Risks and risk management

Risks are defined as uncertainties that can impact Svenska Spel’s ability to accomplish its mandate and achieve its goals. By working continuously and systematically with risk management, we create the preconditions for identifying risks in a timely fashion so that necessary measures can be taken and sound internal governance and control can thus be secured.

At Svenska Spel, the risk-management process is integrated with the regular process for business and operational planning, and follow-ups. The Company’s mandate, broken down into targets at different levels in the operations, serves as the foundation for risk management. Therefore, risks are identified and managed at several different levels within the Company.

The risk management process at Svenska Spel is as illustrated below:

Svenska Spel has identified five key areas that categorise which types of risks Svenska Spel is exposed to: operating environment risks, business risks, operational risks, financial risks and regulatory and compliance risks. Below are the most considerable risks within each risk area.

Operating environment risks

Svenska Spel’s single largest risk is that the Company’s market position deteriorates further while waiting for new gaming regulations. An investigator has been tasked with preparing a proposal for new licensing-system-based gaming regulations distinguished by a high level of customer protection, high safety in gaming and clear terms and conditions for companies operating in Sweden. The task also includes analysing the role of the State in a re-regulated licensed gaming market. The remit is to be presented by no later than 31 March 2017. While the investigation is in progress, the Company’s challenge is to retain its position and its value when competition continues to intensify from unregulated gaming companies that can market themselves freely without restrictions and continue to build a customer database in Sweden. Svenska Spel maintains an ongoing dialogue with its owner and other stakeholders to prepare for any changes in terms and conditions, and to be able to contribute insight and knowledge ahead of future re-regulation and the introduction of a licensing system.

Business risks

In parallel with the regulation issue, the Company’s ability to meet changes in customers’ gaming behaviour is being tested in cases where the demand for new games and technology set high requirements for Svenska Spel. At present, Svenska Spel lacks a permit to operate some of the customers’ most in-demand products (online casino), which, together with the unregulated gaming companies’ extensive investments in advertising and the exposure of bonuses and discounts, lower the ability of Svenska Spel to channel customers to Svenska Spel in line with the Company’s mandate from its owner. The continued incompleteness of the product portfolio impacts our ability to channel customers from unregulated companies, leading to the risk that Svenska Spel loses market shares as well as considerable financial consequences.

Operational risks

Shifts in customers’ gaming behaviour towards more internet-­intensive games sets high requirements on Svenska Spel in the form of a well-designed and stable technical platform in order to be able to offer our customers both attractive and safe gaming experiences. Accordingly, maintaining a high pace of development in the digital channels is a prioritised area to be able to offer customers attractive services and products, but also for ensuring that the technical platform maintains a high standard in regard to information and IT security. In turn, risks in these areas set high requirements on Svenska Spel’s ability to both recruit and retain critical resources and talents in the IT area in order to realise our business targets.

Legal and regulatory compliance

Svenska Spel operates in a regulated market in an extremely complex regulatory and condition-governed context. Accordingly, the greatest challenge in this risk area is to ensure that Svenska Spel has clear and reliable processes and procedures to ensure that the Company complies with the applicable laws and regulations arising from lottery legislation and, in that connection, with related conditions or other legislation. Svenska Spel has a compliance function in place to help ensure regulatory compliance within certain identified judicial areas. One of Svenska Spels’ key focus areas within this risk area is currently to ensure that the Company is ready for the pending money laundering legislation which will involve the entire Group.

Financial risks

The financial risks including interest-rate, credit and liquidity risks are limited. The Group has strong liquidity and no interest-bearing liabilities. The Group has negligible exposure to exchange-rate and currency risks, since its sales and purchases are essentially conducted in SEK. The financial risk management for investing surplus liquidity is governed by Svenska Spel’s Finance policy. For other information, please refer to Note 10.