AML keys to success: learn from peers and test with technology
Source: SBC

Balancing regulatory requirements with a smooth customer service is always going to be one of the biggest challenges for various online-oriented companies. For firms in high-risk sectors like betting, this task is even more critical.

Anti-money laundering (AML) is one of the most significant tasks assigned to betting companies under the licensing conditions these firms operate to, with some notable examples of regulatory enforcement action in cases of failure in this area.

AML in a product first industry

Just as critical to gaming firms, however, is the customer experience. Gaming is a highly competitive industry – if we look at Ontario as an example market, there are 50 operators in Canada’s most populous province and only privately-regulated betting sector.

“We’re in the consumer product business and we have to create the best product for consumers,” says Matt Bianchini, VP of Compliance at Rivalry, a sports betting operator, speaking at the Canadian Gaming Summit (CGS) in Toronto.

“Our customers aren’t coming to our site to do multi-step KYC, they’re coming to play, gamble and have fun. How have we streamlined technology to make things easy and frictionless?”

Payments has seen numerous innovations over recent years, with a plethora of methods available to companies and customers. Cash, debit and credit cards, account-to-account payments and Open Banking, digital wallets and even cryptocurrency.

Another balance operators must find is the one between these different payment methods. Which ones pose the least risk and most risk when it comes to money laundering? Speaking at CGS, Rivalry’s Bianchini noted that new technologies need to be factored into this, like verification methods, and move KYC forward.

“Is it different payment methods that can combine verification payment flows together?” he continues. “I think it’s those things that you have to look at to make your product work best for your customer base.”

Financial technology is riding a wave of investment right now, particularly artificial intelligence (AI). The ability of AI to automate day-to-day processes for various businesses, including betting ones, has not gone unnoticed.

This has led to a sharp suge in investment in AI. Funding is largely coming from two sources – those who want to leverage AI for its automation benefits, including for purposes like fraud prevention and AML processing, and those who wish to capitalise on its rising usage, chiefly being investment banks, private equity groups and hedge funds.

Despite being an industry that handles vast sums of money, has access to various data points and utilises technology for purposes like sportsbook platforms and marketing, among other areas, betting’s investment in the above mentioned areas has been lacking.

This is a viewpoint held by Joseph Martin, at least. Martin, the CEO of Kinectify, an AML and compliance solutions developer,  is not convinced that operators have fully released the technology at their disposal when it comes to addressing AML challenges.

He explains: “I don’t think that our industry has invested in technology historically, and I think that that is kind of biting us in the butt. When you open this question up, we’re talking cyber security, we’re talking capabilities, I think both of these things are critical.”

The online/retail divide

Ontario is still a relative newcomer to regulated betting, in the grand scheme of things. The province’s market has been open to licenced companies since April 2022, as opposed to the UK, where a regulated market was established in 1961. 

As such, most of the operators which have come of age in the internet era, and are more switched on to the importance of data and technology for AML purposes. In the view of Adam Fong, SVP of Product Management at gaming hardware and fintech group Everi, bricks and mortar gaming is lagging behind its online counterpart.

“The bricks and mortar side of the business has been disadvantaged because they’ve been doing things for so long that they are resistant to change,” he notes. 

“The online guys have the advantage of coming in a bit later and being a lot more tech forward, they’re much more progressive with adoption of technology.”

Regardless, Fong shares his CGS co-panelists viewpoint both verticals, land-based and online, the challenge facing operators remains the same – upholding strict AML standards without interfering in the customer experience.

“Not only do firms have to create a great experience for their players, they have to create a great experience for the people handling it on the backend,” he explains.

Whilst the online sector may be at an advantage over its bricks and mortar counterpart, AML challenges remain, particularly regarding the volume of bets. Fong notes that the digitalisation of the industry has seen the number of money laundering incidents rise in tandem.

However, as noted above, igaming has a range of technologies at its disposal for AML. This is particularly the case for analysing data, a commodity the industry also has in abundance. Again, AI could prove valuable to this.

A sector betting firms may benefit from looking to for inspiration in this regard is finance, specifically fintech, where much of the AI-derived innovations are developed and implemented. 

This is an observation that has not been lost on many regulators across a range of jurisdictions looking again at the UK. The country’s Gambling Commission has made a number of statements regarding how betting can learn from finance when it comes to data usage and sharing.

Speaking from the perspective of a company active in both gaming and fintech, Fong adds: “What we’ve learned from this space is that by being really good at tracking movement of money, whether digital or physical, and looking at a gaming facility and where the money is being porous, we’ve been able to translate a lot of that knowledge from the payments business to a gaming environment.”

On this topic of regulators, it is important to note that private companies and the authorities that regulate the sectors they conduct business in are not always in lockstep. In some cases, regulation will push innovation, whilst in others regulators may respond to innovations in the private sphere.

Finding inspiration

Sharing his view on the CGS panel, Rivalry’s Bianchini stated that the Ontario betting sphere is seeing what he called a “technology gap between operators and regulators’, adding that the province’s regulator, the Alcohol and Gambling Commission of Ontario (AGCO), ‘will admit that’.

Operators in North America are keenly aware of the importance of data and financial technology, and the AML possibilities these present. Given the extensive financial and technology sectors present in both the US and Canada, this isn’t too surprising.

As a reminder of this, just a short walk away from the CGS conference was the Toronto Stock Exchange, the 10th largest exchange in the world. A train journey to the airport and a long-haul flight heading southwest, and you eventually reach the global tech hub of Silicon Valley, California.

Dave Foppert is the Sr. Director of AML Compliance at DraftKings, one of the biggest betting and gaming firms in North America – the company is the second largest by market share in the multi-billion dollar US market.

“We’re a very data driven company, a very tech driven company, that goes for everything including consumer compliance, and risk management,” he says.

“From an AML perspective, you want to make the most informed decisions possible – about customers, about risks, about ensuring that you are compliant with all the regulations. 

“When there’s so much data out there, the only way to do that is through modelling, product solutions and other technologies that you have at your disposal.”

DraftKings has established leadership through innovation and tech – this is not just a view shared by the company’s AML Compliance Director, it was also voiced by Kinectify’s Martin as a reason for the company’s podium spot, alongside number one market leader FanDuel.

This approach has been partly informed by a practice discussed above. This being learning from the finance and fintech sector, the technologies that are emerging there, and how these technologies are being used.

“We’re always looking to draw learnings from industry peers as well as other industries,” Foppert continues. “One of the ways we do that, is that with any AML programme you want to ground it in a risk based approach, based on your products and services.

“You’re looking for similarities in your products and services that can be made with other products and services on the market.”

DraftKings has taken inspiration from a range of fields when crafting its AML, Foppert explained at CGS. This has included hearing from federal law enforcement, from financial firms like Capital One, crypto companies like Coinbase, and Big Tech and social media leaders like Meta.

Again, operators have a range of technologies at their disposal, and a range of industries to learn from. Looking at the US and Canada, both countries are home to AI industries, and the governments of each have committed to safe AI regulation.

To ensure compliance with licensing duties, and avoid sanctioning in the process, operators must learn from as many sectors as possible and experiment with, with the aim of ultimately adopting, as many new technologies as possible.

The ultimate challenge relates to being frictionless. Bookmakers need to find the ideal middle ground between using this tech and insights to abide by regulations, prevent illicit activity like laundering on their platforms, whilst also ensuring the customer experience remains as smooth as possible. 

If it is not, this is counterproductive, as customers may be driven away and shift towards illegal operators – making all of these AML efforts completely useless.

Bianchini summarises the challenge facing companies: “How can we make compliance a point for customer success? How can we keep it as frictionless as possible whilst being compliant? We have to use technology and make the legal market as attractive as possible.”