The Regulated Activities Order lists all activities that are regulated by the
FSA. Spread betting is regulated under contracts for differences,
s.85(1)(b)(ii) of the R.A.O looks like this:
“Contracts for differences etc.
85. - (1) Subject to paragraph (2), rights under -
(b) any other contract the purpose or pretended purpose of which is to secure a profit or avoid a loss by reference to fluctuations in -
(ii) an index or other factor designated for that purpose in the contract.”
There is no explicit mention of the words ‘spread betting’ but it is clear that the result of a spread bet is determined by the ‘fluctuations in an index or other factor.’
(b) The Benefits of Betting With a Spread Betting Firm.
There are several key advantages of spread betting because it is a regulated activity. Customers have access to the Financial Ombudsman Scheme if they have a complaint against the spread betting firm and they have access to The Financial Services Compensation Scheme should the firm go bust. Spread Betting Firms are also subject to the FSA’s Client Asset Regime.
The Client Asset Regime is contained within s.139 of the FSMA 2000. It is designed to make a distinction between clients money and firms money, s.139(1)(a) states that the “Rules relating to the handling of money held by an authorised person in specified circumstances (‘clients money’) may - (a) make provision which results in that clients’ money being held on trust in accordance with the rules”.
This provision creates a statutory trust in respect of client money. The firm never becomes the owner of the money, it holds it as trustee, and therefore it cannot be claimed by creditors in the event of the firm going into liquidation. Unless there is a case of fraud client money will be safe.
These provisions were highlighted in a letter to the Racing Post in the wake of the collapse of Netbetsports from Compton
Hellyer. He reiterates, “spread betting firms have to maintain a capital balance similar to that of a bank, they also have to retain clients’ funds as segregated balances.
Such deposits cannot be used for working capital purposes, or indeed at all by the business. Consequently, clients’ deposited funds are sacrosanct”. He also highlights that the operating costs of running a spread betting firm are higher than an ordinary bookmaker because of greater compliance costs, but the fact that the punter doesn’t have to worry about how his deposits are being looked after is a price worth paying.
Paul Moorhouse’s comments that directors should be personally liable for customers’ account funds are a good suggestion. If the Government were to seriously take this option on board, you would find that directors would start lobbying for the ringfencing of client’s assets.
(vi) The Legal Position In Australia.
Australia is a federation, this means that there are both national laws and laws in each state and territory in Australia in relation to gambling regulation.
In 2001 the Interactive Gambling Act (‘IG Act’) was passed. This is a piece of federal legislation that sets out to prohibit the provision of internet gaming, such as casinos and other games, to ordinary Australians. It does not apply to ordinary sports betting, this is left for the State and Territory regulators.
In Australia internet bookmakers are required by law to keep clients assets separate from the rest of the business regardless of whether or not they engage in spread betting. Under the Australian Capital Territory Race and Sports Bookmaking Act 2001 subsection 23(1) (Rules for sports bookmaking) (‘ACT Regulations’) the rules relating to handling money held on behalf of a client are put forward clearly and simply:
“E Handling of money held on behalf of clients
1. Bank Account
1.1 Sportsbookmakers shall establish a segregated bank account specifically for the purpose of holding money on behalf of clients
1.1.1 All moneys provided by clients are to be maintained in the segregated client accounts
1.1.2 For the purposes of this section, a segregated account means an account, established for the purpose, that holds all client moneys.
1.1.3 Funds standing to the credit of the segregated bank accounts shall be treated in accordance with the provisions of the Trustee Act 1957.”
These are the provisions that are in place in the Australian Capital Territory but similar provisions also exist in this regard in the other States and Territories. The rules are very similar to those that are in place in the UK with regards to spread betting.
Many of the Australian internet bookmakers, such as Canbet and
Centrebet, are regarded as amongst the best operating online. This is because punters know that they are safe when dealing with Australian firms.
The UK Government has unveiled plans, detailed above, with the aim of making the UK an attractive place to establish a global gambling operation. If the Government is truly serious about these plans, then strict financial regulations must be put in place across the whole of the betting industry.
To some extent these goals have been achieved, in April 2003 the Australian bookmaker Canbet announced that it was moving part of its operation to the UK.
The main reasons Canbet has moved part of its operation to the UK is to take advantage of:
· the way bookmakers are taxed in the UK,
· better time zones to serve their North American customers,
· a good communications infrastructure and
· a better legislative environment.
They feel that the 15% gross profits tax will give them “a big opportunity to be part of the consolidation that is going to take place in the global betting market.” They plan to still comply with the ACT regulations regarding client deposits etc. and with the UK betting legislation.
PART 8
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