EU Regulator Says Major Prediction Platforms Lack Authorization
ESMA Flags Missing Authorization for Prediction Markets
The European Securities and Markets Authority (ESMA) stated in a report that the largest prediction market platforms do not hold the authorization generally required to market and sell event contracts in the European Union. Event contracts are agreements that pay out based on the outcome of future events.
ESMA noted that platforms like Polymarket and Kalshi restrict users in some EU countries but not all, raising questions about compliance.
Key Points from ESMA's Report
- Event contracts in the EU often need authorization under various regulations, including MiFID II for financial instruments or MiCA for blockchain-based contracts.
- Polymarket and Kalshi prohibit users in some but not all EU member states from placing orders.
- Geographic restrictions may not prevent access through VPNs, according to ESMA.
- Concerns include insider trading and market manipulation due to limited identity verification on some platforms.
What ESMA Found About Regulatory Requirements
ESMA explained that event contracts can fall under different regulatory regimes. If they qualify as financial instruments, they are typically derivatives and subject to national product intervention measures that prohibit marketing to retail investors.
Blockchain-based contracts that do not qualify as financial instruments may fall under the Markets in Crypto-Assets (MiCA) regulation, while others might be treated as gambling products under national laws.
Platform Measures and Ongoing Risks
Both Polymarket and Kalshi have implemented measures to curb suspicious trading, such as screening tools and rules against insider trading. However, ESMA said these measures are largely reactive.
Prediction markets also face risks around contract resolution, data sources, and smart-contract execution.
Confirmed Facts and Uncertainties
Confirmed: The largest prediction platforms lack EU authorization for marketing event contracts. Polymarket and Kalshi have partial geo-blocks in the EU.
Unclear: The exact effectiveness of geographic restrictions and the full regulatory classification for each contract type.
Why This Matters for Crypto Investors
This regulatory scrutiny indicates that prediction markets operating in the EU may need to obtain proper authorization, which could affect their availability and operations. ESMA noted that while prediction markets are limited in scale in the EU, there is growing interest from traditional exchanges.
