ESMA Questions Polymarket and Kalshi EU Access as MiCA and Gambling Rules Collide

By Hassan Shittu

Key highlights:

  • ESMA warned Polymarket and Kalshi may need EU authorization, flagging inconsistent access restrictions and VPN bypass risks
  • Europe is already fragmented: France blocked Polymarket, Spain acted against both, and regulators in Netherlands, Portugal, Belgium, and Poland have pursued restrictions
  • Michigan won a geofencing injunction against Kalshi, a Third/Ninth Circuit split may reach the Supreme Court, and the CFTC opened a Polymarket investigation earlier this year

Prediction markets are facing growing regulatory uncertainty in Europe as regulators determine whether event contracts should be treated as financial instruments, crypto assets, or gambling products.

In a risk report released Thursday, the European Securities and Markets Authority (ESMA) warned that platforms offering such contracts may require authorization to operate in the EU.

The warning comes as European regulators increase scrutiny of the rapidly expanding prediction market industry and assess which rules should apply to platforms operating across the bloc.

Why ESMA is taking a closer look at Polymarket and Kalshi

ESMA’s concern is not simply that Polymarket and Kalshi are offering prediction markets.

The regulator is questioning whether these platforms are applying consistent access restrictions across the EU and whether users in countries where access is restricted can still reach the markets.

ESMA specifically pointed to Polymarket and Kalshi, noting that both platforms restrict access in some EU member states while remaining available in others.

The regulator also raised concerns that users could bypass geographic restrictions through virtual private networks (VPNs), making it harder for platforms to determine where customers are actually located.

The issue becomes more complicated because prediction markets do not fit neatly into a single regulatory category.

Users can trade contracts tied to elections, sports, economic data, and cryptocurrency prices, with contracts generally paying a fixed amount when a specified outcome occurs.

Depending on how a contract is structured, ESMA said it could potentially fall under different EU or national rules.

Some event contracts may qualify as financial instruments under EU securities legislation, while certain blockchain-based contracts could fall within the Markets in Crypto Assets Regulation (MiCA). Other contracts may instead be classified as gambling products, which are primarily governed by individual EU member states.

That distinction has significant consequences for platforms such as Polymarket and Kalshi. If an event contract is considered a financial instrument, the operator could face securities market requirements, including national restrictions that apply to binary options.

ESMA noted that some member states prohibit the marketing and sale of such products to retail investors.

Financial instrument classification could also bring prediction markets under existing market abuse and investor protection rules. That would increase the regulatory obligations for platforms and potentially restrict which contracts they can offer to European retail users.

Gambling classification creates a different set of challenges because gambling regulation remains largely a national matter within the EU. A contract permitted in one member state could therefore face restrictions or require authorization in another.

For Polymarket and Kalshi, the result is a fragmented regulation in which simply making a platform available across Europe does not necessarily mean every contract can be offered under the same rules.

ESMA’s warning suggests regulators are increasingly focused on determining the legal status of individual event contracts and whether platforms have adequate controls to prevent users in restricted jurisdictions from accessing them.

The regulator has also warned about the risks associated with prediction markets, including investor protection concerns and potential market integrity problems linked to speculative trading, insider information, and manipulation.

The key issue for the industry is therefore classification. Until European regulators establish more clearly whether and when prediction contracts qualify as financial instruments, crypto assets, or gambling products, platforms may face different requirements across the bloc and greater uncertainty over how they can expand in the European market.

A fragmented market could complicate expansion

The regulatory pressure is already creating a fragmented market across Europe, making it harder for prediction platforms to operate across multiple jurisdictions.

France ordered internet service providers to block access to Polymarket in July after authorities classified its activities as illegal gambling.

Spain has also taken action against Polymarket and Kalshi, while regulators in the Netherlands, Portugal, Belgium, and Poland have pursued restrictions or enforcement measures.

The patchwork creates a difficult compliance environment because gambling remains largely governed at the national level, while financial and crypto-related activities can trigger EU-wide regulatory requirements.

A platform could therefore face gambling restrictions in one country while its contracts are assessed under financial or crypto rules in another.

That uncertainty could become a significant barrier as prediction markets attempt to expand beyond their existing markets.

Rather than meeting one set of rules across the EU, operators may have to determine how individual regulators classify their contracts and comply with different requirements in each jurisdiction.

Polymarket has signaled its intention to expand further into Europe and recently joined Blockchain for Europe. Its chief legal officer, Neal Kumar, said the company wants to engage with EU policymakers as the regulatory framework develops.

Kalshi is also pursuing international expansion after overtaking Polymarket in trading volume this year. The platform has said it is speaking with regulators across different jurisdictions as it looks to take its U.S.-regulated model overseas.

For both platforms, the regulatory challenge could ultimately determine how quickly they can scale across Europe. If national authorities continue applying different classifications and restrictions, operators may need country-specific licenses, product changes, or access limits rather than a single compliance framework for the region.

Prediction markets face a regulatory crossroads

The regulatory difficulties facing the two companies extend beyond Europe.

In the United States, Kalshi is involved in a growing dispute with state regulators over whether sports-related event contracts should be treated as federally regulated financial derivatives or as gambling products subject to state laws.

Michigan recently won a preliminary injunction requiring Kalshi to maintain geofencing that blocks residents from accessing its sports contracts, while the company faces similar legal challenges in other states.

The dispute has already produced conflicting federal appeals court rulings. The Third Circuit sided with Kalshi in New Jersey, finding that federal commodities law likely preempted the state’s attempt to regulate its sports contracts. 

The Ninth Circuit later reached the opposite conclusion in Nevada, allowing the state to enforce its gambling laws.

The split could ultimately bring the issue before the Supreme Court. New Jersey has already asked the court to review the dispute, while 44 state attorneys general have argued that states should retain authority over sports betting.

Market-integrity concerns are also growing, with cases involving alleged insider trading tied to prediction contracts.

Notably, earlier this year the CFTC opened an investigation into Polymarket.

The UK is taking a different approach as the Financial Conduct Authority is reassessing its restrictive stance as more users turn to overseas prediction platforms. 

This has raised questions about whether regulation could eventually shift to accommodate the growing market.

Source:: ESMA Questions Polymarket and Kalshi EU Access as MiCA and Gambling Rules Collide

Updated: September 11, 2026 at 11:58 am
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