Europe’s main securities regulator has warned that some contracts from crypto prediction market platforms like Polymarket and Kalshi could be seen as financial instruments under current EU rules. In a statement on July 3, the European Securities and Markets Authority (ESMA) said some event contracts might fall under the Markets in Financial Instruments Directive (MiFID II) if they look like binary options. This means companies offering these products may need regulatory approval and could face stricter compliance rules across the EU.
ESMA’s statement doesn’t create new rules but explains how existing financial laws might already apply to some prediction market products. The regulator said whether a contract falls under MiFID II depends on its structure, not just its label.
The authority said only event contracts tied to financial instruments listed under MiFID II—like options, futures, swaps, and other derivatives—would count as regulated financial products. If an event contract fits these rules, it may also be subject to existing restrictions on binary options set by European regulators to protect investors.
ESMA emphasized that just calling something an “event contract” or “prediction market” doesn’t change its legal status. Companies need to review each product to see if it should be treated as a regulated financial instrument. If so, they may need to get the right licenses before offering these products, even to professional or institutional clients.
The regulator also addressed products that provide investors with additional rewards or coupons linked to their positions. According to ESMA, such incentives do not alter the fundamental nature of an event contract if it otherwise functions as a binary option.
This guidance has drawn attention as prediction markets become more popular worldwide, especially those on blockchain networks using cryptocurrencies. Platforms like Polymarket and Kalshi let users trade on the outcomes of political events, economic data, sports, and other real-world events.
Legal experts say ESMA’s statement is more of a reminder than a crackdown. Cris Carrascosa, CEO of European law firm ATH21, said the regulator isn’t trying to limit innovation but wants businesses to review each product on its own, not just rely on marketing terms.
This clarification shows how complex the rules are getting for crypto prediction markets in Europe. As these platforms grow, operators will need to make sure their products follow existing financial regulations if they are like traditional derivatives. The statement may also push firms to review their products before expanding in Europe.
LATEST: 🇪🇺 The European Securities and Markets Authority warns many prediction market event contracts may already fall under its 2018 binary options ban on retail sales. pic.twitter.com/rAP0HSa1jz
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Source: esma.europa.eu
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