The European Securities and Markets Authority (ESMA) issued a public warning on July 3, 2026, stating that many event-based contracts offered by prediction market platforms may already fall under existing EU financial rules. The regulator clarified that if such contracts meet the definition of financial instruments under the Markets in Financial Instruments Directive II (MiFID II), the EU’s 2018 retail restrictions on binary options would automatically apply. This marks a significant clarification rather than a new rule, placing immediate compliance pressure on platforms like Polymarket, Kalshi, and others that have not secured EU licenses.
ESMA’s statement emphasizes that the classification hinges on the contract's structure, not its marketing label. A contract with a binary outcome (yes/no) and a fixed payout risks being deemed a restricted binary option, regardless of whether it is sold as an "event contract" or a prediction market. Once classified as a binary option, the product cannot be marketed, distributed, or sold to retail investors across the European Union. Even professional or institutional clients would require full MiFID II authorization, including compliance controls, disclosures, and ongoing supervision. The warning comes after several European countries took unilateral actions: Spain temporarily blocked Kalshi and Polymarket in May, and gambling regulators from nine nations jointly warned about unlicensed platforms in June. In the US, the regulatory landscape remains a jurisdictional battle between the CFTC and state gambling authorities, with multiple lawsuits and state-level bans now underway.
