Polymarket wants Europe to see prediction markets as finance, not gambling.

Polymarket is taking its European expansion effort into a new phase, arguing that its prediction markets should be regulated as financial products rather than as gambling services.

The company has been engaging with regulators in Brussels and London as it seeks a regulatory framework that would allow it to expand more widely across Europe. According to the Financial Times, Polymarket has been in discussions with the European Securities and Markets Authority (ESMA), the European Commission, the UK’s Financial Conduct Authority and other national regulators.

The distinction may sound technical, but it could determine whether prediction markets become a mainstream part of Europe’s online betting and financial ecosystem — or remain heavily restricted across the continent.

For Polymarket, the argument is straightforward: users are not simply placing traditional bets against a bookmaker. They are buying and selling contracts linked to the outcome of future events, with prices moving according to supply and demand.

That structure, the company argues, looks much more like a financial derivative than a conventional sportsbook bet.

European regulators are not necessarily convinced.

A different kind of betting market

Prediction markets have grown rapidly over the past few years, helped by platforms such as Polymarket and its US rival Kalshi.

Instead of offering traditional fixed odds, these platforms create markets around specific future events.

A contract might ask whether a particular candidate will win an election, whether a central bank will change interest rates, whether a sports team will win a championship or whether an economic indicator will reach a certain level.

Users then trade positions on the possible outcomes.

On Polymarket, for example, contracts can be bought and sold at prices that broadly represent the market’s perceived probability of an outcome. A contract trading at $0.60 can be interpreted as the market assigning roughly a 60% probability to that outcome, although the price is ultimately determined by trading activity.

That mechanism is one of the reasons the company believes its products have more in common with financial markets than traditional gambling.

But from a regulator’s perspective, the distinction is not necessarily so clear.

The underlying question is whether the contract is an investment instrument, a gambling product or potentially both.

ESMA has already addressed the issue this year.

In July, the EU’s securities regulator warned firms that some event contracts can qualify as financial instruments and therefore fall under existing European restrictions on binary options. ESMA also noted that the same contracts may qualify as bets under national gambling legislation, depending on the event and the applicable national rules.

That creates a complicated regulatory landscape for companies such as Polymarket.

Why MiFID matters

Polymarket’s preferred route would effectively move its products into the European financial-services framework.

The company has argued that its contracts could fall under the Markets in Financial Instruments Directive, better known as MiFID.

That would be a major shift.

Instead of approaching every European market primarily through gambling legislation, Polymarket could seek authorization as a financial-services business and operate within the regulatory structure that governs investment firms and financial instruments.

There is, however, an important complication.

Getting classified as a financial product would not automatically mean that Polymarket could freely offer its contracts to European retail customers.

ESMA’s July statement makes clear that event contracts qualifying as financial instruments can fall within existing national measures restricting binary options for retail investors. Firms distributing such products may also require authorization as investment firms.

In other words, changing the regulatory category would not necessarily remove the barriers.

It could simply move the debate from gambling regulators to financial regulators.

Europe is already taking different approaches

The regulatory environment has become increasingly fragmented.

Several European jurisdictions have taken action against prediction-market platforms, while others are still working out how existing legislation applies to them.

France, for example, has moved to block Polymarket, while regulators in other countries have also questioned whether the company’s products can be offered legally without a local gambling authorization.

At the same time, the EU does not have a single gambling regulator. Gambling remains largely a matter for individual member states.

Financial regulation is different.

MiFID provides a much more harmonized framework across the European Union, which is one reason classification as a financial service would be strategically valuable for Polymarket.

The company would still face significant requirements, but it would potentially have a clearer regulatory route into multiple European markets.

That is precisely why the debate has attracted attention from both the gambling and financial industries.

Regulators have another concern: insider trading

There is also a more fundamental issue surrounding prediction markets.

If an event contract is treated as a financial instrument, regulators have to consider the same types of market-integrity risks that exist elsewhere in financial markets.

ESMA has already raised concerns about the potential for insider trading in prediction markets.

That risk is particularly relevant when contracts are based on events involving governments, companies or other organizations where some individuals may have access to information before the public does.

Imagine, for example, a prediction market based on whether a company will announce a major acquisition.

An employee who knows that the deal has already been approved could potentially have an information advantage over other traders.

The same problem could arise around political decisions, central-bank announcements or other events where information is concentrated among a relatively small group of people.

The more prediction markets resemble financial markets, the more regulators are likely to ask whether they should be subject to financial-market rules designed to address exactly these situations.

The gambling industry is watching closely

For the iGaming sector, Polymarket’s strategy could have consequences well beyond the company itself.

Traditional bookmakers operate under national gambling licences and are subject to requirements covering responsible gambling, advertising, customer protection, anti-money-laundering procedures and other controls.

Prediction markets introduce a different model.

The platform does not necessarily set the odds in the same way as a traditional bookmaker. Instead, users trade contracts against one another and prices change as the market develops.

That difference could create a new competitive category between gambling and financial trading.

If regulators allow prediction markets to operate under financial-services rules, traditional gambling operators could find themselves competing with companies that are subject to a different regulatory framework while offering products that appeal to some of the same consumers.

That is one reason the issue is attracting increasing attention within the European gaming industry.

Polymarket’s European ambitions are growing

The regulatory push comes as Polymarket’s ambitions expand well beyond its original crypto-focused prediction-market model.

The company has been valued at more than $20 billion and has become one of the most prominent names in the rapidly developing prediction-markets sector.

Its growth has also coincided with increasing mainstream interest in markets that allow people to trade on real-world events.

The appeal is easy to understand.

A prediction market turns an uncertain future event into a continuously updated price. That price can then be interpreted as a real-time measure of what market participants collectively expect to happen.

The concept has applications far beyond politics or sports. Markets can theoretically be built around economic data, weather, corporate events and other measurable outcomes.

That broad potential is part of what makes the regulatory question so important.

Europe has a decision to make

Polymarket’s lobbying effort ultimately puts a much larger question in front of European regulators.

Should prediction markets be treated primarily as a new form of betting, with the protections and restrictions associated with gambling?

Or should at least some of them be considered financial instruments, subject to securities regulation and market-conduct rules?

There may not be a single answer.

ESMA has already indicated that the classification can depend on the specific characteristics of an event contract. Some products may fall within financial regulation, while others may also qualify as gambling under national law.

That means Europe’s eventual framework could be more nuanced than simply choosing between “gambling” and “finance”.

For Polymarket, however, the direction of travel matters enormously.

A successful financial-services route could give the company a path into European markets that have so far been difficult to access through gambling legislation. A regulatory rejection, on the other hand, would leave the company facing a much more fragmented landscape of national rules, licences and restrictions.

Either way, prediction markets are no longer a niche experiment.

They are becoming a serious regulatory question for both the financial and gambling industries — and Europe’s answer could help determine how the sector develops over the next few years.

Sources: Financial Times, Reuters reporting on prediction markets, European Securities and Markets Authority (ESMA), European Gaming and DLA Piper.