Black market, KYC key pain points in Brazil, says Betano CRO

Brazil’s Leading Operator Betano Confronts the Challenge of Illegal Gambling Operations: A Call for Enhanced Regulatory Enforcement

As Brazil embarks on its journey into the regulated online gambling sector, challenges loom large, particularly from the pervasive presence of illegal operators. Ioannis Spanoudakis, Chief Regulatory Affairs Officer at Kaizen Gaming, owner of market leader Betano, underscores the urgency for intensified enforcement to bolster the status of licensed operators.

Betano, having been the first to apply for a license in Brazil last year, is presently recognized by H2 Gambling Capital as the top operator within the emerging regulated market. However, like its licensed counterparts, the company grapples with significant hurdles, notably the stringent KYC (Know Your Customer) requirements and the persistent threat posed by the black market. The licensing process has proven costly and complex, presenting substantial barriers to entry for operators.

While the regulatory measures were anticipated to fortify player protections and clamp down on illegal activities, the black market continues to thrive. As recently highlighted by André Gelfi, CEO and co-founder of the Brazilian Institute of Responsible Gaming (IBJR), illegal operations account for approximately 60% of the nation’s monthly Gross Gaming Revenue (GGR).

Spanoudakis refers to this “considerable black market” as the predominant obstacle for licensed operators. He emphasizes, “Online gaming is a rapidly growing sector that demands responsible operation. A critical component is the eradication of the black market, facilitating the migration of players to the legal ecosystem. The flourishing of illegal operators not only compromises consumer safety but also results in substantial losses in tax revenues that could otherwise fund vital public services, including prevention and treatment programs.”

Despite these pressing issues, Spanoudakis acknowledges the strides made since Brazil’s market launch on January 1. “Confronting the extensive network of unauthorized operators is undoubtedly a complex and prolonged endeavor,” he states. “[However], there are already signs of progress, as numerous players transition from unregulated platforms to licensed and legal operators—a promising development for Brazil’s market future.”

The Impacts of Regulatory Delays: A Silver Lining?

The road to regulated online gambling in Brazil has been marred by delays, with a five-year interval between the National Congress’s initial legislation approval and the final authorization from the Chamber of Deputies. Spanoudakis argues that this protracted timeline ultimately enabled Brazil to glean insights from international markets and implement best practices, fostering a “comprehensive and largely complete regulatory framework.”

“Though Brazil was somewhat late in establishing regulations, the delay offered a chance to learn from more mature markets and adopt proven strategies,” he explains. “Authorities engaged with international operators and experts in gaming and responsible practices to shape an optimal regulatory framework.”

Strict KYC Requirements: A Double-Edged Sword

The new regulatory framework introduced by the Secretariat of Prizes and Bets (SPA) mandates rigorous KYC protocols for operators. Betano now requires customers to provide their full name, date of birth, and Individual Taxpayer Registration (CPF) number during registration. Subsequently, Betano engages in exhaustive identity and age verification by utilizing public and private databases alongside mandatory facial recognition technology.

Spanoudakis highlights that integrating facial recognition technology has posed substantial challenges. “This process demands sophisticated technical expertise and a seamless user experience to prevent friction during onboarding,” he notes.

While Spanoudakis deems KYC compliance as “essential,” it has inadvertently hindered the competitiveness of licensed operators against illegal ones that sidestep such rigorous checks. “Legal operators are investing heavily in advanced verification systems, facial recognition technology, and compliance infrastructure, often resulting in a more complex onboarding experience compared to unregulated platforms,” he adds. “Conversely, offshore operators provide immediate access without identity requirements, making them easily accessible even to minors and vulnerable groups—highlighting the critical need for strict enforcement against illegal entities and public awareness campaigns to convey the significance of a secure betting environment.”

Navigating the Fine Line: Overregulation and Black Market Impacts

Spanoudakis expresses confidence in the existing regulatory framework, asserting it ranks among the best globally and in Latin America, especially since the SPA has avoided overly stringent measures thus far. However, following recent Senate approval of new advertising regulations, including restrictions on gambling promotions and celebrity endorsements, he stresses the necessity of maintaining balanced regulations.

“Excessive regulation can deter players from licensed operators, inadvertently driving them toward the black market and undermining regulatory objectives,” he warns.

Endorsement of Current Regulations Despite Challenges

Despite initial market challenges, Spanoudakis asserts that the influx of international operators illustrates Brazil’s market appeal and the efficacy of the SPA’s regulatory framework. “Challenges remain, yet we recognize that Brazil is undergoing a transformative market evolution; naturally, this process will take time to fully materialize,” he concludes. “There exists a collective understanding among stakeholders—including operators, regulatory authorities, and consumers—that a robust regulatory environment is vital for sustainable industry growth and effective consumer protection.”