ESMA Raises Questions About Polymarket and Kalshi in the EU
ESMA says Polymarket and Kalshi are offering event contracts in the EU without permission. The regulator also points to weak geo-blocks and risks tied to MiFID II, MiCA, and gambling rules.
Key Takeaways
- ESMA says Polymarket and Kalshi do not have EU approval to market and sell event contracts in the EU.
- The regulator questions geo-blocks, since users can still get access through a VPN.
- ESMA also warns about insider trading and market manipulation on prediction markets, especially on DLT platforms.
The European regulator ESMA says the biggest prediction market platforms do not have EU approval to market and sell event contracts. The regulator also raises questions about the geo-blocks Polymarket and Kalshi use to keep users in some member states out. According to ESMA, those restrictions are not foolproof, because users can still get access through a VPN.
Rules Differ by Contract
In a report on Thursday, the Paris-based regulator says event contracts can fall under different regimes depending on their features. Some contracts may count as financial instruments under MiFID II. Blockchain-based contracts that do not fall under that framework may instead come under MiCA. Other versions may be treated as gambling products under national law.
ESMA says that marketing and selling event contracts in the EU therefore generally requires EU approval. According to the regulator, the biggest prediction market platforms do not currently have that approval. If contracts are treated as financial instruments, they usually fall under derivatives rules and national product intervention measures for binary options, which ban sales to retail investors.
More Focus on Abuse
The regulator also raised concerns about insider trading and market manipulation on prediction markets. DLT platforms like Polymarket in particular could be vulnerable, because limited identity checks and pseudonymous participation make suspicious trading harder to spot. ESMA also pointed out that platform measures to stop abuse often only work after the fact.
Those concerns come at a time when prediction markets are getting more attention in Europe. In Spain, the Ministry of Consumer Affairs already launched a sanctions procedure against Polymarket and Kalshi in May for not having the required gambling license, after which the websites were blocked in the country. ESMA also reminded companies in July about existing rules around binary options, while global interest in prediction markets kept growing. In the US too, the debate over oversight of this market remains active, as Kalshi clashes with states while the CFTC works on new rules for event contracts.
Why This Matters
For European crypto and web3 companies, this matters because prediction markets often rely on blockchain infrastructure and smart contracts. If regulators start treating these products more quickly as financial instruments, gambling products, or part of MiCA, that could decide which rules apply and where platforms can or cannot operate. ESMA does say the market in the EU is still relatively small, although companies like Eurex, Euronext, CME Group, Cboe, ICE, and Nasdaq are showing growing interest in similar products and infrastructure, according to the regulator.
