Regulation

    Europe's Top Financial Regulator Says Polymarket and Kalshi Lack EU Authorization

    ESMA's September 2026 risk report finds Polymarket and Kalshi lack required EU authorization for event contracts, flagging VPN bypass risks and insider trading.

    By PredictionMarkets.usSaturday, September 12, 20268 min read
    Europe's Top Financial Regulator Says Polymarket and Kalshi Lack EU Authorization

    Europe's most powerful securities watchdog has issued its clearest warning yet on prediction markets, declaring that Polymarket and Kalshi — the two largest platforms in the sector — lack the authorization generally required to market and sell event contracts to users across the European Union.

    The warning came September 10 in the European Securities and Markets Authority's twice-yearly Trends, Risks and Vulnerabilities report, which included a dedicated in-depth analysis of prediction markets for the first time. ESMA's conclusion was direct: "the marketing and sale of event contracts in the EU generally requires an EU authorization, which the largest prediction market platforms currently do not hold."

    The report does not announce an immediate ban. But by formally placing prediction markets inside its risk monitoring framework and mapping out three separate regulatory tracks under which they could face enforcement, ESMA has handed national supervisors across all 27 EU member states a ready-made legal playbook.

    What ESMA Found — and Why It Matters

    ESMA's Trends, Risks and Vulnerabilities report is the EU's equivalent of a formal regulatory reckoning. When the authority devotes an entire in-depth section to a market segment and identifies specific authorization gaps, national regulators across the bloc take notice.

    The September 2026 edition characterizes prediction markets as a "rapidly growing phenomenon" attracting attention because of their "growing popularity, increasing retail participation, rapid expansion across a broad range of topics, and growing links with new technologies and digital ecosystems, including crypto-assets, DeFi, AI and social media."

    The report named Polymarket and Kalshi specifically as the major global platforms, alongside other U.S.-based operators including PredictIt, Robinhood, DraftKings, and FanDuel — all of which are based outside the EU.

    ESMA characterized the two dominant platforms in legally meaningful terms. Polymarket is identified as "a partially decentralised platform, with on-chain trading and settlement but centralised market governance and administration." Kalshi is identified as "a fully centralised platform regulated by the US CFTC as a Designated Contract Market." That distinction matters: Kalshi's CFTC status offers regulatory legitimacy in the United States, but carries no weight in European jurisdictions.

    Three Regulatory Tracks — All Requiring Authorization

    ESMA laid out three possible frameworks under which event contracts could be classified in the EU:

    MiFID II (financial derivatives): If an event contract qualifies as a financial instrument — for example, a contract tied to a commodity price, interest rate, or equity index — it would be treated as a derivative under the Markets in Financial Instruments Directive. Firms offering such contracts would need MiFID II authorization, and the same contracts would likely fall under existing national binary options restrictions that already prohibit marketing and distribution to retail investors.

    MiCA (crypto-assets): Blockchain-based contracts that do not qualify as financial instruments may instead fall under the Markets in Crypto-Assets regulation. MiCA authorization would be required to market or sell them across the EU.

    National gambling law: Contracts that qualify as neither financial instruments nor crypto-assets could be treated as betting products subject to individual member states' gambling licensing requirements.

    In all three scenarios, ESMA concluded, operating without authorization creates legal exposure. The three-track classification matters because it forecloses any simple escape route — prediction market platforms cannot argue their way out of all three frameworks simultaneously.

    Inconsistent Geo-Blocks That ESMA Says Don't Hold

    Both Polymarket and Kalshi restrict access for users in some, but not all, EU member states. ESMA noted this inconsistency and questioned it directly. It said it is "unclear why all EU member states are not included among the restricted jurisdictions," given the authorization gaps identified.

    The concern goes deeper than geography. ESMA specifically flagged that geographic restrictions do not prevent users from accessing the platforms through virtual private networks, and questioned the effectiveness of VPN enforcement. The implication is clear: partial geo-blocks with known VPN workarounds are not an adequate compliance posture in ESMA's view.

    The Insider Trading Problem ESMA Called "Rife"

    The authorization gap is not ESMA's only concern. The report raised the alarm on market integrity in direct terms: "A growing number of incidents illustrates that prediction markets are rife with insider trading."

    That assessment is backed by a documented enforcement record. In April 2026, U.S. Army Master Sergeant Gannon Ken Van Dyke was charged by federal prosecutors and the Commodity Futures Trading Commission with using classified military information to place Polymarket bets on the capture of Venezuelan President Nicolás Maduro, earning more than $400,000. Van Dyke, who prosecutors say was involved in planning and executing the January 3 raid, has pleaded not guilty. Reuters characterized the case as the first time the Justice Department had brought insider trading charges involving a prediction market.

    In May 2026, Reuters reported that a Google software engineer was charged with using insider knowledge of the company's most-searched trends to place Polymarket bets, earning $1.2 million in profits. Both cases illustrate ESMA's concern: on-chain settlement makes post-trade forensics technically tractable, but preventing privileged trading before the fact remains an open challenge.

    On the consumer protection dimension, ESMA's language was equally pointed. "To retail investors, prediction platforms offer speculative gambling environments without the investment protection measures typically associated with regulated financial products when accessed through platforms that are not authorised in the EU," the report stated. It added that platforms' "gamified structure, emotional dynamics and social media-driven promotion expose inexperienced retail investors to significant risks of financial loss, addictive behaviour and exploitation by more sophisticated traders."

    Country-Level Enforcement Already Underway

    While ESMA's report is analytical rather than immediately binding — it shapes national supervisors' enforcement priorities rather than operating as law — enforcement at the country level began well before the report's publication.

    France issued a government order in July 2026 requiring internet service providers to block access to Polymarket, becoming the first major EU economy to take ISP-level action against a prediction market platform. Spain, Belgium, Portugal, the Netherlands, and Poland have each pursued restrictions on one or both platforms. Switzerland, while not an EU member, has moved similarly.

    At the same time, ESMA noted that Malta is actively exploring a regulatory framework that could provide legal authorization for prediction market activity. If Malta succeeds, it could become a European gateway for platforms seeking a compliant EU entry point — similar to how the island became a hub for online gambling licensing.

    The report also noted that traditional exchanges are paying close attention to the sector. Eurex, Euronext, CME Group, CBOE, ICE, and Nasdaq are showing interest through investments, data partnerships, and plans to launch prediction-style contracts linked to financial and macroeconomic indicators. Their potential entry could accelerate pressure for a structured EU regulatory framework.

    The US-EU Divide Gets Wider

    The ESMA report lands at a moment of sharp regulatory divergence between the two largest markets. In the United States, the CFTC has approved Kalshi as a Designated Contract Market, allowing it to operate legally and expand into new product categories. Polymarket has pursued a parallel U.S. path through a CFTC-licensed entity for event contracts. U.S. federal courts have actively weighed in on preemption battles between Kalshi and state gambling regulators, with circuit courts producing conflicting rulings.

    Europe is heading in the opposite direction. Without a unified EU prediction-market framework, the default outcome is fragmentation: national regulators applying existing rules — binary options bans, gambling licensing, MiCA — inconsistently across 27 jurisdictions. ESMA's report essentially acknowledges this fragmented landscape while signaling that the authority views the current situation as unsustainable.

    "Prediction markets do not appear to have gained significant traction in the EU compared with the US," ESMA noted, citing data limitations. But the watchdog added that "continued monitoring" is required as global platforms expand and retail participation grows.

    What This Means for US-Based Platforms

    No platform has been banned across the EU by ESMA directly — the authority does not have enforcement power of that kind. But the TRV report achieves something practically significant: it formally escalates prediction markets from an unmonitored niche to an identified regulatory risk category, with a three-track classification giving national supervisors concrete legal hooks to act.

    Platforms operating in the EU without authorization now face heightened risk: ISP-level blocks, licensing demands, or enforcement under binary options restrictions. The inconsistency ESMA flagged — some EU states restricted, others not, VPN access widely used — is precisely the pattern regulators use to justify cross-border enforcement coordination.

    For U.S.-regulated platforms, the EU situation underscores a fundamental reality: federal CFTC authorization confers legitimacy in the American market, but provides no protection against European regulators who operate under entirely separate legal frameworks. The question of whether to seek EU authorization, partner with Malta or another licensing jurisdiction, or geo-block the entire bloc will become increasingly urgent as ESMA's guidance filters into national enforcement actions.

    Frequently Asked Questions

    Are Polymarket and Kalshi banned in Europe? Not entirely, but increasingly restricted. Both platforms block users in some EU countries already. ESMA's September 2026 report found they lack the authorization generally required to market event contracts across the EU, and noted that restrictions fail to prevent VPN-based access. France has issued an ISP-level block on Polymarket. Spain, Belgium, Portugal, the Netherlands, and Poland have pursued additional restrictions.

    What is ESMA? The European Securities and Markets Authority is the EU's primary financial markets regulator, based in Paris. It supervises specific segments of EU capital markets and sets standards that national regulators across all 27 member states follow. Its twice-yearly Trends, Risks and Vulnerabilities reports shape enforcement priorities across the bloc.

    What happens to EU users currently trading on prediction markets? EU users are not facing immediate account closures as a result of ESMA's report. But the report increases the likelihood that individual member states will take further action — through ISP blocks, enforcement orders, or licensing demands — that could restrict access for EU residents. Users accessing platforms via VPN in restricted jurisdictions face unresolved legal exposure under national rules.

    Would prediction markets need EU licenses, and could they get them? Yes, under ESMA's analysis. The specific license required depends on how each contract type is classified: MiFID II authorization for contracts qualifying as financial instruments, MiCA registration for tokenized contracts, or national gambling licenses otherwise. Malta is exploring a framework that could provide a compliant EU pathway. No major prediction market platform currently holds the relevant EU authorization.

    How does the European approach differ from the US approach? Sharply. In the United States, the CFTC has approved Kalshi as a Designated Contract Market and oversees event contract trading under a unified federal framework. In Europe, no equivalent unified framework exists. Existing EU rules — MiFID II, MiCA, national gambling statutes — were not designed for prediction markets, and ESMA is now mapping how they apply. The result is a patchwork of 27 national enforcement regimes applying different rules to the same platforms.

    Track live prediction market odds at PredictionMarkets.US — live prices from Kalshi, Polymarket, and PredictIt updated in real time.

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