ESMA warning exposes Europe’s prediction markets split

• ESMA has reminded firms that event contracts qualifying as financial instruments already fall under national binary options bans.
• Gibraltar and Malta are pursuing licensed routes for the sector, while the UK requires a betting intermediary licence outright.
• Global prediction market volumes topped $50 billion in June for the first time, driven chiefly by FIFA World Cup trading.

The European Securities and Markets Authority has issued a public statement reminding firms that many prediction market products marketed as event contracts may already be covered by the EU’s existing ban on marketing binary options to retail investors.

The statement, published on 3 July, lands as global trading volumes hit record levels and national regulators pull in different directions.

Substance over branding

ESMA defines event contracts as products with a binary financial outcome, either a fixed payout or nothing, depending on a yes-or-no answer to a question about a future event. Whether a contract qualifies as a financial instrument depends entirely on the nature of that question.

The regulator was explicit that a firm’s commercial name for a product, such as “event contract,” has no bearing on how it is categorised under MiFID II. Classification rests on structure and function, not marketing labels.

“Conduct a careful legal analysis of these products and their functioning.”

ESMA said this in the statement, describing it as the minimum step firms must take before offering such products to EU clients.

Where a contract qualifies as a financial instrument, it classifies as a derivative and falls within national product intervention measures on binary options, tracing back to the temporary EU-wide ban ESMA introduced in 2018.

Permanent national rules mirroring that decision remain in force, and distribution to professional or institutional clients is not exempt: ESMA confirmed authorisation as an investment firm under MiFID II is required regardless of client base, for products meeting that definition.

Contracts falling outside it, including most sports and political questions, may instead sit under national gambling law or, in token form, MiCA crypto-asset rules.

Europe’s fractured map

The picture inside the bloc is far from uniform. Gibraltar took the opposite path months before ESMA’s statement, granting Predict Street the territory’s first dedicated prediction market licence in April, positioning itself as a launchpad for operators seeking a regulated European base.

Malta is weighing a similar move. Economy Minister Silvio Schembri confirmed in March the government is exploring a bespoke framework for the sector, telling reporters the goal is legislation that lets the market “develop responsibly and at scale.” Consultations remain early, and no draft legislation exists yet.

The UK has closed the door on ambiguity entirely. The Gambling Commission confirmed in February that prediction market operators need betting intermediary licences to serve British consumers, treating them as functionally identical to betting exchanges that have operated since 2000. Unlicensed platforms face criminal offences if they target British customers.

Enforcement inside the EU has already moved beyond guidance. The Dutch Kansspelautoriteit ordered Polymarket to cease operations in the Netherlands earlier this year. Against that backdrop, ESMA’s statement reads less as new policy and more as a signal that regulators intend to test contract substance everywhere, not just in jurisdictions that have already acted.

Volume outpaces rules

The regulatory patchwork has done little to slow demand.

Prediction market platforms collectively surpassed $50 billion in monthly trading volume for the first time in June, a 75% jump from May’s $25.7 billion, according to analytics firm Artemis.

Kalshi led with roughly $31 billion, of which its World Cup-specific markets alone generated $7.4 billion. Polymarket’s international platform posted a record $10.8 billion for the month. Sports contracts have consistently made up the large majority of volume on both platforms through 2026.

In the US, the Commodity Futures Trading Commission has proposed a three-step test that would generally permit event contracts tied to elections, economic indicators and aggregate sports outcomes, subject to settlement and integrity safeguards.

Global monthly gross volume across all event contracts has been estimated at more than $21.4 billion, though concentration remains heaviest on US platforms.

For operators eyeing the EU, the practical path now runs through jurisdiction choice as much as product design. A Gibraltar licence, or a prospective Malta framework, offers a route to build compliant infrastructure ahead of clearer EU-wide rules, provided contract mechanics are stress-tested against MiFID II from the outset.

Operators targeting UK consumers face no such ambiguity: a betting intermediary licence is the only route in.

Anyone planning an EU-wide rollout should expect national regulators to increasingly mirror the KSA’s enforcement posture, and should treat ESMA’s statement as the floor for compliance, not the ceiling.