Meta description: ESMA warned that Polymarket, Kalshi and similar event-contract venues face EU authorization, market-abuse and resolution risks.
Tags: ESMA, Polymarket, Kalshi, MiCA, European Commission, prediction markets
Market platform: none-if-cross-platform
Category: Regulation
The European Securities and Markets Authority used its Sept. 10 risk monitoring report to warn that prediction markets such as Polymarket and Kalshi raise EU authorization, market-abuse and settlement risks. ESMA said event contracts may fall under MiFID II, MiCA or national gambling law, depending on how each contract is structured.
What did ESMA say about prediction-market oversight?
ESMA’s second risk monitoring report of 2026 put prediction markets inside a broader supervisory concern: fast-growing, retail-facing products that can sit across financial, cryptoasset and gambling rules. The agency did not say every event contract is automatically a financial derivative. It said the legal treatment depends on the event question, the contract design and whether the product qualifies as a financial instrument under EU law.
That distinction matters for Polymarket, Kalshi and other event-contract venues trying to reach users outside their home markets. In a July 3 statement, ESMA said event contracts are binary products whose payoff depends on a yes-or-no answer to a future event. If an event contract qualifies as a financial instrument, ESMA said it is treated as a derivative and can fall within national product-intervention measures that prohibit binary options from being marketed, distributed or sold to retail clients.
The same July statement also said distributing event contracts that qualify as financial instruments in the EU requires investment-firm authorization, even when the products are sold only to non-retail clients. ESMA’s September report carried that logic into its risk monitoring work, warning that platforms serving EU users without the relevant permissions can create authorization gaps for national supervisors.
Why is ESMA focused on insider trading and wash trading?
ESMA’s market-integrity concern is surveillance. The report said pseudonymous participation on distributed-ledger systems “hinders the detection and prevention of insider trading, wash trading and coordinated market manipulation.” In practice, that means regulators may struggle to connect wallet activity with real-world identities, related accounts or coordinated trading patterns.
The report cited a specific example from coverage of trading before the February U.S.-Israeli strikes on Iran became public. According to ESMA’s account, Forbes reported that newly created wallets generated roughly USD 1.2 million in profits around that episode. ESMA used the example to show why event contracts tied to geopolitics, elections, economic releases or other sensitive events can raise abuse concerns when material information reaches some traders before others.
The legal perimeter is central to enforcement. ESMA said EU market-abuse rules address misconduct when the relevant contract falls within financial regulation. If a contract is outside that perimeter, the same trading pattern may have to be handled through other frameworks, including cryptoasset rules or national gambling law. That creates a fragmented map for supervisors when the same platform offers contracts tied to politics, sports, crypto prices, weather, entertainment and macroeconomic data.
What did ESMA say about Polymarket and Kalshi access in the EU?
ESMA said the marketing and sale of event contracts in the EU generally requires authorization that the largest prediction-market platforms do not hold. The report named Polymarket and Kalshi while noting that both platforms restrict users in some European jurisdictions. ESMA questioned why all EU member states were not listed among restricted jurisdictions and raised concern that EU users can still access services through VPNs.
The agency’s point was not simply that a website is reachable from Europe. It was that platform-level geographic controls may be too porous for a product category that can require authorization, retail-product restrictions or gambling-law compliance depending on the contract. That is a sharper issue for prediction markets than for many financial products because the contracts are often easy to understand, fast to trade and tied to news events that spread through social media.
France and Spain have already taken action against prediction-market access. Spain’s gambling regulator, the Dirección General de Ordenación del Juego, issued a May notice warning about unauthorized prediction-market activity. In July, France ordered internet-service providers to block access to Polymarket, according to reporting cited in coverage of ESMA’s report. Switzerland’s gambling regulator, Gespa, has also described prediction markets as raising risks tied to insider trading, manipulation and money laundering under a gambling-law framework.
How large are the markets ESMA is watching?
ESMA’s report said prediction-market activity had reached volumes large enough to merit supervisory attention. It put fourth-quarter 2025 volume at roughly USD 12 billion on Polymarket and about USD 8.8 billion on Kalshi. For Polymarket, ESMA said politics accounted for about 29% of activity, sports for 19% and crypto for 15%.
Those figures explain why a niche product category has moved onto the agenda of Europe’s securities supervisor. Prediction markets now sit at the intersection of retail speculation, crypto infrastructure, political information and financial regulation. Bernstein analyst Gautam Chhugani has estimated that prediction-market volumes could reach USD 1 trillion by 2030, according to CNBC coverage. That forecast is not ESMA’s number, but it shows why regulators are treating the sector as more than an experiment.
The September report also placed prediction markets inside ESMA’s wider risk picture. The agency kept market, contagion and operational risks at its highest classification. ESMA Chair Verena Ross said investor optimism continued to support elevated valuations despite geopolitical tension and a weaker economic outlook, a backdrop that makes speculative retail products more important for supervisors watching leverage, liquidity and interconnected markets.
What settlement and oracle risks did ESMA highlight?
ESMA also warned that prediction markets depend on settlement systems that can be contested or manipulated. The report discussed ambiguity in contract wording, data-source manipulation or failure, opaque resolution mechanisms and payout delays. Those are not secondary operational details. They determine which side of a binary contract gets paid.
The report pointed to a police complaint filed by French weather service Météo-France in April after suspected interference with sensors connected to Polymarket weather markets. The example illustrates a core problem for event contracts tied to external data. A market can have transparent on-chain trading and still settle on a data feed that is vulnerable before information ever reaches the blockchain.
For supervisors, that expands the market-integrity perimeter beyond order books and wallets. A weather sensor, an election data source, a sports result feed or an oracle committee can become part of the financial infrastructure when contracts resolve against it. ESMA’s warning is that the integrity of the settlement input matters as much as the integrity of the trading venue.
What happens next in Europe?
ESMA’s September report is a monitoring document, not a new rule or enforcement order. Its importance is directional. It tells platforms, national regulators and policymakers how Europe’s securities supervisor is likely to analyze event contracts that reach EU users: first by asking whether they are financial instruments, then by looking to MiCA or national gambling law when they are not.
The next formal milestone is the European Commission’s targeted consultation on the review of the Markets in Crypto-Assets Regulation. The consultation opened May 20 and closes Sept. 30, 2026, at 23:59 CEST. The Commission said the review will assess whether MiCA remains fit for purpose after implementation and in light of market developments.
For prediction-market operators, the practical question is whether a no-local-license, geographic-restriction model can survive that review. ESMA has now put Polymarket, Kalshi and similar venues on notice that access controls, contract classification, market-abuse surveillance and settlement integrity are all part of the EU regulatory test.
