there is a gap left by casinos in the past that did not require KYC. and it is exploited by people today to carry out criminal acts such as money laundering.
Of course, it is also uncomfortable for the casino when their platform is used to commit crimes and if it is publicized by the government that handles certain cases, it could be bad for the casino's name.
Casinos play it safe, they dont want trouble from the governments and they dont want criminals to use their site as an intermediary.
So they allow people to run without KYC on signup because they want more people to get into the habit of gambling but when a certain trigger is met, the account gets flagged for KYC/AML procedures.
They are only saving their business and to keep it running they do these things. It is here to stay and it is better players get used to it.