ESMA says major prediction platforms lack EU authorization, questions Polymarket and Kalshi's partial geo-blocks

The European Securities and Markets Authority said the largest prediction market platforms lack the authorization generally required to market and sell event contracts in the EU, as it questioned the effectiveness of restrictions used by Polymarket and Kalshi to block users in some member states.

In a report published Thursday, the Paris-based regulator wrote that event contracts can fall under different regulatory regimes depending on their characteristics. Some may qualify as financial instruments under MiFID II, while blockchain-based contracts that do not qualify as financial instruments may fall under MiCA. Others may be treated as gambling products under national law.

"As a result, the marketing and sale of event contracts in the EU generally requires an EU authorization, which the largest prediction market platforms currently do not hold," the regulator said. 

Where contracts qualify as financial instruments, they would generally be classified as derivatives and fall within national product intervention measures on binary options, which prohibit marketing, distribution, and sale to retail investors, ESMA said.

Both Polymarket and Kalshi prohibit users in some, but not all, EU countries from placing orders, according to the regulator. ESMA questioned why all EU member states are not included in their restricted jurisdictions and said geographic restrictions do not prevent users from accessing the platforms through VPNs.

Insider trading concerns 

ESMA also raised concerns about insider trading and market manipulation on prediction markets, particularly DLT-based platforms such as Polymarket, where it said limited identity verification and pseudonymous participation can make suspicious activity harder to detect.

Earlier this year, Kalshi introduced screening tools and a whistleblower feature, while Polymarket expanded its rules against insider trading, spoofing, wash trading, and front-running. Kalshi also permanently banned former U.S. Rep. George Santos after he traded a contract tied to his attendance at the State of the Union and was ordered to pay a fine of more than $71,000.

ESMA said such platform measures to curb suspicious trading are largely reactive, and that prediction markets also face risks around contract resolution, data sources, and smart-contract execution.

However, the regulator said prediction markets remain relatively limited in scale within the EU, even as Eurex, Euronext, CME Group, Cboe, ICE, and Nasdaq show growing interest in prediction-style products and related infrastructure.