ESMA flags prediction markets lacking MiCA authorization

TLDR

ESMA has warned that major crypto-linked prediction markets such as Polymarket and Kalshi lack EU authorization under MiCA or other regimes, raising legal and market risk.

1. ESMAs latest risk report says event contracts sold by platforms like Polymarket and Kalshi generally require authorization in the EU, which these venues currently do not have.
2. The regulator highlights insider trading, manipulation and retail harm on crypto-settled prediction markets, and questions partial geo-blocks and VPN bans that still allow EU users to access them.
3. ESMA has not announced a ban yet, but MiCA plus national rules mean stricter enforcement or new regimes, such as Maltas proposed framework, are likely as volumes and institutional interest grow.

Deep Dive

1. What ESMA Actually Flagged

In its September 2026 risk monitor, ESMA states that major prediction platforms including Polymarket and Kalshi lack the authorization generally required to market and sell event contracts across the EU, whether those contracts fall under MiFID II, MiCA, or gambling law. This is framed in the report and in coverage by The Block as a regulatory gap rather than a one-off issue, since event contracts treated as financial instruments are usually derivatives and subject to the same retail bans as binary options. ESMA also notes that these platforms only restrict some EU countries and criticizes the patchy coverage and limited effectiveness of VPN bans for keeping EU users out.

2. Risk Concerns Around Prediction Markets

ESMA devotes a chapter to prediction markets, describing them as rife with inside trading and citing cases where new wallets made seven-figure profits on Iran-strike contracts and a U.S. Army sergeant earned over $400,000 on Polymarket bets about Nicols Maduros capture, as highlighted by Decrypt and Yahoo Finance. It argues that pseudonymous, crypto-based settlement makes wash trading and coordinated manipulation harder to detect and that platform responses are largely reactive, coming only after suspicious profits are realized. ESMA also points to data showing most Polymarket users lose money and that gains are concentrated in a tiny fraction of accounts, reinforcing its concern over retail harm.

3. MiCA, National Actions And The Road Ahead

ESMA stresses that event contracts can be regulated in three different ways: as financial instruments under MiFID II, as crypto assets under MiCA, or as gambling products under national law, and that marketing them to EU retail investors normally requires authorization that these platforms lack. National regulators have already moved, with France and Spain ordering ISP or DNS-level blocks on Polymarket due to missing licenses, while Malta is exploring a dedicated prediction-market framework, according to a detailed CoinsKid community summary of the ESMA report. At the same time, EU tokenization and DeFi pilots continue, suggesting regulators want innovation but with clear boundaries on speculative event contracts.

Conclusion

ESMAs warning does not immediately shut prediction markets down, but it clearly signals that large, crypto-linked venues operating into Europe without MiCA or equivalent authorization sit on borrowed time. As insider trading cases and volumes grow, the most likely path is a mix of stricter enforcement, more consistent geo-blocking, and new EU-level frameworks that either bring event contracts inside regulated finance or push them out of the region altogether.