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Digital technologies and anti-money laundering

Digital technologies, including digital and virtual currencies, carry heightened money laundering and terrorist financing risks for gambling operators due to their ability to be exploited by criminals and money launderers.

Prior to the deployment of digital technologies, operators should assess the risks associated with their introduction and implement measures to manage and mitigate the risks identified by the operator.

These measures should be constantly reviewed to ensure that they are effective in practice, that they remain effective and that they are adjusted appropriately where new digital technologies are introduced.

Digital and virtual currencies

Digital currencies are established forms of crypto-logically secured currencies that are traded, and recognised by institutions like the Financial Conduct Authority and HMRC. Bitcoin is the most well-known.

Virtual currencies are unregulated and generally issued and controlled by developers, and used and accepted among the members of a specific virtual community, for instance within a video game or social casino. Where they can be exchanged for cash or traded for items of value they are considered money or money’s worth.

Digital currencies

Points to consider:

  • The degree of anonymity associated with digital currencies may be attractive to individuals who want to conceal their identity and, or as well as, the source of their funds

  • There is no central authority that supports the value of digital currency, for example, Bitcoin has a history of large price fluctuations

  • There is a history of hacking, theft and other criminal activity associated with digital currencies.

Virtual currencies

In our view, the ability to convert any in-game items into cash, or to trade them (for other items of value) means they attain a real world value and become articles of money or money’s worth.

Where facilities for gambling are offered using such items a licence is required in exactly the same manner as would be expected in circumstances where somebody uses or receives casino chips as a method of payment for gambling which can later be exchanged for cash.

See our position paper on virtual currencies, eSports and social casino gaming (PDF)

See our discussion paper on virtual currencies, eSports and social gaming (PDF)

Your responsibilities

If you want to accept digital currency as a means of payment (either directly or through a payment processor which accepts digital currencies) you must satisfy yourself and us that you can meet your obligations in relation to anti-money laundering and that you are acting in a socially responsible way.

Blockchain technology and crypto-assets

We have received interest from stakeholders about the use of crypto-assets, such as Bitcoin, Ether or blockchain technology, whether this is as a currency to be used for gambling as a way to fund a gambling business, both new and existing, or as a means to deliver gambling products.

To address some common queries, we are releasing the following information as well as providing updated guidance on our expectations of key event reporting.

The Treasury Committee published a Crypto-assets report (PDF) in which it concluded that cryptocurrencies are more accurately referred to as crypto-assets as they are not performing the functions generally associated with a currency. The rest of this information will use crypto-assets in place of cryptocurrencies.

Licence applications using crypto-assets

The Commission has received several licence applications over recent times where the applicant has declared that the business will be funded through profits from investment in crypto-assets. For example, through the launch of initial coin offerings (ICO). We have noticed that applicants are having difficulty evidencing the source of funds when crypto-assets are included in their application.

We will assess the funding of a business in line with our Licensing, compliance and enforcement under the Gambling Act 2005 policy statement and our Statement of principles for licensing and regulation.

Our approach to assessing source of funds (SoF) is to ensure that we can determine the source of funding and be assured the business is not being funded by the proceeds of crime. For example, if funds from the sale of a property are to be used, we will need to see evidence of the property sale and those funds being present in the bank account of a relevant person.

We need the same level of assurance for all applications. The anonymity afforded by some crypto-assets, along with any weaknesses in the process of obtaining them, have consistently caused problems for applicants, as in our experience they are unable to provide complete and satisfactory evidence to answer the questions we ask to determine applications.

If you are considering using crypto-assets to fund a gambling business, we recommend that unless you are able to provide a full and complete history of SoF with your application, do not submit as we will not consider Operating Licence applications with a crypto funding element without this evidence provided in full at application stage. This is consistent with the Treasury position on crypto funding and we commit to keeping this under review.

Should an application be submitted with the fee paid and it is rejected due to the above reasons you will not receive a refund for the fee.

Responsibility for third parties

Social responsibility code 1.1.2 makes clear that licensees must take responsibility for their third parties with whom they contract. In the case of white label arrangements this includes conducting adequate due diligence including, but not limited to, how marketing partners raise finance used in connection with the gambling business.

Key events

Key event 8

Licensees are required to inform the Commission about any change in their arrangements as to the methods by which, and/or the payment processors through which, the licensee accepts payment from customers using their gambling facilities.

Licence condition 12.1.1 also requires licensees to review their AML risk assessment upon the introduction of new methods of payment by customers.

When notifying under key event 8, we expect the following information to be provided, as a minimum:

  • the type of payment method
  • the provider
  • how the payment method was assessed in the AML risk assessment.

If the payment method is crypto-assets, are crypto-assets being accepted directly or through a third party, if so who?

If crypto-assets are being accepted directly:

  • how fluctuations compared to fiat currency will be dealt with (with regards to responsible gambling tools, AML triggers etc)?

  • how the funds will be treated in the event of insolvency and how customers will be informed of this?

  • what information has been provided to consumers to ensure they are aware of the risks associated with using crypto-assets as a payment method?

Where appropriate licensees should consider obtaining legal or specialist advice.

Additional risk if the payment method is crypto-assets

Crypto-assets present additional risks compared with fiat currency (government backed currencies such as £ sterling), such as fluctuations against fiat values and challenges around customer identification.

Whether a business receives fiat currency which has been converted from crypto-assets via a third party, or directly accepts crypto-assets makes a difference to the risks and challenges faced. Where crypto-assets are knowingly accepted via a third-party provider, licensees should consider how they will receive sufficient information to satisfy their regulatory requirements.

Where crypto-assets are accepted directly, some of the risks we have noted include, but are not limited to:

  • adequately assessing the source of the funds
  • fluctuations compared with fiat value (and how this would affect deposit limits and AML triggers)
  • scalability
  • the cost of fees
  • the security of the funds held.

The exact risks depend on the implementation of the business model and the type of crypto-asset. We need to be satisfied that any licensee considering accepting such payment methods has considered and implemented steps to reduce any risk to the licensing objectives to the same level that we would expect from other payment methods.

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