On 16 July the president of France’s regulator l’Autorité Nationale des Jeux, ANJ, ordered the country’s internet service providers to block access to Polymarket, the best known of the prediction market platforms. The site, the regulator said, promotes illegal gambling services to a particularly large audience: 578,751 visits and 205,057 unique visitors in June alone.
The order was less a bolt from the blue than the closing act of a long correspondence. The ANJ has had its eye on Adventure One QSS Inc, Polymarket’s operating company, since November 2024, when it judged that the platform’s services could amount to an unauthorised gambling offering.
A formal notice followed, after which the company geoblocked financial transactions from French territory – a measure that, the regulator noted, was circumvented in practice. In February of this year the authority reiterated that prediction sites are designated as illegal in France, warning that they display addictive features similar to those of regulated gambling, amplified by the absence of the legal market’s protective mechanisms.
What tipped warnings into enforcement was integrity. Some bets on the platform appeared to be rigged: wagers on the weather suggested that weather sensors may have been hacked. On 4 May the cybercrime unit of the Paris Public Prosecutor’s Office opened an investigation, entrusted to France’s Office for Combating Cybercrime, which found that the Polymarket platforms available to French and European users had no know-your-customer system to verify users’ identities.
With the site’s homepage broadcasting real-time odds – itself, in the ANJ’s reading, promotion of unauthorised gambling, a criminal offence carrying a €100,000 fine – the regulator reached for a power it exercises routinely, having blocked 1,290 URLs in 2025 alone.
France has plenty of company. By the ANJ’s own count, Germany, Belgium, Romania, Switzerland, Poland, the Netherlands, Greece, Italy, Portugal, Spain, Ukraine and the Czech Republic have all restricted or blocked prediction markets. When iGB asked in March whether prediction markets could crack Europe’s regulatory block, the tentative conclusion was that the continent’s gambling regulators would keep treating them as unlicensed betting. What has changed since is that Europe’s financial regulator has joined the fray – and from an unexpected direction.
The other regulator in Paris
In the United States, prediction markets have flourished by wrapping themselves in federal financial regulation, a shield against state gambling authorities. On 3 July the European Securities and Markets Authority (ESMA) demonstrated that in Europe the same logic cuts the other way. The EU markets regulator issued a statement reminding firms of their obligation to assess whether newly offered products fall within the scope of existing product intervention measures on binary options.
Event contracts – products with a binary payout hinging on a yes-or-no question about a future event – may qualify as financial instruments depending on the question asked. Where they do, they are derivatives, and being binary, they fall within the national bans on marketing, distributing or selling binary options to retail clients that have been in place since 2018. Distributing such contracts in the EU, ESMA added, requires authorisation as an investment firm even where clients are not retail.
Wulf Hambach, a partner at German law firm Hambach & Hambach, speaking to iGB, says that the statement’s reach is defined by MiFID II, the EU’s markets directive. Where an event question references underlyings listed in Annex I, Section C(4)-C(10) – interest rates, currencies, commodities, emission allowances, inflation rates or climate variables – the contract is a derivative.
That concretely captures yes/no markets on equity indices, FX pairs, rate decisions, inflation prints and commodity prices. Running such contracts, he notes: “requires a full MiFID II investment firm licence and restricted distribution to professional clients only”.
Ismail Vali, founder and former chief executive of Yield Sec and now president of Gaming Compliance International (GCI), argues that the significance goes beyond any single product category. “Prediction markets have grown by presenting themselves as a universal marketplace for tradeable uncertainty: sports, politics, crypto, macroeconomics, war, culture, entertainment and finance. ESMA’s clarification starts to break that universality apart,” he tells iGB.
A contract asking whether bitcoin will trade above a given level by Friday, he adds, “looks much less like gambling innovation and much more like a binary financial product”.
Old rules, new teeth
Vali does not expect the statement to gather dust. “The important point is that ESMA is not creating a new rule. It is reminding firms that existing rules already apply,” he says. “That is often the point at which enforcement becomes more likely, because regulators no longer need to wait for new legislation, new interpretations or additional regulatory guidance before acting.”
Hambach agrees that the machinery is already built. “ESMA’s statement may give local authorities a clear enforcement hook, and the enforcement may come fast,” he says, pointing out that because the binary options ban dates from 2018, national regulators have the processes and tools in place and “the enforcement risk is now imminent”.
ESMA has also stressed that commercial labels are irrelevant: only a product’s legal and economic characteristics matter. Vali puts the principle more bluntly: “If a product functions as a financial instrument, it should not avoid financial regulation by calling itself a prediction market. If it functions as gambling, it should not avoid gambling regulation by calling itself a financial product.”
Nor does the EU’s crypto regime offer a way out. Tokenised contracts that meet the MiFID II definition of a financial instrument are excluded from MiCA, Hambach explains, tokens tied to non-financial events such as sports, elections or cultural outcomes may qualify as “other crypto-assets”, but operators would then face MiCA authorisation as crypto-asset service providers once the transitional period ends this month.
“From a legal perspective, MiCA is not an escape hatch for binary financial event contracts,” he says. Vali is sceptical: “For many operators, MiCA may be another door that looks open from a distance but narrows quickly once the actual product is analysed.”
Gibraltar’s opening move
Ten days after ESMA’s statement, Gibraltar chose a different answer to the classification puzzle: write a rulebook of one’s own. On 13 July the government published regulations under its Gambling Act 2025, establishing prediction markets as a distinct licensable category. In minister Nigel Feetham’s words, “the first dedicated framework of its kind anywhere in the world”.
The 24-page regime requires every event contract to be certified by the Gambling Authority, obliges operators to police market manipulation and insider dealing, and prohibits contracts on criminal conduct, death, terrorism or war. Two licensees, ADI Predictstreet and America’s WagerWire, are already in the fold.
Yet ESMA’s clarification shapes what a Gibraltar or Malta licence can actually deliver in Europe. “Binary event contracts tied to MiFID II underlyings are derivatives and caught by the retail binary-options ban, regardless of gambling or MiCA licences,” says Hambach. Strip out the financial contracts and what remains is largely sport – which invites an awkward question. “A sports-only prediction market starts to look much less like a new financial innovation and much more like a betting exchange by another name,” says Vali.
Sports demand is large, he concedes, but such a product “cannot credibly claim to be outside the gambling marketplace simply because it uses the language of contracts, markets or probability”. In Germany, Hambach notes, whether a sports prediction market is licensable at all depends on its concrete structure under the Interstate Treaty on Gambling – and the gambling authority has already warned publicly against Polymarket.
Shield in America, ban in Europe
The transatlantic contrast is now stark. In America, operators have characterised event contracts as futures or swaps under the Commodity Exchange Act to claim that federal law overrides state gambling law. In Europe, the financial classification triggers a retail ban.
Vali argues the American arrangement has produced a legally advantaged competitor that pulls value from regulated and unregulated betting alike, with platforms taking fees while taxation and consumer protections leak away. His conclusion is that “regulatory arbitrage is not a durable marketplace strategy. The purpose of regulation is not to exclusively regulate regulated operators. The purpose of regulation is to regulate the marketplace.”
For global operators, Hambach’s prognosis is unsentimental: they will need to heavily adjust to local rules – restricting product ranges and obtaining licences – or refrain from markets where neither is possible.
Between the ANJ’s blocklist, ESMA’s reminder and Gibraltar’s rulebook, the era of the borderless prediction market is closing. The question regulators will ask, says Vali, is whether prediction markets deliver better outcomes on consumer protection, integrity, tax and crime. “If they do not, regulators will increasingly treat them not as innovation, but as tax and regulatory leakage.”
Original article: https://igamingbusiness.com/prediction-markets/esma-prediction-markets-free-ride-europe/
