Part two: Shining a spotlight on efforts to overhaul Curaçao's regulatory regime

Following on from yesterday’s article, the draft of the LOK issued in December encapsulates the anticipated changes to the licensing regime on the Dutch Caribbean island. The key changes in the draft include:

• Licences will be issued for an unlimited term, exclusively to companies based in Curaçao. The licensing fee is set at approximately €50,000, with an additional €250 per domain. The entire licensing process is expected to take two to three months;
• Control: Licences cannot be transferred. Change in the shareholding structure or UBOs of a licensed operator will likely necessitate reapplication for the licence. Furthermore, licences cannot be shared or leased through any form of agreement, a rule particularly relevant for white-label platforms. Violation of this rule will result in licence revocation;
• Shareholders and UBOs: The CGB will perform integrity checks on anyone controlling at least 10% of the operator, including UBOs. This will involve submitting clean police records, standard KYC documents, and source of funds information. Shareholders must also demonstrate sufficient liquidity to cover potential winnings;
• Business Plan: Applicants must provide comprehensive business plans detailing operational goals, fund management strategies, gaming offerings and business forecasts.

Operational adjustments:

• Winning Payment Insurance: Operators must possess insurance to cover the risk of failing to pay out winnings;
• Advertisement: Marketing efforts must adhere to recognised principles, avoiding targeting vulnerable groups;
• Responsible gambling: Operators must offer self-exclusion options, deposit limits and facilitate out-of-court resolutions for disputes, potentially through third-party mediation;
• Certification: Gaming platforms and games must be independently certified and adhere to re-testing schedules established by the CGB; and
• Reporting: Regular submission of audited financial statements and other reports is mandatory.

The CGB reserves the right to amend and expand these requirements over time.

B2B operators and service providers, including auditors, legal advisors, corporate services, and payment service providers, will undergo a simplified licensing/authorisation process to operate in or from Curaçao. Integrity checks and disclosure of UBOs and managerial personnel are required. All B2C and B2B operators and service providers will be listed in a public register, marking an end to the era of anonymous licensed companies operating numerous websites.

The LOK also introduces a monitoring system that may be introduced in the future. While these changes are extensive, they do not represent a revolutionary shift for Curaçao. The LOK essentially establishes Malta-like regulations but with lower costs and, presumably, less rigorous oversight. However, four aspects of the LOK may demand particular attention from future licensees:

Potential substance requirements:

• Licensees are expected to maintain office spaces (beyond merely a PO Box) equipped for operational needs. Initially, this may only require a rented office with minimal setup, but expectations could evolve to more substantial requirements;
• Servers must be located within Curaçao;
• After five years after the LOK’s implementation, companies must employ at least three individuals in Curaçao in key managerial roles.

These requirements, while not as demanding as those in more developed jurisdictions, will incur costs, especially considering Curaçao’s limited workforce and office space. The CGB’s plans to delay these changes for two years could offer established operators a chance to secure real estate and local talent in preparation.

White-label industry: The impact of the licence-sharing prohibition on the thriving white-label industry remains unclear. Although not directly stated and considering the allowance for unlimited domain names under one licence, the LOK does not seem to end this business model. However, the CGB’s interpretative approach will likely be decisive.

Operating in regulated markets: Licensees are prohibited from offering services in markets with local licensing requirements, with violations potentially leading to licence revocation. This compromise aims to balance local industry interests with foreign regulators’ desires to exclude Curaçao operators from their markets.

Investment in Existing Gambling Businesses: The non-transferability of licences raises questions about attracting equity investments or forming joint ventures without reapplying for a new licence due to changes in shareholders and UBOs. If unresolved, this technical issue could jeopardise investment activity in Curaçao.

As the LOK undergoes further revisions, additional changes are expected, likely of a technical nature or with secondary impacts on licensees. The final introduction of LOK is expected to happen later this year.

1. Protracted reform and consequent trends

Counterintuitively, the continuous delays and broken promises by the Curaçao government to implement reform can be seen in a positive light, as they allow current stakeholders to continue operating as usual. Realistically, this should be seen as a warning sign, indicating deep-seated divisions within Curaçao’s political landscape and potential future risks associated with the enforcement of the LOK once it is adopted.

We’ve observed three distinct patterns emerging over the Curaçao reformational attempts:

Businesses betting on higher compliance standards in anticipation of the LOK’s introduction find themselves at a disadvantage, as their investments and opportunity costs are unlikely to begin paying off until the LOK is implemented. Meanwhile, competitors who took wait-and-see approach continue to operate using tried-and-true methods. We believe this imbalance will eventually disappear as the LOK sets a high standard for the industry overall.

New operators have entered the market, eager to secure some of the last available sublicences. Although this has contributed to the overall growth of the gambling industry, many of these operators were launched in haste, meeting only the minimum standards and opting for the safest entertainment options and gaming practices in terms of potential revenue. This highlights a lack of innovation and a reluctance to compete more aggressively.

Established operators have come to predictable conclusion that the most reliable way to operate globally is to invest in alternative offshore gambling licences, or flexible licences.

Capitalising on Curaçao faults

In 2023, numerous jurisdictions invested significant effort (and marketing budgets) to attract businesses away from Curaçao. Despite marketing promises, a flexible licence should simply:

• Enable the provision of key gambling verticals to players;
• Be recognised by PSPs, banks, and B2B software and games suppliers; and
• Be structured with a balance of licence fees, tax rates and time-to-market estimates.

Malta and the Isle of Man are recognised for offering top-of-the-line flexible licences, a status undisputed for years. Their strict compliance requirements, coupled with high setup and annual maintenance fees in the hundreds of thousands of dollars, ensure operators have the best access to gambling suppliers, payment and banking partners, and broader brand recognition among both peers and players.

The Kahnawake licence closely matches the benefits offered by its Curaçao counterpart, providing access to payment services and maintaining reasonable setup costs below $100,000 per year. However, it sets a higher compliance benchmark, which could be seen as a drawback. Additionally, Kahnawake is involved in legal proceedings against the Ontario regulator, which also offers gambling licences. The outcome of this case, initiated in 2022 with the first hearing in 2024, is uncertain, but it could potentially lead to the Canadian government stepping in to revise gambling regulations across the country, posing a significant question mark for Kahnawake licence holders.

Among the newer entrants, the Anjouan flexible licence stands out. On paper, it appears to be one of the friendliest gambling licences to obtain, with attractive features such as low setup fees and a 0% gross gaming revenue tax. Amid the challenges faced by Curaçao, Anjouan’s gambling regulator heavily promoted its licences to offshore gambling stakeholders throughout 2023, seeming initially to excel in the pitch.

However, the reality has not lived up to the marketing promises. Applicants for these licences have encountered numerous problems, from difficulties in registering a local company due to a jammed corporate register to a general reluctance among major gambling suppliers to collaborate with operators licensed in Anjouan.

Roadmap for new gambling operators

Despite the self-sabotaging reform efforts by its government, Curaçao continues to stand out as a premier igaming hub. Its historically flexible approach, the moderate changes proposed in the LOK, and its connection to the Netherlands are significant advantages. However, navigating the Curaçao landscape can be challenging, and the strategy will largely depend on the size of the business and its role within the gambling ecosystem.

Currently, the situation for those interested in the Curaçao B2C licence is as follows:

• There is currently no option to extend existing sublicences or to obtain a new one;
• Companies with sublicences active until fall 2024, which is the anticipated introduction date for the LOK, will have up to six months to apply for a direct licence under the LOK framework;
• Companies whose sublicences will expire before fall 2024 should apply for a transitional licence and operate under its terms until direct licences under the LOK become available. Ideally, this should be completed by the end of spring 2024;
• Companies without a sublicence can currently apply for a transitional licence and operate under its terms until the direct licences under the LOK are available. The transitional licence will remain valid until the LOK is adopted;
• After fall 2024, only licences regulated by the LOK will be valid.

However the master plan will be, compliance with the financial requirements of the LOK will likely pose a major problem for small and new businesses alike. Without specific practices in place, it’s advisable to follow general guidelines set by the Financial Action Task Force and other international bodies:

• Funds for the business should come verifiable sources;
• For income derived from cryptocurrency, it’s essential to meticulously document the origins of these funds. This could involve providing purchase receipts for cold wallets, ensuring that cryptocurrency payments do not originate from high-risk sources, and verifying transactions for privacy-focused cryptocurrencies like Dash or Monero;
• Tax statements are unequivocally the most solid evidence of fund sources. Period;
• In cases where tax documents are unavailable or lack comprehensive details (for example, UBOs living in places like the UAE or possessing assets that don’t need to be reported), wealth reports from legal or accounting professionals can act as a valid alternative for confirming the legality and traceability of funds;
• Individuals looking to enter the igaming industry may find it advantageous to move to jurisdictions that offer more supportive environments for strategic investment planning, such as the UAE, Cyprus, Malta, or the UK with non-domicile status.