EU Regulator Says Prediction Markets Are 'Rife With Inside Trading'

The European Securities and Markets Authority allocated a dedicated chapter of its latest risk monitor to prediction markets, warning that the sector presents significant risks including insider trading, manipulation and harm to retail investors. ESMA said platform responses to suspected abuse tend to be reactive, often coming after profits have already been realized. ESMA listed several specific episodes to illustrate its concerns. It reported that newly created wallets collected about $1.2 million in the hours before a February strike on Iran, and that by May analysis by Bubblemaps had connected nine accounts responsible for $2.4 million of Iran-related bets that succeeded roughly 98% of the time. The regulator also cited a criminal charge against a U.S. Army master sergeant who reportedly profited over $400,000 on Polymarket around the reported capture of Nicolás Maduro, and an April incident in which suspected tampering with weather sensors used to settle Polymarket contracts led Météo-France to file a police complaint. ESMA said the legal classification of event contracts across the EU is fragmented: they can be treated as financial instruments under MiFID II, fall within MiCA, or be regulated as gambling by member states. Where contracts qualify as financial instruments they may be treated as derivatives, and national rules implementing ESMA’s earlier binary-options intervention generally prohibit selling such contracts to retail investors. The watchdog also questioned why Kalshi and Polymarket restrict access in some EU member states but not all, and flagged that although both firms ban the use of VPNs to evade blocks, the effectiveness of those bans is uncertain. Malta is the only member state mentioned as actively drafting a regulatory framework. Volume on these platforms has surged since the period covered in ESMA’s data. ESMA’s chart stops at quarterly volumes of $8.8 billion for Kalshi (to November 2025) and $12 billion for Polymarket (to January 2026). Industry reporting later showed combined monthly volumes of $44.8 billion in June, with Kalshi accounting for $31.5 billion as World Cup-related betting rose. ESMA noted Kalshi’s activity is heavily sports-focused (about 73% of its volume), while Polymarket is more evenly split among politics, sports and crypto. Independent analyses cited by ESMA found heavily concentrated gains—one report said 67% of Polymarket profits went to 0.1% of accounts—and that most users lose money. Across the Atlantic, regulators have taken a different tack. U.S. authorities such as the CFTC have asserted jurisdiction, debated limits on permissible contracts (including proposals to bar war or assassination bets), and engaged firms and exchanges over manipulation and oversight. That approach centers on deciding which contracts to allow rather than whether the markets should operate at all, a contrast ESMA highlighted in its review.