Modelling a solvency regime for bookmakers

Abstract

The financial services industry has regulations that safeguard the solvency of the relevant companies. Such regulations were created to protect the customer while increasing their trust in the markets and safeguarding the industry's financial stability. There are no harmonised solvency regulations in the betting industry. Even though betting is often seen as a luxury service and not a necessity, people still have lost their money due to bankrupt betting companies. Therefore, the need exists to create a similar solvency regulatory regime to that of the financial services industry for the betting industry. This would lead to the same goals for such regulations: customer protection and safeguarding the industry’s financial stability and reputation. This dissertation aims to analyse the need for a solvency regulation within the betting industry. Comparing the risks faced by betting companies, insurers, and banks leads to a better understanding of the similarities and differences between these markets when analysing what risks can lead to insolvency. By examining the currently existing regulations, Solvency II for the insurance sector and Basel III for the banking sector, the thesis examines how these regulations would affect betting companies. By analysing the balance sheet of 5 different betting companies, an analysis of the risks related to a betting company’s solvency was created. In essence, the thesis found that betting companies have similar risks to insurance companies and banks. Applying similar solvency regulations would help regulators, investors, and customers better understand the financial strength of the betting company.