ESMA flags insider trading risk in prediction markets

• ESMA devotes a chapter of its latest risk report to prediction markets for the first time.
• Iran bets, a Maduro case and weather-sensor tampering feature among its examples.
• Polymarket and Kalshi expand in Europe without the authorisation ESMA says they need.

The European Securities and Markets Authority gave prediction markets a full chapter in its latest risk report, treating the sector as a distinct concern rather than a footnote to binary options for the first time.

Published on 10 September, the report names Polymarket and Kalshi as the platforms behind the surge in volume, and says neither currently holds the EU authorisation their scale would normally require.

Three cases stand out

Newly created wallets made roughly $1.2 million on Polymarket in the hours before a February US-Israeli strike on Iranian targets became public.

Blockchain analytics firm Bubblemaps later traced nine accounts to about $2.4 million in related Iran bets. ESMA did not identify the traders or claim any law was broken, but used the episode to show how quickly information can turn into profit.

A second case involves Gannon Ken Van Dyke, a US Army master sergeant charged in April with using classified details of the raid that captured Venezuelan leader Nicolás Maduro to win more than $400,000 on Polymarket. He pleaded not guilty; a trial has tentatively been set for December. Polymarket’s chief legal officer, Neal Kumar, treated the case as proof the platform works rather than that it fails.

Kumar said:

“It’s not anonymous, you will be found just like this guy.”

The third example has nothing to do with trading activity. Météo-France filed a police complaint in April after temperature sensors at Charles de Gaulle airport spiked unnaturally on two separate days, each time coinciding with unusually large, well-timed bets on Paris weather contracts. Polymarket switched its resolution source to a different station soon after.

Platform monitoring, ESMA concluded, tends to start only once the damage is already done.

ESMA said:

“A growing number of incidents illustrates prediction markets are rife with insider trading.”

Retail users carry the risk

Beyond the individual cases, ESMA’s concern is structural. Gamified interfaces, emotional pricing swings and social-media promotion can pull inexperienced retail users into losses and leave them outmatched by better-informed traders, the report said.

Pseudonymous accounts and multi-wallet trading on blockchain-based platforms make wash trading and coordinated manipulation harder to spot in the first place.

Turnover keeps outrunning ESMA’s own data. Its figures show quarterly volumes of $12 billion on Polymarket and $8.8 billion on Kalshi in the final quarter of 2025.

By June, combined monthly turnover across Kalshi, Polymarket and Polymarket’s separate US platform reached $44.8 billion, much of it tied to World Cup markets, with Kalshi alone accounting for $31.5 billion.

No EU licence, no pause

Marketing and selling event contracts to EU retail users generally requires authorisation that ESMA says neither platform currently holds.

Depending on how a contract is built, it can raise questions under MiFID II, fall within the Markets in Crypto-Assets Regulation, or count as gambling under national law, with derivatives-classified products facing the same retail restrictions as binary options.

ESMA also asked why Polymarket and Kalshi block access in some EU states but not others, and noted that VPN use may undercut whatever geographic controls exist.

Spain’s Ministry of Social Rights, Consumer Affairs and the 2030 Agenda opened disciplinary proceedings against both platforms in May and ordered internet providers to block them nationally, with a decision expected within three to four months.

Expansion outpaces the paperwork

None of this has slowed either company down. Polymarket announced on 9 September that it had joined the Brussels-based Blockchain for Europe, a membership that sits awkwardly alongside founder Shayne Coplan’s own public comments downplaying how much the platform worries about insider trading.

Kalshi says it is in talks with international regulators about a European entry, even as it fights a separate US dispute over state gambling laws now before the Supreme Court, following a Ninth Circuit ruling on how far states can go in regulating its contracts.

Malta has gone furthest inside the bloc, with ministers describing plans to hand the Malta Gaming Authority licensing powers over the sector, though nothing has been finalised. The UK Financial Conduct Authority has held talks on loosening its binary options ban, the same rule it once defended on specific grounds.

The FCA said:

“Appropriate given the speculative, gambling-like nature of these contracts and the high risk of consumer harm.”

Whichever way individual regulators land, Polymarket and Kalshi are treating the current gap as room to grow rather than a reason to wait.