Catenaa, Thursday, September 17, 2026-Europe’s top securities regulator has warned that major prediction-market platforms generally lack authorization required to market event contracts in the EU, while questioning whether geographic restrictions imposed by Polymarket and Kalshi adequately block European users.
The European Securities and Markets Authority, or ESMA, raised the concerns in a report published September 11 examining the growth and regulatory treatment of prediction markets.
ESMA said event contracts can fall under different regulatory regimes depending on their structure.
Some contracts may qualify as financial instruments under the EU’s Markets in Financial Instruments Directive, or MiFID II.
Blockchain-based contracts that are not financial instruments could instead fall under the Markets in Crypto-Assets regulation, known as MiCA.
Other prediction products could be classified as gambling under individual member states’ laws.
ESMA said that, regardless of classification, marketing and selling such contracts in the EU generally requires authorization that the largest prediction-market operators currently do not hold.
Contracts classified as financial instruments would generally be treated as derivatives.
That could place them under national restrictions on binary options, which prohibit their marketing, distribution and sale to retail investors in several circumstances.
The regulator also examined the geographic restrictions imposed by Polymarket and Kalshi.
Both platforms prevent users in some EU countries from placing trades, but their restricted lists do not cover every member state.
ESMA questioned why the restrictions were not applied across the entire bloc.
It also warned that geographic blocking can be circumvented through virtual private networks, reducing its effectiveness as a regulatory safeguard.
The report raised separate concerns about insider trading and market manipulation.
ESMA said those risks may be particularly difficult to detect on distributed-ledger platforms where users can participate under pseudonymous identities and identity checks may be limited.
Both major platforms have taken steps to address such concerns.
Kalshi introduced new screening tools and a whistleblower mechanism earlier this year.
Polymarket has also expanded rules addressing insider trading, wash trading, spoofing and front-running.
Kalshi recently permanently banned former US Rep. George Santos after he traded a contract connected to his own attendance at the State of the Union.
He was also ordered to pay a fine exceeding $71,000.
ESMA said platform safeguards remain largely reactive and warned that prediction markets face additional risks involving contract resolution, data sources and smart-contract execution.
Those issues can become particularly important when a contract depends on interpreting an event or relies on external information to determine its outcome.
Despite the concerns, ESMA said prediction markets remain relatively small within the EU.
Interest in prediction-style products is nevertheless increasing across traditional finance.
Major market operators including Eurex, Euronext, CME Group, Cboe, ICE and Nasdaq have shown growing interest in prediction-related products or infrastructure.
That expansion could force European regulators to draw clearer boundaries between gambling, derivatives and blockchain-based event contracts.
For Polymarket and Kalshi, the immediate issue is whether their current country-by-country restrictions are sufficient when EU rules may require authorization across the wider bloc.
ESMA’s report suggests that partial geoblocking alone may not be enough.
