The rise of online fraud has been significant, with scams like identity theft and phishing being used to prey on unsuspecting individuals to steal their money. Fraud now accounts for nearly 40% of all crimes in England and Wales, with four out of five reported cases involving cyber-enabled attacks.
Driven by the ease of smartphone apps, round-the-clock access to global betting and gaming, the gambling sector has seen rapid expansion. In Great Britain alone, the online gambling yield grew by 12% year-on-year, reaching £1.46 billion in Q2 2024. This growth makes the online gambling industry particularly vulnerable to fraud.
While operators have prioritized preventing money laundering and promoting responsible gambling, often guided by the UK government and the UK Gambling Commission, fraud risk should not be overlooked. Fraud often paves the way for money laundering and can impact both operators and customers resulting in financial loss, reputational damage, legal complications, declining user numbers, and strained resources.
The positive news is that many of the processes and controls already in place to combat money laundering and encourage responsible gambling, can be adapted to detect and prevent fraud as well.
This article offers practical advice for online gambling operators and their advisors seeking to identify and address fraud risk.
The key element for all successful frauds is that it remains undetected while being committed. To achieve this aim fraudsters often manipulate systems, cheat at games and exploit loopholes, making fraud challenging to detect. Fraud is multifaceted posing challenges across an operator’s business, from external fraud exploiting weaknesses in customer onboarding and monitoring controls to internal fraud conducted by employees or agents.
Below are common types of fraud in the online gambling sector:
The dynamic and complex nature of fraud requires continuous innovation in detection and prevention strategies to protect the interests of both legitimate players and operators. The critical first step in identifying and mitigating fraud risk is conducting a fraud risk assessment. This assessment maps out the inherent fraud risks an operator faces, using both quantitative and qualitative data to generate an inherent risk score. The effectiveness of existing controls is evaluated against these inherent risks to determine the residual risk.
In the UK, registered gambling operators are required to conduct anti-money laundering risk assessments, and the fraud risk assessment can be integrated into the broader financial crime-related risk assessment. A fraud risk assessment should be a dynamic and ongoing process, updated when there are significant changes, such as the introduction of new products or emerging threats and in any event on a regular, such as annual, basis.
To stay ahead of evolving fraud tactics, risk assessments should incorporate trends or themes identified through the operator’s own experience and collaboration with law enforcement and industry peers. The risk assessment should incorporate the impact of changing legislation, such as the “failure to prevent” offence expected to come into force in 2025, which will hold large organisations accountable if they fail to implement reasonable anti-fraud measures when fraud is committed by employees or agents for the benefit of the company.
One of the key controls in fraud prevention is customer due diligence, which is already a core element of anti-money laundering and responsible gambling procedures. However, with rapid advancements in artificial intelligence such as deepfakes, online gambling operators may struggle to keep up with the evolving tactics of fraudsters. Combining customer due diligence with real-time monitoring and investigation of customer behaviour is therefore essential for detecting fraud as it happens. Gambling operators should ensure they can monitor customers to identify potential indicators of fraudulent activity, such as:
To effectively combat fraud, operators must treat fraud detection and prevention as a key component of their financial crime prevention framework. Operators should assess their fraud risks and apply corresponding controls to address and manage those risks. As fraud typologies develop it is crucial for an operator to regularly review their controls and check their effectiveness, to ensure they operate as designed.
Lastly, it is vital that the industry proactively engages in discussions on fraud. Operators must collaborate and share knowledge on fraud trends and emerging threats. Fraud is becoming more sophisticated, the sharing of information is going to be critical for how an operator develops an effective anti-fraud strategy, driven at industry level.
For more insight and guidance get in touch with Andrés Galiñanes or Michael Cooper.
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