TL;DR
- ESMA warns that the leading prediction market platforms lack the required authorization to operate in the EU.
- The regulator questions why Polymarket and Kalshi block users only in some member states and not across all EU countries.
- The geographic restrictions implemented do not prevent access via VPN, and measures against insider trading are mostly reactive.
The European Securities and Markets Authority (ESMA) published a report concluding that the leading prediction market platforms lack the necessary authorization to market and sell event contracts in the European Union.
The document was issued from the regulator’s headquarters in Paris. It specifically identifies Polymarket and Kalshi as platforms that restrict access only in some member states, without extending that limitation to the entirety of the EU territory.
According to the ESMA report, event contracts may be subject to different regulatory frameworks depending on their characteristics. Some could be classified as financial instruments under MiFID II; blockchain-based contracts that do not qualify as such could fall under MiCA; and others could be treated as gambling products under national legislation. In any of these cases, marketing within the EU requires authorization that these platforms currently do not hold.
ESMA: Geographic Blocks That Don’t Block
Where contracts qualify as financial instruments, ESMA indicates they would be classified as derivatives and subject to national product intervention measures on binary options contracts, which prohibit their marketing and distribution to retail investors.
Faced with this scenario, both Polymarket and Kalshi apply access restrictions, but only in a subset of EU countries. ESMA questioned the logic of that selectivity and noted that geographic restrictions prove ineffective when users can bypass them through virtual private networks (VPN).
The report also addresses risks of insider trading and market manipulation, particularly on blockchain-based platforms such as Polymarket, where limited identity verification and anonymous participation make it difficult to detect suspicious activity.
Bans and Prohibitions
Kalshi introduced detection tools and an anonymous reporting feature earlier this year, and permanently banned former U.S. Representative George Santos after he traded a contract linked to his attendance at the State of the Union address.
Santos was fined more than $71,000. ESMA described these measures as mostly reactive. Despite the warnings, the regulator acknowledged that prediction markets remain relatively limited in scale within the EU, although Eurex, Euronext, CME Group, Cboe, ICE and Nasdaq are showing strong interest in products of this type.
