Europe’s top markets watchdog has fired a warning shot at the booming world of prediction markets, declaring in a new risk report that the sector is “rife with inside trading.” The blunt asse
Europe’s top markets watchdog has fired a warning shot at the booming world of prediction markets, declaring in a new risk report that the sector is “rife with inside trading.” The blunt assessment from the European Securities and Markets Authority puts a regulatory spotlight on platforms like Polymarket and Kalshi, even as the regulator admits it cannot yet measure how many Europeans are actually betting.
The line lands hard. On printed page 51 of its TRV Risk Monitor No. 2, 2026, published on 10 September 2026, ESMA states that “a growing number of incidents illustrates that prediction markets are rife with inside trading.” For related coverage, see ChangeNOW API 2026: What It Offers, Who Uses It, and Whether It Delivers.
Read that carefully. This is a regulator’s risk assessment, not a court verdict. ESMA is flagging a pattern it finds worrying, not quantifying an exact incidence rate or ruling that any specific platform or trader broke the law. For related coverage, see Blockstream Refuses Ransom Over $47M Liquid Bitcoin Hack.
The prediction-markets analysis runs across printed pages 49 to 52 of the report, a rare deep dive from an EU authority into a sector that has largely grown up in the United States.
ESMA also concedes the tools to fight the problem are blunt. It says monitoring and account-freezing measures are largely reactive, because investigations often begin only after events occur and profits have already been realised.
The worry is structural. Prediction markets let people bet on real-world outcomes, from elections to geopolitical flashpoints, and anyone with non-public knowledge of that outcome holds an obvious edge.
ESMA points to real drama to make the case. According to unconfirmed reports cited in the report, newly created wallets generated around USD 1.2 million before the February 2026 Iran strikes, with the regulator flagging suspicious timing rather than proven misconduct.
The United States has already seen the sharper end of this. NPR reported in April 2026 that U.S. prosecutors charged Army soldier Gannon Ken Van Dyke over the alleged use of classified information to trade on Maduro’s removal, an allegation, not a conviction.
Polymarket has pushed back on the broader narrative before. Chief legal officer Neal Kumar (@HereComesKumar) noted that the Maduro betting case actually showed users can be identified when the platform cooperates with federal investigators, a response to that April case rather than to ESMA’s September report.
Where does the money actually flow? ESMA’s data offers a snapshot. Sports accounted for 73% of identified Kalshi trading activity in the historical dataset it cites, as of 25 November 2025.
Kalshi: sports share of identified trading activity 73% Sports accounted for 73% of identified Kalshi trading activity in the historical dataset cited by ESMA, as of 25 November 2025. These data mainly reflect global activity and cannot establish EU retail participation or the incidence of inside trading. Source: ESMA, TRV Risk Monitor No. 2, 2026, published 10 September 2026.Polymarket’s mix skews political. Politics made up 29% of its trading activity in the dataset ESMA cites, as of 31 January 2026, followed by sports at 19% and crypto at 15%.
Polymarket: politics share of trading activity 29% Politics accounted for 29% of Polymarket trading activity in the historical dataset cited by ESMA, as of 31 January 2026. These data mainly reflect global activity and cannot establish EU retail participation or the incidence of inside trading. Source: ESMA, TRV Risk Monitor No. 2, 2026, published 10 September 2026.ESMA is careful about what those numbers prove. It says the figures mainly reflect global activity and do not permit an assessment of EU retail participation, adding that prediction markets do not appear to have gained significant traction in the bloc.
And the regulator refuses to paint the whole sector black. It recognizes potential informational and analytical benefits, including continuously updated market expectations, forecasting, sentiment analysis and the assessment of macroeconomic uncertainty. That is the tension competitors missed: a hard integrity warning sitting right next to acknowledged usefulness.
Here is where the legal ground gets murky. ESMA says event contracts can fall under different regimes depending on their design: MiFID II, MiCA when they are DLT-based and not financial instruments, or national gambling law.
The perimeter is narrow. Footnote 66 specifies that only event questions tied to underlyings in MiFID II Annex I Section C(4) to (10) count as financial instruments, meaning the Market Abuse Regulation can bite only inside that boundary.
For contracts that do qualify, the hammer already exists. ESMA says such event contracts would generally be derivatives subject to national binary-options intervention measures that prohibit their marketing, distribution and sale to retail investors, tracing those rules back to temporary ESMA Decision (EU) 2018/795.
Enforcement across borders is another open question. ESMA notes that Kalshi and Polymarket restrict orders from some, but not all, EU countries, and it questions how effective their VPN prohibitions really are in practice.
None of this is a new ban. There is no fresh EU-wide rule, no announced investigation, and no enforcement judgment attached to the report, only a risk assessment with teeth in its language. It sits alongside a broader regulatory push on event trading, echoing debates over Kalshi’s bid to launch single-stock perpetual futures in the United States.
Regulators are also sharpening their enforcement incentives elsewhere, with the CFTC recently moving to guarantee larger whistleblower awards for smaller cases, a sign that market-integrity concerns are cutting across jurisdictions. As mainstream platforms including Coinbase push deeper into broader trading, the pressure to define where prediction markets legally sit is only building.
So the real question ESMA leaves hanging: if the profits are already gone by the time investigators arrive, can any watchdog actually stay ahead of the bettors who know the answer first?
Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Cryptocurrency and digital asset markets carry significant risk. Always do your own research before making decisions.
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