The European Securities and Markets Authority, or ESMA, said prediction markets are "rife with inside trading" in a risk monitor that devoted a standalone chapter to the sector.
Three cases highlighted by ESMA
The regulator laid out three episodes. In one, newly created wallets made $1.2 million hours before February's strike on Iran. By May, Bubblemaps had traced nine linked accounts to $2.4 million in Iran-related bets that won 98% of the time.
A second case involved contracts tied to the capture of Venezuelan president Nicolás Maduro. A U.S. Army master sergeant was charged over more than $400,000 in Polymarket profits connected to that outcome.
The third episode came in April, when suspected tampering with the weather sensors used to settle Polymarket contracts led Météo-France to file a police complaint.
ESMA said platform responses are "largely reactive" and tend to begin only after the profits have already been taken. Polymarket chief legal officer Neal Kumar drew a different conclusion from the Maduro case, saying, "It's not anonymous—you will be found just like this guy."
Why the EU has seen limited adoption
Prediction markets have not gained significant traction in the European Union, according to ESMA, and the regulator attributed that to the rules rather than weak demand. Event contracts can qualify as financial instruments under MiFID II, fall under MiCA, or be treated as gambling under national law.
Where those contracts are classified as financial instruments, they are treated as derivatives. National rules that mirror ESMA's intervention on binary options bar them from being sold to retail investors altogether.
Restrictions vary across EU countries
ESMA said Kalshi and Polymarket restrict users in some EU countries, but not all, and added that "it is unclear why all EU Member States are not included." Both platforms ban VPN use, though the report said their "practical effectiveness" is still uncertain. Malta is the only country currently drafting a framework.
Volumes kept climbing after ESMA's data cutoff
Trading volumes rose sharply after the period covered in ESMA's dataset. The report's chart runs through November 2025 for Kalshi and January 2026 for Polymarket, when quarterly volumes stood at $8.8 billion and $12 billion, respectively.
By June, The Block put their combined monthly volume at $44.8 billion for the month, with Kalshi alone accounting for $31.5 billion as the World Cup pulled in bettors. ESMA also said sports represent 73% of Kalshi's volume, while Polymarket volume is spread across politics, sports, and crypto.
Gains are concentrated, most users lose money
ESMA cited a Wall Street Journal finding that 67% of Polymarket gains went to 0.1% of accounts. It also referenced a Bloomberg analysis that found most users lose money.
Washington is taking a different route
The U.S. has moved in the opposite direction. The Commodity Futures Trading Commission has defended its jurisdiction against states and proposed banning war and assassination contracts, while the CFTC and the Securities and Exchange Commission are also bringing crypto perpetuals onshore.
In Washington, the debate is centered more on which contracts should be allowed. At a CFTC roundtable in August, CME's Terry Duffy and Kalshi's Luana Lopes Lara clashed over manipulation.