The European Securities and Markets Authority stated in its latest risk monitor that major prediction market platforms, including Polymarket and Kalshi, do not hold the authorization generally needed to market and sell event contracts to users in the European Union. The findings, released in a report on Thursday, stop short of any enforcement action but place the legal status of these platforms under closer scrutiny as the sector expands.

Event contracts allow participants to trade on the outcomes of future events such as elections, sports results, economic data or other real-world developments. Payouts typically deliver a fixed amount if a specified result occurs and nothing otherwise. ESMA noted that the regulatory treatment of these contracts depends on their structure.

Possible Classifications Under EU Rules

According to the regulator, an event contract may qualify as a financial instrument under the Markets in Financial Instruments Directive II. In that case it would generally fall under long-standing national measures that prohibit the marketing, distribution and sale of binary options to retail investors. Contracts based on distributed ledger technology that do not qualify as financial instruments could instead come under the Markets in Crypto-Assets framework. Others may be treated as gambling products subject to national licensing rules that differ across member states.

Because of these overlapping regimes, ESMA concluded that marketing and selling event contracts in the EU generally requires an EU authorization. The largest prediction platforms currently lack such authorization.

Questions Over Incomplete Geographic Blocks

Both Polymarket and Kalshi already restrict access from certain EU countries. ESMA observed that the restricted lists do not cover all 27 member states and said it was unclear why the platforms had not applied a comprehensive ban. The regulator also questioned the practical effectiveness of these geographic controls, noting that virtual private networks can be used to mask a user’s location and bypass the blocks.

National authorities have already taken steps against the platforms. In July, France ordered internet service providers to block access to Polymarket. Spain’s consumer authority imposed DNS-level blocks on both platforms in May over missing gambling licenses. Similar restrictions have appeared in Switzerland, Poland, Belgium, Portugal and other jurisdictions outside the EU.

Insider Trading and Market Integrity Concerns

Beyond authorization, ESMA devoted a dedicated section of the report to market-abuse risks. The regulator stated that prediction markets are rife with insider trading and that manipulation risks have reached new levels. Limited identity verification and the use of pseudonymous accounts, particularly on distributed-ledger platforms, make wash trading and coordinated activity harder to detect.

The report cited several recent episodes. Newly created wallets generated substantial profits hours before a February strike on Iran became public; later analysis linked multiple accounts to millions of dollars in related bets that settled successfully at high rates. A U.S. Army master sergeant was charged in connection with more than $400,000 in profits on Polymarket contracts tied to the capture of Venezuelan President Nicolás Maduro. In April, French authorities filed a police complaint after suspected interference with weather sensors used to settle certain Polymarket contracts.

ESMA described platform responses as largely reactive, typically beginning only after profits have already been realized. Market-abuse rules under EU law apply only when the contracts fall inside the financial regulatory perimeter, leaving gaps for products classified under other regimes.

Broader Context and Limited EU Traction

Despite rapid global growth, prediction markets have so far gained limited traction inside the European Union. ESMA attributed this mainly to the existing binary-options restrictions that bar retail sales of qualifying contracts rather than to a lack of investor interest. Volumes on the major platforms have nonetheless risen sharply. Combined monthly notional volume reached tens of billions of dollars by mid-2026, with sports forming a large share of activity on one platform and politics, sports and crypto markets dominating on the other.

The same risk report also flagged separate vulnerabilities in crypto markets more broadly. Heavy borrowing by technology firms to fund artificial-intelligence spending has lifted valuations and raised the possibility of an eventual correction. Because of closer ties between digital assets and traditional finance through exchange-traded funds and institutional custody, a technology-stock sell-off could transmit pressure to crypto holdings. Bitcoin declined roughly 35 percent in the first half of 2026, while smaller tokens fell more sharply.

ESMA has not announced any immediate ban or formal investigation. Existing user accounts are not directly affected by the risk-monitor findings. The explicit statement on authorization gaps, combined with questions about incomplete geographic restrictions and rising insider-trading concerns, nevertheless signals that both EU-level and national authorities are watching the sector more closely.