Polymarket pushes for European acceptance of prediction markets

Polymarket is reportedly leading a “lobbying blitz” in the UK and Europe to secure the status of its products as a financial service rather than gambling. The prediction markets giant, one of the two biggest in the world alongside arch rival Kalshi, has been evicted from several European nations including Italy, the Netherlands and France, to name a few. Regulators have largely labelled prediction markets as a form of gambling. Polymarket is seeking to change this outlook, according to the FT, hoping to convince European regulators to take the same approach as the US Commodity Futures Trading Commission (CFTC). According to the FT, Polymarket has been meeting regulators in London, likely the Financial Conduct Authority (FCA), and in Brussels, reportedly with the European Commission and European Securities and Markets Authority (ESMA), as well as with other national regulators across the European Union (EU). What are Polymarket’s prospects? From the outset, Polymarket has a tough job on its hands. The reason for this is mentioned above – European gambling regulators have been pretty adamant that they see prediction markets as a form of gambling, and an illegal form of it at that. To get its wish, Polymarket needs to bypass these gambling regulators and convince governments that its “event contract” products do not fall under the remit of these authorities, but instead under the remit of financial regulators. A problem the company will face is that governments across Europe are also heavily invested in reducing gambling harm. Politicians might not be too keen on allowing another industry widely seen as a form of gambling, or at least gambling-adjacent, to flourish at this time. In the Netherlands and Belgium, gambling advertising bans are coming into effect, while in the UK the government is hiking taxes on the industry and looking at ways to reduce the sector’s presence on the British high street. However, European economies are desperate for growth and innovation. In the UK, where the government is preparing its next budget, government borrowing hit £18.3bn in August, while the EU has a spending plan of over €2trn (€1.17trn) lined up for its next budget. In the US, prediction market trading has hit around $24bn (£18bn) a month according to Forbes. This is all taxable revenue, which could prove fruitful for both British, EU, and EU member state governments should the companies find a regulatory pathway this side of the Atlantic. ESMA, the EU’s securities regulator, has been meeting with Polymarket since June according to the FT. The regulator seems to have mixed opinions, stating in July that “event contracts exist for a wide variety of event questions”, some of which can be classed as financial instruments or derivatives, but some of which cannot. All in all, it cannot be overstated how much scepticism there is towards prediction markets in Europe. ESMA itself has previously stated that there are a “range of investor protection and market integrity concerns” around prediction markets, such as instances of insider trading. What stands in Polymarket’s way? Stateside, Polymarket and Kalshi are expanding aggressively across states despite mounting legal challenges over whether prediction market event contracts constitute federally regulated financial products or state-regulated gambling. The dispute is due to reach the US Supreme Court, following a petition by New Jersey seeking clarity on the regulatory status of event contracts. Elsewhere, New York governors Kathy Hochul and Attorney General Letitia James, have filed a $30bn lawsuit against Kalshi for bypassing state conditions on offering sports betting markets. The UK remains outside the list of European jurisdictions that have formally classified and blocked Polymarket or others as an unlicensed betting platforms. To date the UK’s Gambling Commission has only made one reference to prediction markets by its policy team noting that it had “fielded enquiries on the emergence of prediction markets”. An initial determination cited: “Commercial products meeting the definition of gambling under UK legislation must be licensed and regulated by the Gambling Commission. Spread betting is an exception which is regulated by the Financial Conduct Authority (FCA).” For its part, the FCA has been consulting on “expanding consumer access to investments”, including whether to open up access to “speculative products” – prediction markets could theoretically fall under this category. As it stands, the Gambling Commission has made no formal determination on the legal status of Prediction Markets, but noted: “If a prediction market operator was to launch here in Great Britain, we do not believe they would be able to classify themselves as non-gambling products”. Yet an alternative pathway could be established via the jurisdictions of Gibraltar and Malta who view that Europe requires a distinction for prediction markets and the types of contracts offered. This summer, Gibraltar licensed ADI Predictstreet as the first betting intermediary of its new Gambling Act, applying a dedicated regulations for prediction markets. The British Overseas Territory later created the world’s first regulatory regime solely for prediction markets, with specific orders for licensing and supervising event contracts as part of a wider overhaul of its gambling legislation. Malta has taken a more cautious approach. The government is actively exploring a statutory framework for prediction markets, acknowledging European concerns while arguing that the products should be assessed individually rather than treated automatically as conventional betting services. Gibraltar’s regulatory framework prediction market was a big moment, but Malta – an EU member state and arguably the world’s biggest hub for gambling reputable gambling licensing – would be even bigger. The expansion beyond the US shores is imperative if Kalshi and Polymarket are to sustain their multibillion-dollar valuations and hyper-growth cycles. Yet entry into Europe has been obstructed by national regulators. Both enterprises and others will aggressively lobby to gain a determination from higher ranking European courts, overriding national laws… The future of prediction markets mirrors the early foundation of the iGaming sector. Article coauthored by Ted Orme-Claye and Ted Menmuir Want to find out more about Prediction Markets? The Global Prediction Market Forum is being held in Lisbon on 1 October. Visit https://sbcevents.com/global-prediction-markets-forum/ for more details.