EU watchdog ESMA warns prediction markets pose manipulation and insider trading risks
The European Securities and Markets Authority (ESMA) warned Thursday that prediction markets carry heightened risks of market manipulation and insider trading. The EU securities regulator flagged the potential for an abrupt market correction in its latest assessment of digital asset risks. ESMA also noted crypto integration could pose systemic risks to traditional finance, naming prediction markets alongside tokenized equities and DeFi exploits as areas of concern.
ESMA's fraud warning is part of the same risk report in which it declared Polymarket and Kalshi lack EU authorization, showing the regulator is attacking on two fronts at once. European banking partners will now price both legal exclusion and market integrity risk into any deal with prediction market platforms. The insider trading framing gives national supervisors cover to launch their own probes beyond ESMA's central guidance.
Polymarket and Kalshi must decide whether to commit to a lengthy MiFID II authorization track while fighting US state litigation on a third front. Each new EU jurisdiction that adopts ESMA's skepticism shrinks the stable ground where either platform can operate without border-by-border legal defense. A UK opening would concentrate European exposure in one regulator, but ESMA's fraud framing could cross the Channel and reverse British momentum.