The European Securities and Markets Authority (ESMA) recently highlighted significant risks in prediction markets, specifically citing insider trading, market manipulation, and potential harm to retail investors. The regulator dedicated a specific chapter to this sector in its latest risk monitor, noting that these platforms are currently rife with illicit activity.
ESMA pointed to three specific incidents to illustrate these concerns. These include a case involving $2,4 million in bets related to Iran, a Polymarket profit case involving a U.S. Army master sergeant who earned $400 000, and a police complaint filed by Météo-France regarding sensor tampering. The regulator argues that platform responses to such events remain largely reactive.
Despite these concerns, trading volumes have grown significantly. ESMA reported quarterly volumes of $8,8 billion for Kalshi and $12 billion for Polymarket as of late 2025 and early 2026. By June, combined monthly volumes reached $44,8 billion, with Kalshi accounting for $31,5 billion of that total, largely driven by sports betting.
In the EU, prediction markets face strict regulatory hurdles. Under MiFID II and MiCA, event contracts are often classified as financial derivatives, which effectively bans their sale to retail investors. While platforms like Kalshi and Polymarket restrict some EU users, ESMA noted that the effectiveness of these bans remains unclear, with only Malta currently drafting a specific framework.
