ESMA flags prediction markets lacking EU authorization

TLDR

ESMA has warned that major prediction market platforms like Polymarket and Kalshi are operating in the EU without the authorization generally required to sell event contracts.

1. ESMA says marketing and selling event contracts in the EU usually needs authorization that leading prediction platforms currently lack.
2. The regulator views many event contracts as derivatives subject to the retail binary options ban, and flags insider trading and manipulation risks on crypto based prediction markets.
3. EU users face mounting legal and access uncertainty, while platforms may need full MiFID II style licensing or risk national blocks and future enforcement.

Deep Dive

1. What ESMA Actually Flagged

In a new risk report, ESMA states that the largest prediction platforms, including Polymarket and Kalshi, do not hold the EU authorization that is generally required to market and sell event contracts to EU customers. The report explains that event contracts can fall under different regimes MiFID II financial instruments, MiCA crypto assets, or national gambling laws, depending on structure, but in all cases marketing them in the EU usually requires prior authorization. Where contracts qualify as financial instruments, ESMA notes they would normally be treated as derivatives and captured by national product intervention rules that ban retail binary options, which effectively block many prediction style contracts for everyday investors. This position is summarized in ESMAs discussion of unauthorized prediction platforms.

2. How It Hits Crypto Linked Prediction Markets

ESMAs clarification is particularly important for crypto native platforms that settle contracts on chain, like Polymarket using stablecoins, because it explicitly connects event contracts to MiFID II, MiCA and gambling rules. A July communication classified many binary payout contracts tied to financial instruments as derivatives, pulling them into the retail binary options ban and leaving platforms without a clear legal path in the EU. Crypto based contracts that are not MiFID instruments may still fall under MiCA or gambling law, but they still need authorization and face national blocks, as Spain and France have already imposed ISP and DNS level restrictions. This analysis is set out in ESMAs event contract classification note.

ESMA also devotes part of its risk monitor to prediction markets, describing them as prone to insider trading and coordinated manipulation, and highlighting pseudonymous crypto trading that makes suspicious activity harder to detect. It cites concrete insider cases and stresses that platform compliance measures are mostly reactive, only coming after profits have been taken, as detailed in the risk monitor chapter on prediction markets.

3. Scale, Traction And What To Watch

Despite these legal questions, prediction volumes are large and growing. ESMA reports Q4 2025 volumes around 12 billion dollars on Polymarket and 8.8 billion dollars on Kalshi, with more recent data showing tens of billions in monthly volume across platforms, according to ESMAs volume analysis. Yet ESMA stresses that activity within the EU itself remains limited, mainly because binary options rules already bar many event contracts for retail and several countries have begun blocking access.

The next key signals for crypto users and builders will be whether any prediction platform pursues full MiFID II authorization as a test case, how quickly national gambling and securities regulators escalate site blocks or fines, and whether emerging frameworks in places like Malta are adopted more widely in Europe.

Conclusion

ESMAs warning does not instantly ban prediction markets but it sharply narrows their safe operating space in Europe by tying many event contracts to existing binary options bans and authorization requirements. For crypto users, the takeaway is that on chain prediction markets are now firmly on EU regulators radar, and future enforcement or licensing moves could quickly change who can participate and on what terms. Watching national blocks, MiFID II licensing attempts and new EU frameworks will be critical for anyone relying on prediction markets as part of their crypto activity.