ESMA Raises Entry Bar for European Prediction Markets, Orders Strict Case-by-Case Legal Classification
Highlights
- ESMA warns that prediction market contracts may fall under the existing ban on high-risk binary options.
- Regulators are tightening rules before major offshore platforms like launch official European operations.
- New platforms must prove their contracts comply with both EU financial laws and national gambling regulations.
Europe’s top financial regulator, ESMA, put out a statement saying that existing rules against binary options, a type of high-risk financial bet, may already cover prediction market contracts. ESMA did not create any new rules. It just tightened them.
Polymarket was recently accused of deceptive advertising targeting U.S. users. Seeing this, ESMA has tightened the rules that have been on the books since 2018 and said those rules might already apply to what prediction market platforms are selling today.
The statement targets firms as well as national regulators, and its message is clear: companies must decide if the products they are offering as event contracts in Europe are financial instruments under MiFID II.
If they do, the EU’s retail ban on binary options comes into effect automatically, as originally introduced in 2018.
The Regulatory Timeline Before ESMA Stepped In
ESMA’s July 3 press release was not an isolated event. The financial instruments question came at the end of a series of developments by the regulators against the prediction market platforms over the past few weeks.
The Ministry of Consumer Affairs in Spain temporarily banned Kalshi and Polymarket on May 26 for not having a gambling license.
Gambling authorities in nine European nations, such as Belgium, France, Germany, and Spain, released a joint statement on June 19 against unlicensed gambling sites in Europe because of the consumer protection risks associated with the FIFA World Cup.
At this moment the most important prediction market providers that are in use on a large scale are all situated outside Europe. Kalshi and Crypto.com are under the jurisdiction of the CFTC in the United States. Polymarket operates worldwide from offshore.
Last month, Kentucky Govt. filed a lawsuit against Polymarket and Kalshi over “Illegal” sports betting.
That’s why ESMA is taking the action now, ahead of a launch, and not after, as none of the big players has a licensed European operation.
What This Means for Any Firm Considering a European Launch
Any prediction market platform must now respond to two questions related to the regulation, first if its contracts are considered financial instruments in MiFID II and subsequently if they can be termed gambling products in national law.
Any platform that attempts to launch in Europe without addressing both of those matters will probably face the same enforcement approach as Spain in May.
If you’re looking for the best crypto analysis website, check out our coverage on crypto research tools.
Why Trust CoinGape
CoinGape has covered the cryptocurrency industry since 2017, aiming to provide informative insights Read more… to our readers. Our journal analysts bring years of experience in market analysis and blockchain technology to ensure factual accuracy and balanced reporting. By following our Editorial Policy, our writers verify every source, fact-check each story, rely on reputable sources, and attribute quotes and media correctly. We also follow a rigorous Review Methodology when evaluating exchanges and tools. From emerging blockchain projects and coin launches to industry events and technical developments, we cover all facets of the digital asset space with unwavering commitment to timely, relevant information.
Delivered every day.
- Insights that move markets
- 100,000 active subscribers
