The European Securities and Markets Authority (ESMA) declared on July 3 that event contracts linked to financial instruments under MiFID II are derivatives. This classification subjects such contracts to the EU's retail binary options ban, which has been in force since 2018. Platforms like Polymarket and Kalshi currently lack the necessary MiFID II authorization to operate legally within the European Union.
Regulatory pressure is mounting across Europe. Spain’s DGOJ blocked access to these platforms around May 26, while France’s ANJ implemented ISP-level blocking for Polymarket around July 17. Additionally, nine European gambling regulators issued a joint warning on June 19 against unlicensed prediction markets. Further restrictions have been introduced in Belgium, the Netherlands, the Czech Republic, Romania, and Portugal.
An ESMA risk report from September 10 highlighted concerns regarding insider trading and market exploitation on unauthorized platforms. Currently, there are no licensed prediction market operations in the EU. While non-financial contracts might fall under national gambling laws or the MiCA framework, platforms face significant hurdles in aligning their decentralized or US-centric models with EU financial regulations.
Obtaining MiFID II authorization remains a complex challenge that could take over a year. Companies must navigate both EU-level financial frameworks and diverse national gambling regulations. Investors are now observing whether any platform will attempt to secure formal authorization, which would establish a critical precedent for the future of these hybrid instruments in the European market.
