form of entertainment that costs money.
Dealing with such questions which all come down to how operators see and are willing to take their responsibilities, naturally brings us to the topic of responsible gaming, which deserves a section of its own.
Responsible Gaming
In short, responsible gaming, as embodied by responsible online casinos, are the rules and practices that must ensure that gambling is and remains a form of entertainment, and does not lead to problematic behaviour. The reason that responsible gaming should be mentioned next to compliance is that it simply is the most important topic in the iGaming industry.
This is because of the tension between operators on the one hand, and regulators on the other: operators trying to maximise their revenue, which comes from a small group of customers, and the authorities trying to protect exactly that same group which is likely susceptible to problematic behaviour such as overspending.
Regulations regarding responsible gambling generally all consist of the following elements:
- Providing information and promoting awareness regarding problem gambling – Preventing problematic behaviour by providing tools
- Offering self exclusion methods
The exact application of these elements can greatly differ from one country or jurisdiction to another. In some jurisdictions, only offering a system that allows you to set limits is enough, and in others, certain limits have to actually be set before customers are allowed to play.
Although a proactive approach here with regards to responsible gaming would mean a reduction in the risk of any regulatory fines and reputational damage, in general operators are still choosing the opposite approach where procedures are only tightened when regulators start enforcing the rules more strictly.
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