Tight Timeline, Evolving Regulations Among Brazilian Licensing Challenges

June 3, 2024
Operators are facing up to the twin challenges of submitting a licence application in Brazil within a tight window of 90 days, while also reacting to a regulatory regime that is still evolving.

Operators are facing up to the twin challenges of submitting a licence application in Brazil within a tight window of 90 days, while also reacting to a regulatory regime that is still evolving.

Under a licensing ordinance published last month by Brazil’s new betting regulator, operators are heavily incentivised to apply for accreditation before August 20 so they can receive a response within 180 days of the ordinance’s enactment, thereby ensuring that they are able to launch before new prohibitions on unlicensed online betting take effect from January 1, 2025.

If operators submit an application after the 90-day period, the ordinance advises that officials may take up to 150 days to evaluate it, so even an application filed on September 1 may not be processed until February.

That means later-filing operators would not only miss out on being among the first movers in the regulated market, but also face the prospect of having to withdraw from Brazil for a period of time from January 1 in order to avoid triggering legal prohibitions which could jeopardise their ability to obtain a licence at all.

Although the ordinance contained few surprises and operators will have been able to anticipate much of its contents, the licensing process being established is still very rigorous, said Fernanda Meirelles, partner at FAS Advogados law firm in São Paulo.

“Given the complexity and volume of the requirements and documentation, 90 days may be a tight deadline for operators who have not yet started preparing to submit their applications on time,” Meirelles told Vixio GamblingCompliance.

The 90-day window presents significant challenges particularly for foreign-controlled companies, echoed Fabio Ferreira Kujawski of Mattos Filho law firm, with another layer of complexity being the authority that the Ministry of Sports has to spend up to an additional 45 days review licensing applications submitted to the Ministry of Finance’s Secretariat for Prizes and Bets (SPA).

Given that bifurcated review process, a better approach would be for the licensing ordinance to be amended so that the legal prohibitions taking effect next year apply only to those operators that have yet not submitted an application as of December 31, 2024, according to Kujawski.

“The whole problem is that, as of January 1, 2025, the operators that have not applied for and received a license will be considered unlawful operators. This could potentially trigger several problems, including with respect to processing of payments,” he told Vixio.

Evolving Regulatory Landscape

The tight deadline and lengthier review process for those that apply after 90 days is not the only challenge that operators have to contemplate.

The licensing ordinance marked the end of just the first or four distinct rulemaking phases that the SPA is preparing for, meaning the clock has already started ticking on the licensing process, while Brazil’s regulatory regime is still being fully fleshed out.

Prospective licensees are yet to have clear answers to several critical policy questions that will influence how they might structure their Brazilian operations, or even if they wish to apply at all for a licence that will cost R$30m (approx. US$5.7m) as an upfront fee and involve further multimillion-real commitments as proof of minimum share capital, liquidity and financial reserves.

“The Ministry of Finance is expected to publish at least seven additional ordinances to regulate pending issues, such as the types of permissible online gaming, rights and obligations of players, responsible gaming, etc.,” noted Kujawski. “This can shed more light on some important aspects, such as permissible casino-style games and the limits of loyalty programs and bonuses.”

A forthcoming ordinance to establish technical requirements for online casino games, which is due to be published later this month, but could potentially arriving even deeper into the 90-day window, could conceivably be the difference in Brazil being a go or no-go market for more casino-centric operators.

The nature of the Brazilian legislation means that online casino games must fit squarely within the definition of a fixed-odds bet, specifically involving “a multiplication factor of the amount bet that defines the amount to be received by the bettor for each monetary unit wagered, in the case of a prize, at the time of placing the bet”.

Many Brazilian lawyers contend that the definition should not restrict any popular forms of online gaming, including crash games that have proven to be wildly popular in Brazil.

Still, there remains at least some degree of uncertainty due to the past statements of government officials who indicated that some jackpot-based and crash games would not involve a fixed-odds bet and therefore not be allowed.

“I have no doubt that the uncertainty about the legality of certain types of online games can influence operators’ decisions to enter the market. However, I believe that since the beginning of the year, companies interested in operating in Brazil have been working on their [game] portfolios specifically for this purpose,” said Meirelles.

Uncertainty Over Investment Partners, Data Rules

Perhaps the most pressing question that was not resolved by May’s licensing ordinance is whether foreign operators will need a local investment partner in order to meet a statutory requirement to have a “Brazilian” owning at least 20 percent of their share capital.

Industry stakeholders had widely expected Ordinance 827/2024 to address whether the requirement must involve an individual Brazilian person as a 20 percent shareholder, or whether it could alternatively be met by either partnering with or establishing a Brazilian company.

The matter is thought to still be under review within the federal attorneys office that provides legal advice to the Ministry of Finance and it is uncertain how far into 90-day application period it will be before operators receive more clarity.

“Knowing how to comply with such a rule is critical for foreign companies looking to enter the Brazilian market,” said Caio de Souza Loureiro, a partner at TozziniFreire law firm in São Paulo, who noted that operators would have to “make new arrangements and negotiate with Brazilian individuals and companies, depending on the ministry’s demands”.

Another key area of uncertainty, according to Meirelles, are the provisions of the SPA’s May 3 technical ordinance that oblige operators to host their betting systems and related data in Brazil unless a series of criteria can be met. 

“The obligation for data localisation is not yet well addressed,” she said. “It is still unclear what cooperation agreements operators might use to avoid having to keep the data in Brazil, which would be very expensive.” 

Given the complexity and volume of the requirements and documentation, 90 days may be a tight deadline for operators who have not yet started preparing to submit their applications on time.

Despite the lack of a complete regulatory picture and the high barriers to entry, interest in the Brazilian market is still expected to be strong and at least one operator has already thrown its hat into the ring to become licensed as soon as possible.

Within four days of the licensing ordinance’s publication, Betano became the first operator to submit an application via Kaizen Gaming Brasil, according to the SPA’s licensing portal.

A total of 134 operators from Brazil, Europe, the U.S. and Latin America formally registered their interest in applying for a licence during an initial expressions-of-interest process overseen by the Ministry of Finance in late 2023. 

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