Regulator Clarifies 'Brazilian' Licensing Requirement

June 7, 2024
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Brazil’s Ministry of Finance has now answered one of the burning questions that operators have been asking as the country’s licensing process opens and officials intend to answer another one related to permissible casino games before the end of July, according to the ministry’s newly appointed chief gambling regulator.

Brazil’s Ministry of Finance has now answered one of the burning questions that operators have been asking as the country’s licensing process opens, and officials intend to answer another one related to permissible casino games before the end of July, according to the ministry’s newly appointed chief gambling regulator.

The Ministry of Finance’s Secretariat for Prizes and Bets (SPA) updated its new FAQ page on Thursday (June 6) to address Subsection IX of Article 9 of December’s Law 14.790, which requires each licensed operator to have a “Brazilian” as a shareholding partner owning at least 20 percent of their business.

The issue has been a critical one for international operators preparing to enter Brazil’s soon-to-be-regulated market as it was not clear strictly based on the text of the law whether the Brazilian shareholder would have to be an individual person, or whether it could involve a Brazilian company. 

According to the SPA’s published answer, the requirement “can be fulfilled both by the participation of Brazilian natural persons and that of Brazilian legal entities”. 

“Brazilian legal entity means a legal entity constituted under Brazilian laws and which has its headquarters and administration in the country,” the regulator added.

The SPA’s response means that foreign companies will not have to partner with an individual Brazilian investor who would own a substantial piece of their operation.

They may also be able satisfy the requirement through the way they structure their operations in Brazil, without needing a local partner at all, according to one lawyer.

For international operators, the response is “excellent news”, said Caio de Souza Loureiro, a partner of TozziniFreire Advogados in São Paulo.

“By not setting further requirements for the Brazilian shareholder — i.e., demanding that the entity be controlled by other Brazilian individuals or companies — the SPA allows foreign companies to maintain the "Brazilian shareholder",” he told Vixio GamblingCompliance. “In the end, the same company may have 80 percent of the authorized operator and 100 percent of the Brazilian entity that controls the other 20 percent.”

The 20 percent requirement was arguably the most critical question left unanswered by a May 22 SPA licensing ordinance and is one of several pending regulatory matters in Brazil that are due to be discussed during a Vixio-hosted webinar later today regarding the Brazilian market.

Evolving Regulatory Landscape

The SPA’s answer was published just a few hours after the agency’s newly appointed secretary, Régis Dudena, spoke publicly about Brazil’s regulatory regime at a seminar hosted in São Paulo by law firm Pinheiro Neto.

Dudena told in-person and virtual attendees that specific guidance regarding the 20 percent Brazilian issue was imminent, but he declined to speak directly to the matter before guidance was published to avoid disclosing privileged information.

The SPA chief directly acknowledged the challenge faced by prospective operators in having to submit a licence application within a 90-day period, while at the same time not having a complete picture of all of the regulations that they will ultimately have to comply with. 

He said the agency intends to complete the final three phases of its four-phase rulemaking process before the end of July, so that operators have full visibility of the regulations before an August 20 application deadline.

Addressing another hot-button issue, Dudena said that defining which types of online casino games fit within Law 14.790’s legal definition of a fixed-odds bet was one of the SPA’s “main challenges”. 

The matter involves both “legal questions” and “technical questions” and is complicated by the large variety of online casino games that are offered globally. 

Still, Dudena said the SPA is actively evaluating the regulations of Italy, where online casino products are similarly authorised under the guise of fixed-odds betting, and regulators intend to establish more specific criteria for permissible games via a forthcoming ordinance on online games that will then allow authorised independent testing bodies to perform certifications for the Brazilian market.

Speaking on a later seminar panel related to payments methods, the new SPA chief suggested that the requirements established by Brazil’s 11 initial regulatory ordinances will not be subject to change in the near term but they will evolve based on future evaluations that are conducted in accordance with government guidelines.

In the case of prohibitions on credit card and crypto transactions, the SPA will be sticking to the plan established by an April 18 payments ordinance, but that does not mean that they will never be changed, he said. 

First published on June 4, the SPA’s FAQ page is expected to be updated on an ongoing basis throughout Brazil’s licensing and regulatory rollout process.

Among its initial FAQ responses, the SPA has said that licensed operators will be able to outsource required customer-support functions in Brazil but not specified executive positions on compliance, auditing, customer disputes and regulatory relations, and those executives also must be based in the country.

To register for Vixio’s webinar, Betting on Brazil: Preparing for the Regulated Market, click here. 


         

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