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European regulators, led by ESMA, have intensified scrutiny of prediction markets by linking them to the EU’s existing ban on binary options. On 3 July, ESMA warned that event contracts could fall under this ban, complicating any future licensing in Europe. Major platforms like Kalshi, Polymarket, and Crypto.com currently operate without EU licenses, with Spain and nine other countries already targeting unlicensed operators. This regulatory push highlights the legal ambiguity around classifying prediction contracts as either gambling products or financial instruments under MiFID II.
For traders, this creates uncertainty in a market that has thrived in the US and offshore. Prediction markets rely on clear regulatory frameworks to function, and Europe’s fragmented approach may deter innovation. The lack of licensed platforms also raises consumer protection concerns, particularly around high-risk products like binary options.
The next steps involve how national regulators interpret MiFID II classifications and whether ESMA will propose a unified framework. Investors should monitor legal challenges from platforms and potential shifts in EU policy as the market evolves.
