Prediction markets: what are the regulatory consequences for operators?

Prediction markets came to public attention through the US platform Polymarket during the 2024 US presidential election. They let users take a position on whether a future event will occur, in return for a binary payout. In France, the ANJ (Autorité nationale des jeux, the French gambling regulator) treats them as unlicensed gambling. It obtained the geo-blocking of Polymarket in November 2024, then ordered French internet service providers to block all access to the site on 16 July 2026. On 21 August 2026, Polymarket announced that it had brought proceedings before the French courts to challenge the block.

In a statement of 3 July 2026, the European Securities and Markets Authority (ESMA) recalled that some event contracts are financial instruments subject to the rules on derivatives. In the United States, regulators are hardening their stance: on 31 July 2026, the State of New York sued Kalshi, operator of the prediction market of the same name, for running an unlicensed gambling platform, and is seeking disgorgement of unlawful gains, compensation for consumers and a fine equal to three times the profits made. For a founder, the question is therefore no longer only whether the product is a bet or a financial contract, but what to do once that diagnosis has been made.

Prediction market: bet or financial instrument?

How does a prediction market work?

A prediction market lets a user buy a position on whether a future event will occur, in return for a binary payout: a fixed sum if the prediction proves right, nothing if it does not. Take a market asking “Will the European Central Bank cut its key rate before 30 September?”. A “yes” position bought at USD 0.40 pays USD 1 if the cut happens (a gain of USD 0.60) and zero otherwise. The purchase price reflects an implied probability of 40%, and the holder can sell the position at any time on a secondary market.

The mechanics are largely borrowed from financial markets: market makers, an order book, standardised contracts. Blockchain adds two features: positions are recorded as tokens, and settlement takes place in stablecoins.

Sport, economics, elections: three families of contracts

A single platform hosts dozens of markets, each tied to a different event. The same user may take a position on the World Cup final, the next inflation figure, the outcome of an election or the signing of a diplomatic agreement. The legal treatment varies with the nature of the underlying event. The legal analysis therefore bears on the contract itself, not on the platform that hosts it. Confusing the two is a common mistake, understandable given how online platforms work, but a mistake nonetheless. Each market must be assessed line by line, not the platform as a whole.

Depending on the underlying event, three categories emerge.

Sports and entertainment markets cover contracts on the winner of a match, the number of goals scored or the award of a prize such as the Ballon d’Or. By their very nature, these contracts fall under the classic betting regime and find no foothold in MiFID II.

Markets whose underlying is expressly named in the legislation cover contracts on climatic variables, freight rates, inflation rates and other official economic statistics. These underlyings appear in the French Monetary and Financial Code (CMF), provided the contract is settled in cash. The same condition applies to commodity markets, except those involving physical delivery. These contracts are therefore binary options, and thus financial instruments. This is exactly the perimeter ESMA addressed on 3 July 2026.

Markets on election results and geopolitical events remain in a legal grey area. They are the most popular markets (the winner of the next major US election, whether a ceasefire holds, the next call between two heads of state) and the most uncertain in law. Their fate may be decided under French law as much as under EU law, within the residual category of “any other derivative contracts relating to assets, rights, obligations, indices and measures”.

Three cumulative conditions govern the classification.

First, there must be a derivative commitment. EU law does not define “derivative”; it proceeds by enumeration: futures, options, swaps and any other derivative contract. What these mechanisms share is the time gap between conclusion and performance. The event contract matches the binary option, which the AMF General Regulation defines as a contract that, at expiry, pays a predetermined amount or results in the loss of the sum invested, depending on whether a condition is met.

Second, there must be an eligible underlying: an asset, a right, an obligation, an index or a measure.

Third, the contract must have the characteristics of other derivative financial instruments. The delegated regulation supplementing MiFID II sets out alternative tests for this third condition: cash settlement, trading on a trading venue, or standardisation criteria. An event cannot be delivered, so settlement is necessarily monetary or, as the AMF accepts, in crypto-assets; and event contracts are standardised by design. This third condition is therefore met in any case. The real debate is whether the underlying is eligible.

When does an event become a “measure” under MiFID II?

An election result is not an asset, a right or an obligation. It is a fact. As for indices and measures, nothing rules out in principle that a binary quantification (yes/no) qualifies as a measure under MiFID II, provided the occurrence of the event can be established without discretion, by a non-discretionary reference source.

The proclamation of an election result by the competent authority, the publication of an official statistic or the promulgation of a law in the Official Journal all lend themselves to objective resolution. Eligibility becomes harder when the outcome depends on a factual situation that must first be characterised. Deciding whether a ceasefire has been achieved, or whether a press announcement amounts to a major trade agreement between two warring states, requires a judgement on the meaning of the event that sits uneasily with the notion of a “measure”.

In practice, the classification must take place when the market is created, not afterwards. An operator that opens thousands of markets needs a documented screening framework, applied before listing, with a record of each decision. In an inspection, that documentation is what separates the diligent operator from the one in breach.

Can a prediction market operate legally in France?

How can an operator run prediction markets lawfully in France? French law offers only two doors: gambling operator status, or classification as financial instruments. Neither is satisfactory today.

Why the ANJ cannot license a prediction market

Gambling is prohibited in principle, save for activities authorised and supervised by the ANJ. Operating gambling without a licence is a criminal offence punishable by three years’ imprisonment and a fine of EUR 90,000, rising to seven years and EUR 200,000 where committed by an organised group. The natural route, applying for a licence, is closed today for three cumulative reasons.

The first obstacle is the closed list of licences. The Act of 12 May 2010, which opened French online gambling to competition, covered only three activities: sports betting, horse-race betting and poker. There is no licence category for a general-purpose event market.

The second obstacle is structural. The French Internal Security Code (CSI) recognises two betting formats: pool betting (pari-mutuel), where winners share the pool of stakes and the operator remains neutral and disinterested as to the outcome; and fixed-odds betting, where the payout depends on odds set by the operator. A continuous order book, where each user buys or sells at a price they set freely and can close before expiry, fits neither. Betting exchanges, where users bet against each other rather than against the operator, are not permitted in France. Complying would mean abandoning the very logic of the product.

The third obstacle is substantive and concerns the underlying itself. The CSI and the list adopted by the ANJ’s board determine the competitions, phases of play and types of result on which bets may be offered. This stems from the requirements of objectivity, measurable results and the prevention of betting-related offences. Neither elections, nor monetary policy decisions, still less geopolitical events, fall within any permitted category.

A hypothetical gambling licence would therefore legalise only a fraction of a prediction market, and at the cost of rebuilding the business model from scratch. The law is ill-suited on this point. The experimental regime for JONUM (games based on monetisable digital objects; page in French), created by the Act of 21 May 2024, shows that the French legislature can build an ad hoc framework for a model that existing categories cannot accommodate. Useful action therefore lies as much in the institutional arena as in immediate compliance.

Binary options: a route open to professional clients only

The second route requires showing that the contract is a financial instrument. It has one clear advantage: the CMF disapplies the gambling defence in favour of financial contracts. Where the financial classification is established, it prevails over the gambling classification. But the burden of proving it rests on the operator, contract by contract, and raises two distinct difficulties.

The first concerns the product. Event contracts that meet the definition of a binary option are caught by the national measures that made permanent the temporary ban ESMA adopted in 2018. In France, the AMF decision of 2 July 2019 prohibits their marketing, distribution and sale to retail clients, in or from France. This is not a condition of doing business: it is a ban on the product itself. ESMA clarified on 3 July 2026 that adding a “coupon” or “reward” representing interest earned on the funds paid in does not change the binary nature of the contract.

The second concerns the activity. Whether it is offering derivatives or running the infrastructure behind them (order matching, execution, custody of positions and funds), these services are investment services governed by the EU financial framework. Providing them requires authorisation as an investment firm and, where relevant, as a trading venue: a system in which multiple third-party buying and selling interests in financial instruments interact must operate as a regulated market, MTF or OTF. A platform built around an order book therefore calls for a different answer from one that acts as counterparty to every position. That design choice drives the scale of the compliance effort and must be settled from the outset.

Prediction markets today serve an almost exclusively retail clientele, while the vast majority of their contracts qualify as binary options, precisely the product whose distribution to that clientele has been banned in France since 2019. An authorised prediction market is therefore conceivable in Europe, but it would be open to professional clients only. The financial route is not closed like the gambling route. It is simply incompatible with the public that makes up the market today.

Advertising: the interface alone may constitute the offence

On the gambling side, issuing or distributing advertising for prohibited gambling, or contributing to its distribution through intermediaries, agencies or content creators, is punishable by a fine of EUR 100,000, which the court may raise to four times the advertising spend (CSI, art. L. 324-3). This is most likely the basis for the ANJ’s July 2026 blocking order: it relied not on the offer alone, but on the display, on the home page, of the odds attached to events open to betting, as a means of promoting an illegal offer. In other words, the interface itself may amount to advertising.

On the financial side, an investment services provider may not send electronic marketing communications on certain financial contracts not admitted to trading on a regulated market or MTF to clients who may be retail clients.

Stablecoins and client funds: MiCA and payment services

These classifications stack; they do not replace one another. Settling positions in stablecoins and holding client balances trigger separate regimes: authorisation as a crypto-asset service provider (CASP) under MiCA (Regulation (EU) 2023/1114) for custody, exchange or order execution; the requirement that the stablecoin used be issued by an authorised issuer; and payment services or e-money regulation where funds in euros are held. These obligations apply on top of those described above, whichever route is chosen.

To map the rules that apply to your platform before opening it to the French public, contact the firm.

Which obligations apply today?

Neither route is workable as things stand, yet a core set of obligations already applies. Two workstreams are open whatever the classification: anti-money laundering, and the prevention of fraud and market abuse. The CMF covers licensed gambling operators, investment firms and crypto-asset service providers alike.

Identify the client and the source of funds

Onboarding a client requires identifying them and verifying their identity. Connecting a bare wallet, with no named account, is flatly incompatible with this. It was precisely the absence of any user identification mechanism that weighed in the 2026 blocking decision.

Risk classification must then cover the markets as much as the clients. A market indexed to an INSEE statistic does not carry the same risk profile as one on a foreign election. In the latter case, a large position taken by a candidate’s entourage raises a risk of corruption and of exposure to a politically exposed person that a client-only risk map will never detect.

Source of funds is the sharpest point. Funding in stablecoins from a self-hosted wallet makes it structurally opaque. Due diligence then requires blockchain analytics: address scoring, detection of mixers and sanctioned addresses, application of the Travel Rule. The decentralised nature of the platform exempts it from nothing.

To this must be added the full AML/CFT compliance apparatus: appointment of an AML reporting officer and a compliance contact for TRACFIN (the French financial intelligence unit), asset freezing and sanctions screening, suspicious transaction reports, record-keeping, training and audits.

Prevent market abuse and betting-related offences

Two bodies of rules converge on the same goal: preserving market integrity.

On the financial side, the Market Abuse Regulation (MAR) applies to instruments traded on a trading venue: monitoring of orders and transactions, suspicious transaction and order reports, insider lists, personal account dealing policies. The case disclosed by the US Department of Justice on 23 April 2026 shows what is at stake: a US serviceman is being prosecuted for wagering around USD 33,000 on Polymarket contracts about the fate of Nicolás Maduro, using classified information about the capture operation in which he took part, and walking away with nearly USD 410,000. The anomaly was first spotted in the press and on social media after the operation was announced, not by the operator.

Automated monitoring of unusual positions, cross-referencing order concentration and timing relative to the event, would have allowed the operator to identify and report it after the fact. One conceptual difficulty remains: someone with advance knowledge of an INSEE figure or a central bank decision is not an “issuer” insider, and the definition of inside information is calibrated for issuers. Transposing it to event contracts is far from straightforward.

The same logic appears on the ANJ side, in the prevention of betting-related offences and conflicts of interest: detection of unusual stakes and abnormal odds, reporting, and a ban on betting for persons with an interest in the outcome. The risk here is immediate, since an employee, a moderator or a resolution officer can take a position on the very market they administer.

Oracle integrity: securing the resolution source

The investigation opened on 4 May 2026 into suspected hacking of weather sensors used to resolve markets hosted by Polymarket reveals a third risk, specific to the sector: the authenticity and reliability of the oracle. The manipulation vector is neither the price nor the competition, but the resolution source itself. A perfectly measurable underlying still depends on whoever fixes its value. Hence the expected safeguards: redundant sources, resolution rules frozen before the market opens, a dispute procedure, powers of suspension and cancellation, and a log of every resolution.

The question these platforms raise goes beyond the compliance of any one of them. Prediction markets, built on blockchain infrastructure, shift the very object of the derivative contract. Where it used to reference an asset, a price or an index, it now references information itself, and its value derives not from a price but from a probability. The categories of MiFID II, designed for underlyings belonging to the financial or commercial sphere, were not built for this. As volumes grow and these contracts start to be read as signals by public and private decision-makers, the regulatory issue stops being the protection of retail investors and becomes the reliability of an information infrastructure. The European Commission’s consultation on the treatment of prediction contracts, as part of the MiCA review, is the first sign of this. Operators that have documented their classification method, the governance of their resolution sources and their due diligence framework will not only be better placed in an inspection. They will be the only ones able to take a meaningful part in shaping the framework that will govern them.

The firm draws on its dual expertise in financial regulation and online gambling law to provide tailored support. It builds the market catalogue contract by contract, together with the screening framework applied before each listing. From the operator’s flows and technical architecture, it maps the applicable regimes and how they combine (gambling, financial instruments, MiCA, payment services, AML/CFT). It drafts the AML/CFT procedures and resolution rules, and represents the operator before the ANJ and the AMF.

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