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FollowingThe European Securities and Markets Authority points out: Polymarket and Kalshi lack authorization to sell event contracts in the EU
The European Securities and Markets Authority (ESMA) recently stated that prediction market platforms such as Polymarket and Kalshi do not hold the authorization required to sell event contracts to users in EU member states. Given concerns about risks such as insider trading and market manipulation, several European countries are taking steps to either regulate predictive market platforms or overwhelmingly ban their operations.
Why is market prediction not authorized in the EU?
ESMA made it clear that "marketing and selling event contracts within the EU usually requires EU-level authorization," while currently major forecasting market platforms, including Kalshi and Polymarket, clearly do not hold such authorization.
ESMA further pointed out that it was unclear why these platforms had not been blocked by all EU member states and questioned whether these websites really had the ability to prevent users from using virtual private networks (VPNs) to hide their geographical location.
Legal characterization of forecast contracts
Depending on the subject matter of the contract, forecast contracts may fall under one of the following three regulatory regimes (systems/frameworks):
- Financial derivatives category: If the payouts of a contract depend on financial variables, ESMA views it as a product that is highly economically similar to binary options. Binary options are an "all-or-nothing" product that the European Union banned from offering to retail investors years ago after consumers suffered significant losses. Currently, national interventions have prohibited the marketing, distribution and sale of such products to retail customers.
- Crypto asset classes: If a contract uses blockchain technology but is not a financial instrument, it may be subject to the Cryptographic Asset Markets Regulation (MiCA).
- Gambling: If a contract does not meet the above two definitions, it falls within the jurisdiction of different domestic gambling laws of each country.
How EU regulators interpret forecast contracts
As early as July this year, ESMA stated that existing binary options rules apply to event contracts recognized as financial instruments. Law firm Norton Rose Fulbright traces this logic to MiFID II (European Union Markets in Financial Instruments Directive II), which defines what a financial instrument is. According to analysts cited by the law firm, it is predicted that market trading volume may reach US$1 trillion by 2030.
Do European insider trading rules apply to forecasting markets?
European anti-insider trading rules only apply when a contract is identified as a financial instrument.
Previous reports have shown that nine European gambling regulators took action against unlicensed platforms during the FIFA World Cup. Manuel Richard, director of Swiss regulator Gespa, said the reasons for the action included risks such as insider trading, market manipulation and money laundering, and the websites lacked necessary security measures.
Since July this year, France has asked Internet service providers to cut off access to Polymarket, after Switzerland, Poland, Belgium, Portugal, Spain, Singapore and Brazil have also blocked the platform.
In addition, Spain's Ministry of Consumer Rights temporarily banned Kalshi and Polymarket services in May this year through Internet Service Provider (ISP) level DNS and network blocking because the two platforms lacked the necessary gambling licenses.
