ESMA Warns Polymarket and Kalshi Lack Authorization for EU Users

Regulator Sounds Alarm on Prediction Market Compliance

The European Securities and Markets Authority (ESMA), Europe's top financial regulator, warned on September 10 that major prediction markets Polymarket and Kalshi are not authorized to serve users in the European Union. In a risk report, ESMA stated that these platforms generally lack the EU authorization required for marketing and selling event contracts, which are agreements that pay out based on outcomes of future events like elections or sports.

ESMA's warning highlights that the platforms prohibit trading from some EU countries but not all, raising questions about regulatory breaches and enforcement.

Key Regulatory Concerns Highlighted

• ESMA said event contracts may fall under existing EU bans on binary options, which are financial products that pay a fixed amount if a specific condition is met.
• Contracts could also be covered by the EU's crypto-asset framework called MiCA (Markets in Crypto-Assets) if they are based on distributed ledger technology, or by national gambling laws.
• The regulator questioned why all EU member states are not included in the platforms' lists of restricted jurisdictions, pointing to risks of unauthorized services.
• ESMA doubted the platforms' ability to enforce bans on virtual private networks (VPNs), which users might use to hide their locations.

Details from ESMA's Official Risk Report

In its report released on Thursday, ESMA emphasized that marketing and selling event contracts in the EU typically requires authorization that Polymarket and Kalshi currently do not hold. The regulator noted that where contracts qualify as financial instruments, they often fall under national rules prohibiting their sale to retail investors. ESMA also stated that Europe's market abuse rules can only address misconduct if the contracts are within the financial regulatory scope.

Earlier Country Blocks Add Context

Several countries have already moved to restrict prediction markets. For example, in July, France ordered internet service providers to block access to Polymarket. Other nations, including Switzerland, Poland, Singapore, Belgium, Portugal, Spain, and Brazil, have imposed similar blocks, as mentioned in the article.

Confirmed Facts from the Warning

Based on ESMA's report, the following facts are confirmed: Polymarket and Kalshi lack general EU authorization for event contracts; event contracts may be subject to EU binary-options bans, MiCA, or gambling laws; the platforms restrict some EU countries but not all; and there are concerns about VPN enforcement.

Why This Matters for Crypto and Regulatory Clarity

This warning matters because prediction markets often use cryptocurrency and blockchain technology, which are part of the broader crypto ecosystem. ESMA's scrutiny could lead to stricter regulatory actions, affecting how these platforms operate in the EU and potentially influencing other crypto-related services. The focus on authorization gaps underscores the ongoing challenge of fitting new financial innovations into existing regulatory frameworks.

Sources

• CoinDesk