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- ESMA warned that prediction markets like Polymarket and Kalshi pose significant insider trading and manipulation risks.
- Both Polymarket and Kalshi are actively pursuing European expansion despite ESMA’s strict regulatory stance and warnings.
The European Securities and Markets Authority has warned that fast-growing prediction markets including Polymarket and Kalshi pose investor protection and market integrity risks, with insider trading and manipulation among its main concerns.
The warning matters because the two largest prediction market operators are pursuing international growth, including in Europe, even as European regulators take a notably more cautious stance than U.S. authorities. ESMA said the sector requires “continued monitoring” in its latest risk report.
ESMA flags insider trading, manipulation and retail harm
ESMA described prediction markets as presenting “a range of investor protection and market integrity concerns.” It said that when retail users access unauthorised platforms in the EU, those products can amount to speculative gambling without the protections usually tied to regulated financial products.
The regulator also said the products’ “gamified structure, emotional dynamics and social media-driven promotion” can expose inexperienced retail investors to financial loss, addictive behaviour and exploitation by more sophisticated traders.
On market abuse, ESMA said “a growing number of incidents illustrates that prediction markets are rife with insider trading.” The report also warned that manipulation and insider-trading risks are higher where identity verification is limited.
The article cited one recent U.S. enforcement-related example: Gannon Ken Van Dyke, a U.S. soldier charged in April over Polymarket wagers tied to a raid targeting Venezuelan leader Nicolás Maduro. He has pleaded not guilty.
Expansion plans face a tougher European regulatory climate
According to the report, Polymarket and Kalshi remain largely unauthorised across much of Europe, although some users may still access platforms through VPNs. ESMA said Malta is exploring a regulatory framework for prediction markets, while the UK Financial Conduct Authority is considering whether to reform rules on retail access.
The FCA has previously said its ban on binary options remains “appropriate given the speculative, gambling-like nature of these contracts and the high risk of consumer harm.”
That backdrop matters for both operators’ expansion plans. Polymarket said it is “growing its presence and expanding into Europe” and has joined Brussels-based trade association Blockchain for Europe. The company operates a crypto-based international product alongside a more limited U.S.-only version regulated by the Commodity Futures Trading Commission.
Kalshi, which the article said overtook Polymarket this year to become the largest prediction market by volume, is also looking abroad. In July, executive Luana Lopes Lara said the company was in talks with international regulators and was “very excited” about future expansion in Europe.
What comes next is whether European jurisdictions create formal routes for authorised prediction market products or keep current restrictions in place. For now, ESMA’s position signals tougher scrutiny as the sector tries to grow beyond the U.S.
Source: As reported by news.google.com.
