The Curaçao LOK rejection: Missed turn in right direction

2023 saw a pivotal development in the gambling industry, particularly with the anticipated legislative changes in Curaçao's gambling landscape.

Over the past three decades, Curaçao has emerged as a thriving hub for iGaming businesses, largely due to its groundbreaking National Ordinance on Offshore Games of Hazard (NOOGH) enacted in the 1990s. This legislation enabled the granting of four gambling operator licenses (Master Licensees), and establishing a swift, straightforward, and cost-effective licensing process at a time when most countries were just considering the ways to regulate the emerging online gambling industry.

Master Licensees have the authority to grant sublicenses to companies seeking entry into the global gambling market, making a business of reselling master licenses. This system effectively turned Master Licensees into quasi-regulators, with the power to set sublicense prices and establish minimum operational compliance standards for sublicensees.

The Master Licensees issued a plethora of sublicenses, so many that even the Curaçao Government is still uncertain of the exact number. These sublicenses allowed operators to offer global online gambling services and forge financial and technological partnerships, leading to the flourishing of a diverse online gambling industry, ranging from small-scale online casinos to well-known .com entities and white-label powerhouses.

However, this loosely regulated environment eventually collided with global regulatory standards, as other jurisdictions implemented their own licensing systems. Consequently, the Netherlands, of which Curaçao is an autonomous entity, entered into extensive discussions concerning the future of Curaçao’s gambling sector starting in 2019. Among other agreements, Curaçao negotiated further COVID-19 financial support from its former metropole in exchange for a commitment to the anticipated reforms.

Pressured by international partners and anti-money laundering regulators, Curaçao recognized the need for a thorough overhaul of its gambling sector.

The Anticipated Reform

The much-awaited reform, originally planned years ago, faced setbacks due to legislative delays and internal political conflicts within Curaçao. This uncertainty left the vast gambling industry in limbo, unsure whether to relocate to stricter jurisdictions or to wait out the reforms.

2023 was anticipated to mark the culmination of the legalization process. The Ministry of Finance's (key government gambling reform proponent) public statements reassured the industry of a smooth transition from the old to the new regime. Key points included a cut-off for sublicensing post-31 March 2024, and the enactment of the new gambling law, the Local Operator Knowledge (LOK), in early 2024.

The LOK's foundation was straightforward:

• Transition to Direct Licensing and Regulatory Board Reformation:The role of Master Licensees in issuing licenses will cease; the Curaçao Gaming Authority (CGA) will directly issue and oversee licensesinstead;
• Rigorous Due Diligence on Online Gambling Entities:The CGA will scrutinize the reputation, business and financial backgrounds of anyone with at least a 10% stake in an applicant company,as well as theirCEOs and key figures;
• Stricter AML/KYC and Responsible Gambling Standards:Curaçao financial intelligence unit and CGA powers will be aligned with the one that their EU and UKcounterparties have;
• Legalization of Crypto Payments:This will be a step toward attracting a booming industry of crypto casinos to the Curaçao shores.

Additionally, separate B2B licensing regime shall be introduced to provide suppliers with another easy and cost-efficient operational license.

In late 2023, the Curacao Gambling Board (current gambling regulator) published new licensing terms and opened applications for direct licenses, transitional to the LOK's eventual enactment. In December 2023 the Ministry of Finance introduced finally draft LOK to the Parliament of Curacao.

All hells broke loose since then. Despite months of preparations, the draft LOK faced significant opposition, criticized by the AML authority, Central Bank, Bar Association of Curaçao, advisory bodies and numerous MPs, causing further industry upheaval.

Among the most acute critique, the MPs asserted that current draft did not ‘align with the Curaçao best interests’ and might not ensure appropriate institutional independence of the CGA.

The Ministry of Finance insists on the commitment to resolving these issues swiftly, but internal political divisions present seemingly unreconcilable challenges to the LOK's upcoming implementation.

Predicting the exact outcomes of this development is challenging, yet it is plausible to expect the at least the following:

1. Sublicense Extension

The LOK's rejection likely meansthe Master Licensees’ licenses will be extended, preventing a lapse for existing operators before new LOK licenses can be issued, contrary to the Ministry's initial reform vision.

2. Revisions in the Upcoming LOK Draft

The next LOK draft may be expected to diverge significantly from the original plan. Among the most problematic changes for international operators, the LOK may include:

• requirements to ensure local business presence (the so-called business substance requirements);and
• outrightprohibition or limitations to share the license under'white-label' business model.

Both prospects are extremely detrimental to the existing operators.

3. Advantages for Rival Jurisdictions

Curaçao's legislative uncertainties openanother door for competitor jurisdictions like Anjouan, certain Canadian territories, and the Isle of Man, known for their adaptable licensing approaches, to attract operators wary of Curaçao's instability.

Crossroad

Despite the complexities of the legislative process, the eventual enactment of the LOK seems imminent within the year. This means that the only thing that may be done wrong is just wait in limbo.

The key for new operators might be to apply for sublicenses and commence business under them. This will allow new businesses to benefit from the existing understandable legal regime at least till September 2024.

For existing sublicensee licensees, preparing for the new regulatory environment is vital to ensure a smooth transition from the Master Licensee era. This includes complex work of auditing internal processes, updating operational policies, engaging reputable testing labs for platform and game certification, and preparing comprehensive KYC/financial documentation for key business figures.

Taking these steps will prepare gambling businesses to transition toward the new regulatory landscape. Exploring additional flexible licensing options may also be a prudent strategy to bolster resilience in this evolving landscape. However, it is hardly news that ultimately all roads in .com gambling business lead to Curacao.

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