Brazil’s market launch was one of the most highly-anticipated events on the iGaming calendar. But, as the dust settles and amid ongoing regulatory uncertainty, some operators are questioning whether they acted too hastily, prioritising their market launch over preparation.
One expert not shying away from discussing the ramifications of this–as well as Brazil’s evolving regulatory landscape–is Paola Menachem, Head of Legal and Regulatory Compliance at BetComply.
With nearly 25-years of experience on the front lines of legal and compliance departments in leading iGaming companies such as Intralot and the Zeal Group, Paola brings a wealth of expertise. She is also an entrepreneur, having founded two legal and compliance businesses.
Join iGamingFuture as we delve into the dynamics of Brazil, the developing regulatory environment and the true cost of compliance with one of the region’s leading experts.
With Brazil’s recent regulatory breakthrough, operators have been rushing to secure licenses. Do you think this has led some to underestimate the technical requirements involved?
“Eagerly anticipated, Brazil’s newly regulated markets have specific technical and compliance challenges.
“Operators seem to have rushed to cash in on the new market, adopting a “license first, compliance later” approach.
“This hasty method may lead to technical realisation impacts, causing disruptions in the months ahead. Ill-prepared operators will scrabble to catch-up, while those better prepared will find themselves in a stronger position.
“Many companies are focusing more on establishing their presence in the market, rather than fully understanding infrastructure and compliance obligations. The belief that technical integration could be sorted out down the line is a grave mistake, especially considering the requirements of Brazil’s local realities, like real-time monitoring, data localisation, and AML regulation compliance.
“Another critical oversight is minimising local infrastructure needs.
“Brazil requires local servers, which is a major gamble for international operators used to offshore hosting. Establishing and maintaining these servers in compliance with Brazil’s cybersecurity and data protection laws, including the Brazilian General Data Protection Law (LGPD), is costly and labour-intensive.
“Regulatory uncertainty compounds the complexity. Even with new laws onboard, many regulations are still being finalised, putting operators in a tricky spot regarding compliance expectations. This ambiguity may lead to hasty technical solutions that often fail.
“Furthermore, operators struggle with payment solutions and AML compliance. They must work with domestically-approved payment providers, and cross-border transactions face heightened scrutiny.
“In addition, the complexity of taxes and reporting operators must navigate should not be overlooked. Considering a 12 percent Gross Gaming Revenue (GGR) tax plus other contributions to social programs, companies need robust financial reporting systems.
“Failure to meet these expectations may result in heavy fines, forced market exits, and licence cancellations. Operators that have not completed their technical infrastructure setups (e.g. server configurations, real-time reporting, AML mechanisms) will face operational delays, putting them at a competitive disadvantage.
“As early operator errors surface, regulators may impose stricter enforcement and compliance measures akin to those in nations like Germany and France.
“The grim forecast is brightened by good prospects for those well prepared. The first mover advantage lies with those who support upfront compliance, infrastructure and payment systems, positioning them to reap rewards from early investments.
“In the long term, well-capitalised industry giants will weather the coming regulatory storm and thrive. However, smaller or underprepared operators struggling to maintain compliance will either merge with larger firms or exit the market altogether.”
What are some of the key technical aspects of the regulatory framework that pose the most challenge for Brazilian operators? How do these requirements compare to those in the more mature European markets?
That’s a big question, and the answer is probably the most straightforward to summarise.
| Challenging Aspect | Brazil | Europe (UK, Malta, Sweden, etc.) Comparison |
|---|---|---|
| Licensing | Stringent, centralised under the Ministry of Finance. | Defined clear pathways with multiple regulators. |
| Server Hosting | Servers must be located in Brazil, resulting in greater costs, new security issues, and more considerable operational challenges for international operators. | Location is flexible in most jurisdictions. |
| Payments | Local providers required (limiting international operators from offering flexible banking solutions) crypto restrictions. | A wider range of options, including crypto. |
| Advertising | Heavy restrictions and bans on celebrity/influencer partnerships. | Varies by jurisdiction, but generally strict |
| Taxation | 12% GGR + contributions. Stringent reporting obligations also require that real-time data be submitted to regulatory authorities. | UK: 21% GGR, Malta: 5%, France: High taxes |
| Responsible Gaming | Mandatory programs, but enforcement unclear. | Established systems with affordability checks |
| Data Protection | LGPD – high compliance burden for operators, especially regarding cyber security. | GDPR – is already well-integrated for operators across borders. |
Some industry experts argue that new market entrants have significantly underestimated the cost of compliance in Brazil. What are the actual costs involved?
“International operators looking to enter Brazil’s iGaming industry are already facing some unpredicted hurdles. Brazil’s regulatory landscape is complex and raises many challenges.
“Unlike the more precise provisions seen in established European markets, here many operators grapple with formulating their best strategic long-term paths to success during uncertainty.
“The stringent AML and KYC requirements are among operators’ most pressing challenges.
“To remain compliant, operators must use real-time transaction monitoring and strong identity verification processes, often deploying advanced technologies such as AI for fraud detection and blockchain for security.
“Another crucial aspect is responsible gambling. Brazil has strict regulations for player protection, similar to those in the UK, where operators must provide self-exclusion tools, behavioural analytics, and spending limits. Non-compliance may result in heavy fines or licence suspension, making adherence essential.
“On top of that, an additional layer of complexity arises as operators must comply with the LGPD, which enforces stringent data processing and security standards.
“Operators will also need to invest in automated reporting tools to comply with accounting standards, adding further complexity.
“Finally, the taxation framework presents its own challenges. The threat of double taxation via state and federal gaming taxes could dramatically increase operational costs.
“Overall, doing business in Brazil is arguably more unstable than in the more developed markets of the UK, Malta, and Spain.
“This unpredictability is costly. It also demands that companies remain flexible and capable of reconfiguring internal systems quickly whenever local legislation or regulations change.”
Another factor in the cost of Brazilian compliance is the outcome of the Supreme Court legal battles between Loterj and the Federal government over regulatory authority. What impact will this have on operators going forward?
“The current legal battle between Loterj (Rio de Janeiro’s state lottery) and the Federal Government will likely impact gambling operators across Brazil.
“The Supreme Court’s decision will determine whether a centralised regulatory authority will prevail federally or whether states will issue independent licences, increasing operational complexity and costs.
“Scenario 1 – Loterj Wins And State-Level Licensing Comes To Life:
“A ruling in favour of Loterj could establish a model similar to the U.S., allowing each state to regulate itself and issue gambling licences.
“This scenario would likely mean operators would need to apply for licenses to all states separately, exponentially raising compliance costs and operating burdens.
“Moreover, diverse regulations would create fragmentation by establishing differing (state and federal) rules for AML, KYC, gaming and gambling, and taxation.
“Operators might also face higher taxes due to both federal and state levies, reducing profitability and complicating long-term planning.
“As a result, if Loterj wins, operators will need customised compliance frameworks for each jurisdiction, making scalability difficult.
“Scenario 2 – Federal Government Wins And Centralised Licensing:
“If the ruling favours the Federal Government, the Supreme Court may open the field to broad market regulation at a national level.
“A uniform licensing regime would benefit operators as a single federal licence would allow market entry, simplifying what would otherwise be a cumbersome process.
“Compliance rules, too, will be uniform for everyone. This would involve AML, KYC protocols, responsible gambling, and advertising regulations, creating a more harmonised regulatory environment for the operators. A greater transparency in the taxation framework is also possible.
“This would also simplify enforcement work since all gambling regulations will be handled through the Secretariat of Prizes and Bets (SPA) under the Ministry of Finance.
“That said, state governments may try to contest the federal authority in the matter, which may lead to drawn-out legal battles and may, thus, hinder market stability.
“The legal uncertainty and delays for licensing are the central issues for operators entering the Brazilian market.
“And where a ruling can be final (though it can also require fresh CFR notice and comment, class actions, etc.) until one decisively settles the matter, many are (or should be) reluctant to risk full commitment, given the risk that existing standards, protocols, and procedures may be disrupted.
Editor’s Note:
The path to awakening the so-called “Sleeping Giant” has not been as smooth as many anticipated.
And as Paola highlights, the reality of Brazil’s iGaming market is far more complex than initial expectations.
Strict and evolving regulatory standards, high compliance costs, and severe penalties for noncompliance mean that many operators who rushed in hoping to gain a “first-mover advantage” may now regret not being better prepared.
What does this look like in the long run?
Paola believes that those who adopted a “license first, compliance later” approach could fold to compliance pressures and high costs, especially if they are smaller brands, while the larger companies with more resources will be better positioned to weather the coming storm.
Moreover, the ongoing legal challenge to Brazil’s new regulatory framework is causing the market to remain in flux.
For those attempting to execute long-term strategic planning while navigating these uncertainties, evolving rules and reporting requirements, Paola forecasts turbulent times ahead.
