Head over to Polymarket’s US website and you’ll be greeted with a panoply of crystal-ball trades on everything from the midterm elections to the likelihood of a fully reopened Strait of Hormuz. Try that in France, where I live, and you’ll see something very different: A sober page of black-on-white text under the words, “Illegal website.”
That’s because in France and other European countries, regulators see the prediction markets run by Polymarket and its rival Kalshi Inc. as unregulated gambling that dodges the safeguards and oversight of licensed platforms. They also fret, justifiably, about the harm to people from losing money on an addictive, easily manipulated market that’s open all hours.
In April heavy bets on the temperature in Paris coincided with suspected tampering with weather sensors at the country’s largest airport. By July, France’s gambling regulator had blocked Polymarket’s site and teamed up with other national watchdogs to warn against prediction markets. The US company is contesting the ban.
This may sound familiar given Brazil’s crackdown on these sites and New York’s recent lawsuit accusing Polymarket of illegal gambling. But the story doesn’t end there. The firm is betting on a new path to regulatory acceptance in Europe by going around the gambling watchdogs and engaging directly with financial supervisors from the Paris-based European Securities Markets Authority and the UK Financial Conduct Authority.
The idea is to convince them that this is a derivatives market, not a gambling one, and should be regulated as such rather than banned. This would mirror its US setup, where prediction markets are overseen federally by the Commodity Futures Trading Commission — even as American states argue that these are sports-betting sites and should fall under their purview.
This is a bold wager. Polymarket has the cash and the lobbying heft to get its foot in the door after a $1 billion funding round led by Donald Trump Jr.’s venture-capital firm. It may sway a few technocratic minds by pointing to financial-market bets on its platform where the underlying market is regulated, such as currencies or commodities. ESMA already regulates so-called binary options — a derivative that pays out if a yes-or-no outcome is met, for example whether an asset price rises above a certain level. And it has floated the idea that some prediction-market contracts fit this category.
Neal Kumar, Polymarket’s chief legal officer, tells me that his business wants “a regulated pathway in Europe for this new asset class.” The company also sent me poll results from a London firm (called Stack Data Strategy) that found nine out of 10 finance professionals reckoned prediction-market data could inform their trading decisions.
Still, one hopes that regulators will think carefully before accepting what looks like the thin end of a fat wedge. Even before the rise of Polymarket and Kalshi, binary options have long blurred the lines between investing and betting because of their coin-toss, speculative nature. Most customers lose money on them, and they’re still deemed too risky for retail investors in the European Union. In Britain, they were once labeled as gambling products.
Opening the door to more of these via Polymarket feels like an unnecessary step into the unknown. ESMA’s stamp of approval could easily be misinterpreted as a comprehensive green light for the company and its industry, even if it covered only a narrow subset of what’s out there.
As for the broader argument about treating sports predictions as a derivatives market, good luck with winning that debate in Europe. Sports bets, which account for 80% of prediction markets’ onshore activity, don’t fit the financial-supervision mold. Their oversight is also more established in Europe than in the US, where not so long ago they were available only via illegal bookies or in places like Vegas.
As for the racier trades, from wagering on declarations of war or Christ’s second coming to betting on the next word out of a corporate boss’s mouth, no number of claims of “informational value” will be fully persuasive. This stuff can create incentives to engage in corrupt, illegal or dangerous actions to rig the outcome, as a recent paper coauthored by Bocconi University’s Luis Enriques explains.
This isn’t to say that France-style bans are the last word. It’s hard to get the EU’s 27 members to agree on regulation. Malta, for one, has gone it alone on crypto rules to bring in the industry’s money. And in a world where every few years brings a new form of casino finance, it’s worth sketching out what workable regulation might look like other than prohibition. Jackson Gutenplan, a Bloomberg Intelligence analyst, says one endpoint for prediction markets could be strictly regulating trades around politics, climate or corporate events.
But that’s a more long-term challenge that doesn’t address the central issue today: that Polymarket’s platform still looks to me more like gambling than investing. The problem is both the speculative element and that the deck is stacked against the consumer, a former senior regulatory official tells me.
Country-by-country bans create their own difficulties and loopholes, but it still looks like the riskier punt would be rushing to give this market a regulatory blessing. Supervisory dice rolls can wait.
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