Prediction Markets and Recent EU Regulatory Developments

We wish to inform you of recent regulatory developments regarding prediction markets and their treatment under the EU financial services regulatory framework, especially the increasing scrutiny these products are receiving across the European Union.

Prediction Markets

Prediction markets are platforms that allow participants to trade contracts whose value depends on the outcome of a future event, such as political elections, sporting results, macroeconomic indicators, interest rate decisions, stock market movements, or other real-world events. These markets have experienced significant growth globally, particularly in the United States.

Unlike the United States, the European Union has not introduced a dedicated regulatory framework for prediction markets. Instead, the regulatory analysis is conducted under existing legislation, primarily the MiFID II, MiCA, and, where applicable, national gambling laws.

Prediction Market Products as Financial Instruments

The current position under EU law is that prediction markets are not expressly regulated as a separate category of financial products. The key legal question is whether a particular prediction market product constitutes a financial instrument under MiFID II, particularly where the prediction market product is structured as a derivative referencing financial variables such as interest rates, currencies, commodities, financial indices or similar underlying.

The assessment is fact-specific and depends on the legal and economic characteristics of each product rather than its commercial description.

The strongest argument for MiFID II classification arises where:

  • the contract provides a binary or fixed payout based on the occurrence of a future event; and
  • the outcome relates to a financial underlying, such as an interest rate, currency, commodity, inflation measure, financial index or other financial variable.

In previous guidance concerning binary options, the European Commission confirmed that cash-settled binary products may constitute derivative financial instruments. ESMA has similarly characterised binary options as cash-settled derivatives whose payoff depends on whether specified events occur.

ESMA’s recent clarifications

On 3 July 2026, ESMA published a Public Statement clarifying that certain prediction market products may qualify as financial instruments and, where they exhibit the characteristics of binary options, may also fall within the scope of existing national product intervention measures restricting their distribution to retail clients.

In accordance with the said Public Statement:

  • Event contracts are agreements whose financial outcome is binary (a fixed payout or no payout at all) and depends on a yes-or-no answer to a question about a future event. 
  • Not all event contracts are financial instruments. Only event contracts with an event question related to an underlying mentioned in Section C(4) to (10) of Annex I of MiFID II classify as financial instruments.
  • Event contracts qualifying as financial instruments are derivatives and fall within the scope of the temporary product intervention measures on binary options which were initially adopted by ESMA Decision (EU) 2018/7952 and which were subsequently replaced by permanent national product intervention measures mirroring the ESMA temporary measures.
  • This means that the marketing, distribution or sale to retail clients of event contracts that meet the definition of financial instruments is prohibited.

ESMA highlighted that firms must assess whether these products qualify as financial instruments and whether they fall within existing product intervention measures relating to binary options.

Although the statement does not introduce new legislation, it reinforces the application of the existing MiFID II/MiFIR framework and signals increased regulatory scrutiny across the EU.

Overall European regulatory trend

In July 2026, France’s gambling regulator (“ANJ”) ordered access restrictions against Polymarket, one of the main prediction markets’ platforms in the US, citing concerns that the platform was offering unauthorized gambling products to French users. Various other European jurisdictions have similarly restricted or challenged prediction market operators.

The overall European regulatory trend appears to be moving towards greater scrutiny and enforcement, rather than the creation of a bespoke framework for prediction markets. Although prediction markets are not regulated as a standalone product category in the EU, firms should not assume they fall outside the regulatory perimeter.

Before offering or facilitating access to such products, firms should undertake a documented legal and regulatory assessment to determine whether MiFID II, MiFIR, MiCA and/or national gambling legislation may apply.

Implications for CIFs

Where a prediction market product is classified as a financial instrument, firms may be subject to the full MiFID II regime, including licensing, conduct of business, product governance, investor protection and other regulatory obligations.

Furthermore, ESMA’s long-standing product intervention measures on binary options remain particularly relevant. As aforementioned, where a prediction market contract is classified as a binary option, retail distribution may be prohibited.

Products that fall outside MiFID II may still be subject to MiCA or applicable national gambling legislation, depending on their structure and the jurisdiction in which they are offered.

Recent developments demonstrate an increasingly active enforcement environment. For CIFs, these developments are particularly relevant given CySEC’s continued alignment with ESMA’s supervisory approach.

For further information or assistance, please do not hesitate to contact us.