Prediction Markets Like Kalshi and Polymarket Could Fall Under EU Ban on Binary Options
The European Securities and Markets Authority (ESMA) has clarified that certain contracts on prediction markets may fall under the EU-wide ban on binary options. The regulator is warning providers against marketing, distributing or selling yes/no event contracts to retail clients if they qualify as financial instruments. “This means that the marketing, distribution or sale to retail clients of event contracts that meet the definition of financial instruments is prohibited,” ESMA said in a statement.
The focus is on contracts with a binary payout structure – typically a fixed amount or nothing – whose outcome depends on the result of a future event. This is exactly the principle behind major prediction market platforms such as Polymarket and Kalshi, where users can bet on the outcome of elections, sporting events or economic data.
Product Label Is Irrelevant
ESMA makes clear that a product’s commercial name plays no role in its legal classification. A product sold as an “event contract” can still be a financial instrument within the meaning of the MiFID II directive if its underlying falls within the derivatives categories defined there. Event contracts that qualify as financial instruments are derivatives, ESMA said – and therefore fall within the scope of national product intervention measures for binary options.
Additional features don’t change this either: a coupon, reward or interest-like payment on user funds does not alter the product’s binary structure, according to ESMA. Firms must assess the legal classification based on the product’s features and functioning, not its commercial name.
The restriction is not limited to retail-facing platforms: firms offering investment services linked to these products in the EU require MiFID II authorization, ESMA said – even if the offering is limited to professional clients. Event contracts may also fall under national gambling laws or – if tokenized and not classified as financial instruments – under the EU’s Markets in Crypto-Assets (MiCA) framework.
Billion-Dollar Valuations Despite Regulatory Pressure
The warning comes at a time when prediction markets are expanding rapidly across both the crypto sector and traditional finance. Kalshi was valued at $22 billion in its latest funding round, and Jump Trading has taken small stakes in Kalshi and Polymarket in exchange for providing liquidity. As the lines between exchanges, brokerages and sportsbooks increasingly blur, both platforms are now also being discussed as potential M&A targets.
Numerous European Countries Have Already Blocked Access
Several European countries had already moved against prediction markets before ESMA’s clarification – mostly on the basis of national gambling laws. Switzerland’s gambling supervisory authority added Polymarket.com to its block list back in November 2024, and shortly afterwards France’s gambling regulator ANJ reached an agreement with the platform to geo-block users in France. In early 2025, Polymarket landed on the gambling blacklists of Poland’s Ministry of Finance, and in February 2025 Belgium’s Gaming Commission banned the platform. Hungary and Portugal have also blocked or restricted access, with Portugal’s regulator SRIJ ordering a nationwide ban in March 2026 and requiring local internet service providers to block the platform. In Bulgaria, a Sofia court likewise ordered internet providers to block access in February 2026, and Spain blocked the platform in May 2026 over its lack of a gambling license. According to Polymarket’s own overview, trading is also prohibited in Germany and restricted in Italy.
ESMA’s clarification could now add an EU-wide financial market dimension to this patchwork of national measures: instead of relying solely on gambling law, regulators could in future also take action against the platforms under the binary options ban.
