As is generally known, since the end of last year, Brazil has its own legislation specifically aimed at the gaming and betting sector, within what is conventionally known as "fixed-odds betting," a term originally introduced in Law No. 13,765 of 2018.
According to the current legislation, fixed-odds bets may target (i) sports-themed events or (ii) virtual online gaming sessions, as per Article 3 of Law No. 14,790 of 2023.
Since then, the Brazilian government – through the Secretariat of Prizes and Bets of the Ministry of Finance – has issued a series of normative guidelines specifically directed at this complex and highly sensitive sector, which will play a fundamental economic role for Brazil, driving the development of a sector that previously did not exist in our economy.
For its proper functioning, however, it is essential that bettors have sufficient resources to enable the realization of their bets, so that, in case of success, they can receive the prize amounts attached to them.
Due to this issue, the regulator appears genuinely concerned with the potential development of gambling disorders and practices among bettors, which can lead to severe financial consequences, such as debt, loss of employment, and even loss of property for those who reach this level of disorder.
Perhaps for this reason, an interesting characteristic can be observed in the modus operandi adopted by the SPA/MF when regulating the gaming and betting sector in Brazil, because (in several aspects) it has started to use technical mechanisms very similar to those commonly adopted within the scope of the National Financial System (SFN), particularly control and supervision measures already applied by the Central Bank (BC).
In a quick consultation, it was possible to observe that a large part of the policies indicated in Normative Ordinance SPA/MF No. 615 of 2024 was extracted from Resolution CMN No. 4,557 of 2017, which deals with the risk management structure for institutions subject to Central Bank supervision.
Liquidity risk management for ‘bets’
Normative Ordinance SPA/MF No. 615 of 2024 established the requirement for operators (bets) to implement liquidity risk management policies, a term widely used in the financial market to refer to problems that financial institutions may face during their operations.
Simply put, liquidity risk can be understood as the risk arising from the inability to have resources available in the necessary time and manner for clients. In banking, for example, it is the risk of not having funds available for withdrawals from checking accounts, even if the institution has sufficient assets to cover the transaction.
Therefore, liquidity is synonymous with "available cash." After all, a property owner has a financial asset corresponding to the property's appraisal value. However, this does not mean they have the capital "in hand," which would only be possible if the property were sold.
Applying this concept to the betting market, it can be said that the "liquidity risk" in the betting market involves the possibility that deposits made or prizes won are not actually available to bettors in the so-called transactional accounts, and consequently, for withdrawal to the registered accounts of the bettors.
According to the SPA/MF, "bets" will need to establish a liquidity risk management structure for their operations. This policy must include a precise methodology for determining "exposure limits," as well as internal processes capable of monitoring and measuring risk variation over different time horizons, even within the same day (Article 8, sections I and II).
This clearly indicates that the SPA/MF aims to establish prudential regulation parameters for the betting sector in Brazil, leveraging some of the experience already gained by the Central Bank (BC) with similar tools.
Exposure limits: level of commitment per bettor or betting volume?
In the SFN, the exposure limit is a denominator used to define the degree of exposure an institution should have to a particular client, aiming to reduce risks, including the risk of bankruptcy. This application stems from the recommendations of the Basel Committee on Banking Supervision.
In banking, for example, the rule is that the LEP (Limit of Exposure per Client) should, in most cases, be equivalent to 25% of the financial institution's Reference Equity (Article 3, Resolution CMN 4.667 of 2018).
In the SPA/MF context, it is not yet clear whether the exposure limit will apply to the bettor or to the overall volume of resources bet. Moreover, the SPA/MF – at least up to now – has not indicated the percentage or maximum volume of exposure to be observed.
According to SPA/MF Ordinance No. 615 of 2024, the exposure limit for betting operators should be based on their Net Equity (NE), ascertained from the latest available Balance Sheet (BS).
Thus, should the operator's caution be (a) regarding the maximum volume of bets received from a single bettor or (b) regarding the volume of resources in movement/circulation through bets, from a general perspective, in light of their NE?
These are questions and points that the SPA/MF will still need to clarify in greater detail.
Liquidity contingency plan and identification of "additional resources"
The SPA/MF also expressly referenced the need to develop a contingency plan to address liquidity stress situations by the betting operator. The plan must include the identification of additional sources of funds, the level of responsibility of those involved, and the procedures to be adopted to overcome the liquidity crisis.
Again, the use of contingency plans (both for liquidity stress and capital stress) mirrors the same provision stipulated in Resolution CMN 4.667 of 2018 for financial institutions.
Moreover, the SPA/MF stipulates that the betting operator must identify and list additional sources of funds, considering for this purpose (i) existing resources in the proprietary account, as well as (ii) pre-approved credit limits for loans aimed at working capital and (iii) other liquid sources of funds available at any time to Operators.
Prevention of insolvency: establishment of a "financial reserve"
Another interesting element concerns the mechanism created by the SPA/MF to protect bettors in the event of the betting operator's insolvency, functioning as a kind of "guarantee fund."
The reserve must be established in the amount of 5 million reais and maintained in an account with a financial institution in the form of federal public securities, distinct from the amounts held in the transactional and proprietary accounts.
The Financial Reserve will be activated when the contingency plan does not provide other alternative sources to settle bettors' credits, provided that access to such resources is previously authorized by the SPA/MF.
To maintain its purpose, after each utilization, the Financial Reserve must be replenished to meet the desired minimum balance (5 million reais). Additionally, the use of these funds for any purpose other than paying prizes to bettors is prohibited.
The only benefit operators may derive from the Financial Reserve is the annual yield provided by the applied public securities, which can be redeemed.
Paulo Portuguez
Partner at Jantalia Advogados and specialist in Banking Law, Crypto-assets, and Payment Methods.
