The approval of law 14.790/23 marks a new era for the sports betting market in Brazil and brings with it regulatory challenges for financial and payment institutions and fintechs not authorised by the Central Bank.

Since the initial regulation of games of chance with decree 21.143/1932 until the recent update with law 14.790/23, Brazil has seen significant evolution in the control and liberation of the betting market. Law 13.756/18 was crucial in legalising fixed odds sports betting as a type of lottery. Law 14.790/23 has improved and expanded these bases.

Ordinance SPA/MF 561, of 8/4/24, establishes the Regulatory Policy and Regulatory Agenda for the 2024 financial year of the Ministry of Finance's Secretariat for Prizes and Betting. This ordinance defines the Secretariat's objectives as establishing priority regulatory actions, providing legal certainty, predictability and efficiency in the regulatory process, as well as aiming to promote a stable, transparent and attractive regulatory environment for investments.

To this end, the regulatory initiatives were organised into four implementation phases, with Phase I having priority until April/24 and Phase IV until July/24.

Ordinance SPA/MF 615, published on 18/4/24, establishes the general rules to be observed in payment transactions.

The new law introduces regulations for online gaming and strict requirements for the financial management of bets, as well as guaranteeing a safer environment, highlighting the need for greater security in transactions and the use of advanced tools against fraud and control of bettors' activities. The law also brings competitive advantages to national companies by establishing that only legal entities incorporated under Brazilian law, with headquarters and administration in national territory, will be eligible to act as a betting agent.

With regard to the means of payment used to place bets, the changes brought in by articles 21 and 22 of law 14.790/23 introduce significant regulatory and operational challenges. Of particular note is the ban on transactions involving bets with unauthorised entities, which requires institutions to implement a robust compliance system. This system is essential to ensure that operations comply with legal regulations, thus avoiding exposure to legal risks and sanctions.

In addition, only institutions authorised by the Central Bank can offer transactional accounts and specific financial services for betting, and the participation of intermediaries or payment facilitators not authorised by the Central Bank is expressly forbidden.

Strict security measures, such as facial identification and continuous monitoring of punters' activities, are also mandatory. These measures aim to prevent fraud and identify harmful or potentially harmful patterns of behaviour associated with gambling.

In this vein, Ordinance SPA/MF 615/24 stipulates that all contributions and prize payments must be made exclusively by means of electronic transfers between accounts previously registered by the bettors and the transactional accounts of the betting agent, both of which must be held at institutions authorised to operate by the Central Bank of Brazil.

The use of cash, slips, cheques, cryptoassets, credit cards or any form of credit granted to bettors to place bets is prohibited. Accepted forms include pix, TED, debit or prepaid cards and transfers between accounts of the same financial or payment institution.

The ordinance also prohibits any kind of advance, prepayment, bonus or prior advantage, even if merely by way of promotion, publicity or advertising, for placing bets.

In order to make the transactions operational, the operating agents must maintain transactional accounts, which are exclusively for receiving bets and prize payments; these, at the bettor's discretion, may be kept in these accounts for future bets. In order to guarantee the security of bettors' funds, it was established that the balances in the transactional accounts constitute separate assets from the operators, preventing them from being used for any purpose not directly related to betting, except for investments in federal government bonds, guaranteeing liquidity and the necessary security for the payment of prizes.

Also with the aim of guaranteeing the liquidity of operating agents, the ordinance makes it compulsory to implement liquidity risk management policies, which must establish the methodologies for calculating exposure limits, contingency plans, as well as responsibilities and procedures for dealing with liquidity stress situations.

The operating agent must keep sufficient funds in the proprietary accounts to cover operating expenses and risk exposure limits, which may also be guaranteed by additional funds made up of credit limits for working capital pre-approved with financial institutions authorised to operate by the Central Bank of Brazil and other liquid sources of funds that can be used by the operating agent in case of need.

In addition, bookmakers must have a financial reserve of at least five million reais held in custody at a financial institution authorised to operate by the Central Bank of Brazil in the form of federal government bonds, registered with Selic.

It is worth mentioning that the service contracts signed between the bookmaker and the institutions authorised to operate by the Central Bank of Brazil must establish the obligations of the parties to comply with the provisions of the Ordinance.

With the entry into force of Law 14.790/23 and Ordinances SPA/MF 561 and SPA/MF 615, financial, payment and fintech institutions face a challenging regulatory scenario. Especially those fintechs not yet authorised and operating below the financial turnover thresholds that would require such authorisation should consider bringing this process forward, since obtaining authorisation takes time and detailed strategic planning, as it involves several stages of verification and compliance with regulatory requirements.

Thoroughly understanding the new legal requirements and implementing effective compliance and management practices are essential steps to stand out and ensure compliance.

Proactive preparation and implementation of appropriate regulatory strategies will not only facilitate regulatory compliance, but will also maximise growth opportunities, giving you a competitive edge in the crowded sports betting market.

By Bianca Pinto Roder