On June 14, 2026, the Pennsylvania Supreme Court ruled games of skill (or skill games) are illegal under the state’s Crimes Code and Gaming Act, a decision that may create compliance and financial exposure risks for financial institutions.
A 120-day stay that expired October 13 accompanied the ruling, which comes after years of the skill games existing in a legal gray area. On October 14, police began seizing skill game machines from businesses across the state.
What are Skill Games?
Skill games, which are based primarily on skill rather than chance, are played on devices resembling slot machines. They have been a controversial component of the Pennsylvania casino industry, as the games are not currently regulated under the state’s gambling law or subject to the same high taxes.
Other states, including New York, New Jersey, and Maryland, have taken varying stances on the legality of the games. This divergence calls into question the difference between skill and chance, limitations on prize amount and frequency, and licensing.
The casino industry raised arguments against legal action, citing a lack of financial and social accountability. This is mainly due to the number of skill games machines rising to nearly 70,000 in Pennsylvania this year.
Pennsylvania State Police noted that skill game devices had become commonplace across taverns, restaurants, social clubs, mini-marts, gas stations, grocery stores, laundromats and pizza parlors throughout the Commonwealth, highlighting how deeply embedded the machines had become in everyday business operations before the Court's ruling.
The Impact of Skill Games on Financial Institutions
Due to the nature of these skill games, there is a high likelihood that most financial institutions have existing customers with game machines. Financial institutions have become increasingly concerned due to potential regulatory expectations.
If lawmakers opt to leave the ruling as it stands, financial institutions, particularly Bank Secrecy Act (BSA) programs, may face additional strain with consideration to the following areas for customers choosing not to comply with the ruling:
- Customer Due Diligence (CDD)
- Enhanced Due Diligence (EDD)
- Documentation requirements (e.g., contracts with games providers)
- Transaction monitoring
- Suspicious Activity Report (SAR) filing
- Account termination
- Site visits
Now that whetherlawmakers have chosen to allow the court's ruling to stand, financial institutions should begin evaluating how the outcome may affect their customers and compliance programs.
Compliance and Financial Crime Risk
Customer risk classification and transaction monitoring are both pressing concerns, as financial institutions may have customers — convenience stores, bars, private clubs, distributors or machine operators — whose deposits historically included proceeds from skill games.
Because the Pennsylvania Supreme Court has now determined that unlicensed operation falls within Pennsylvania's gaming and criminal laws, continued revenue from those machines presents a substantially different compliance risk than it did under the previous lower court precedent. Financial institutions should begin with a renewed review of customer risk profiles, especially if account activity suggests continued operation of skill game machines after October 13.
Reassessing customer risk may include:
- Scrutinizing transaction activities, such as cash deposits or payments to game distributors
- Reviewing customer onboarding requirements and practicing continued compliance monitoring
- Considering proceeds-related risk and determining if funds flowing through customer accounts could be connected to illegal skill gaming activity
Of course, not every business that previously hosted a skill game automatically becomes a BSA/AML problem. The more consequential issue is whether the institution has information indicating that a customer has continued prohibited activity after the ruling became enforceable, and whether its controls can identify and appropriately escalate that risk.
Financial Exposure Risk
Businesses that previously depended on skill-game income could experience an abrupt decline in cash flow once the machines are removed. Skill games provide an important revenue source for thousands of small businesses and social organizations, while distributors and businesses throughout the supporting ecosystem are also affected.
For lenders, this financial impact could translate into a deterioration of debt-service capacity for borrowers dependent on gaming revenue, as well as covenant breaches or weaker collateral coverage. There may also be a rise in default probability for operators, distributors, for operators, distributors, and businesses that serviced the machines. If a bank or institution had significant exposure to convenience stores, taverns, or gaming-related businesses in Pennsylvania, this becomes a concentrated risk.
6 Steps to Prepare for Regulatory Change
Taking proactive steps now can help institutions respond more effectively as the regulatory landscape evolves. Financial institutions can take the steps below to prepare for evolving rules:
- Assess customer information on file pertaining to their nature of business (or even North American Industry Classification System (NAICS code). With this information, Institutions can estimate the number of customers with the highest likelihood of having gaming machines to determine how prevalent the issue may be.
- Provide the board of directors with an overview of the issue and potential customer impact. The board and senior management, in conjunction with the BSA officer, will need to determine the institution’s risk appetite and policy for new and existing customers regarding how customers and accounts will be handled if the institution becomes aware the customer is not in compliance with the ruling.
- Update the institution’s BSA policy and procedures depending on the determined stance.
- Revise CDD questionnaire ask prompts customers at account opening whether any operational games of skill machines are on the premises.
- As the financial institution becomes aware of existing customers not in compliance with the ruling, determine whether the customers will be designated as elevated or higher risk for the purpose of EDD.
- Provide training to staff regarding games of skill and any associated policy and procedure updates.
Your Guide Forward
Pennsylvania’s decision gives financial institutions in the state a strong reason to connect their compliance and credit reviews. Institutions that take proactive steps now will be better positioned to respond as the regulatory landscape evolves.
Cherry Bekaert’s Financial Institutions practice works in tandem with our Risk Advisory team to build a tailored approach that meets the unique needs of your business. As your trusted advisor, we help your institutions navigate change and position for growth, so your team is prepared for evolving legislation. Connect with a Cherry Bekaert advisor to learn more about our solutions.
