ESMA Says EU Retail Ban Covers Many Prediction Markets, With MiCA Awaiting the Tokenized Ones
Europe’s top securities regulator, the European Securities and Markets Authority (ESMA), issued a public statement on July 3 clarifying how existing EU law applies to event contracts used in prediction markets. ESMA concluded that many of these contracts are not a novel product requiring new rules but already fall under existing measures, specifically the ban on binary options for retail investors that has been in effect since 2018.
ESMA’s reasoning is that event contracts whose underlying question relates to an asset listed in certain categories of MiFID II qualify as financial instruments. When a contract qualifies, it classifies as a derivative and, given its binary outcome, falls within the scope of national product intervention measures that prohibit marketing, distribution, or sale to retail clients. These measures were made permanent by member-state regulators after ESMA’s temporary intervention in 2018.
Notably, ESMA also noted that event contracts that are tokenized and do not qualify as financial instruments may instead fall under the EU’s Markets in Crypto-Assets (MiCA) framework, which carries its own authorization and disclosure requirements. Some event contracts could also fall under national gambling law, depending on how a given member state treats them.
As ATH21 chief executive Cris Carrascosa noted, the statement is less a new restriction than a reminder of existing law’s reach. The real difficulty for firms lies in the upfront, case-by-case analysis of a product’s actual characteristics rather than its label.
For platforms with European ambitions, such as Kalshi and Polymarket, ESMA has narrowed the options to restructuring products so they fall outside financial-instrument classification, obtaining MiFID II authorization, or accepting that the EU retail market stays closed unless further compliance moves are made.