EU regulator says prediction markets face insider trading and retail risk

ESMA flags insider trading in prediction markets

The European Securities and Markets Authority (ESMA) warned that prediction‑market platforms are "rife with insider trading," manipulation and retail harm in its latest risk monitor.

The regulator cited several incidents, including wallets that earned $1.2 million before a February strike on Iran, a network of accounts that won 98 % of Iran‑related bets worth $2.4 million, and a U.S. Army sergeant charged over $400 000 of profits on a contract about Venezuelan President Nicolás Maduro.

Polymarket’s chief legal officer Neal Kumar said the Maduro case shows that users are not anonymous and can be identified.

Key numbers

• ESMA’s chart shows quarterly volumes of $8.8 billion for Kalshi (Nov 2025) and $12 billion for Polymarket (Jan 2026).
• The Block reported combined monthly volume of $44.8 billion in June, with Kalshi alone at $31.5 billion driven by World Cup betting.
• Sports betting accounts for 73 % of Kalshi’s volume; Polymarket’s activity spans politics, sports and crypto.
• A Wall Street Journal analysis found 67 % of Polymarket gains went to 0.1 % of accounts; Bloomberg noted most users lose money.

EU regulatory landscape

ESMA says prediction markets have not taken off in the EU because existing rules treat many event contracts as financial instruments or gambling, which bars sales to retail investors. National rules that mirror ESMA’s binary‑options ban prevent retail access.

Platforms such as Kalshi and Polymarket limit users in some EU countries but not all, and both ban VPNs, though the effectiveness of those bans is unclear. Malta is drafting a specific framework for the sector.

US approach contrasts

In the United States, regulators are debating which types of contracts should be allowed rather than whether to allow them at all. The CFTC has defended its jurisdiction and suggested banning war‑ and assassination‑related contracts, while the SEC is pursuing crypto perpetual‑swap products. Industry figures, including CME’s Terry Duffy and Kalshi’s Luana Lopes Lara, have debated manipulation risks at a CFTC roundtable.

What is confirmed

• ESMA’s risk monitor identifies insider trading, manipulation and retail harm as concerns for prediction‑market platforms.
• Specific incidents involving large profits and alleged tampering have been documented by ESMA.
• EU rules currently restrict the sale of event contracts to retail investors.
• Volume data from ESMA and The Block show rapid growth in market activity.

Remaining uncertainties

• The effectiveness of VPN bans and why some EU member states are not included in platform restrictions are not clarified.
• Future regulatory actions in the EU, such as Malta’s draft framework, remain pending.

Why it matters

Insider trading and manipulation can erode trust in prediction markets, potentially harming retail participants. Understanding regulatory differences between the EU and the US helps stakeholders gauge where the sector may expand or face restrictions.

Sources

• Decrypt