ESMA warns Polymarket over EU rules that could trigger retail ban

Europe’s securities regulator has warned that prediction market contracts offered in the European Union could already fall under existing financial rules, potentially triggering a long-standing retail ban on binary options.

According to the European Securities and Markets Authority (ESMA), firms offering event-based contracts in the European Union must assess whether those products qualify as financial instruments under the Markets in Financial Instruments Directive II (MiFID II). If they do, the regulator said, the EU’s retail restrictions on binary options introduced in 2018 would automatically apply.

The July 3 statement does not introduce new legislation. Instead, ESMA clarified that the existing regulatory framework may already cover some prediction market products currently being marketed in Europe. The guidance is directed both at firms and national regulators responsible for supervising financial markets across the bloc.

Existing MiFID II rules could already apply

Under ESMA’s interpretation, companies cannot simply describe contracts as prediction markets or event contracts without considering whether they meet the legal definition of a financial instrument under MiFID II. Where that threshold is met, the binary options restrictions adopted by the regulator in 2018 would take effect without any additional rulemaking.

The clarification arrives as offshore prediction market operators continue drawing regulatory attention across multiple jurisdictions. Among the largest providers, Polymarket operates from offshore markets, while Kalshi and Crypto.com are regulated by the U.S. Commodity Futures Trading Commission (CFTC) in the United States. None of the major platforms currently operates a licensed prediction market business within the European Union.

The regulatory update also follows recent scrutiny surrounding Polymarket. The platform was recently accused of using deceptive advertising that targeted U.S. users, adding to regulatory pressure already facing prediction market operators in several countries.

European scrutiny has intensified across multiple countries

Before ESMA issued its clarification, several European authorities had already taken action against prediction market platforms.

Spain’s Ministry of Consumer Affairs temporarily blocked Kalshi and Polymarket on May 26 after determining that the platforms did not hold the gambling licenses required under Spanish law.

A few weeks later, on June 19, gambling regulators from nine European countries, including Belgium, France, Germany and Spain, issued a joint statement warning consumers about unlicensed gambling websites operating across Europe. According to the participating authorities, those platforms raised consumer protection concerns ahead of the FIFA World Cup.

Outside Europe, legal challenges have also continued. Last month, the Kentucky government filed a lawsuit against Polymarket and Kalshi, alleging the platforms were facilitating illegal sports betting within the state.

Against that backdrop, ESMA’s latest statement places fresh responsibility on firms considering expansion into the European market. According to the regulator, companies must determine not only whether their contracts qualify as financial instruments under MiFID II, but also whether national laws classify those products as gambling activities.

Because no major prediction market operator currently runs a licensed European business, ESMA’s clarification comes before any large-scale launch rather than after one.

Firms that fail to address both financial market rules and national gambling requirements could face enforcement action similar to the measures already taken by Spanish authorities, based on the regulator’s guidance and recent actions by national authorities.