Prediction Markets
Polymarket reportedly launched lobbying efforts with European and UK regulators to have prediction markets treated as financial services rather than gambling, arguing its event contracts are financial derivatives that should fall under financial-services regulation rather than national gambling laws.
The issue is comparable to ongoing USA litigation between the CFTC and State gaming regulators over whether such contracts constitute Federal regulated financial derivatives or State-regulated gaming. In the EU, financial-services regulation is largely harmonised, with licenses providing EU-wide passporting rights, unlike the unharmonized nature of gambling.
Currently, operating in European markets is a very challenging endeavour for operators. Several jurisdictions have taken a restrictive approach, with many issuing bans through gaming regulators. Concurrently, ESMA issued a statement last July, reminding firms to assess whether event contracts fall within existing prohibitions on binary options, a financial instrument prohibited for retail customers.
At its core, prediction markets present a deceptively simple question: when users buy or sell contracts on future events, are they betting or trading financial instruments?
This question is particularly relevant in Malta, given its expertise in online gaming and financial services, each comprising key economic pillars. The MFSA issued a circular in August, echoing ESMA’s statement, while the MGA has publicly stated it is licensing the model.
Malta’s politicians have voiced ambitions for success, together with a potential legal framework that would provide regulatory clarity. Malta is in an interesting position and at a crossroads if it wishes to excel there.
The financial services prohibitions are derivative from EU-level positions that Malta has no control over. Meanwhile, the local gaming regime is both technology and game neutral, allowing the framework to accommodate novel forms of gaming.
ESMA’s statement notes that whether an event contract qualifies as a financial instrument depends on the event in question, and that event contracts may also qualify as bets under national gambling legislation.
Regulatory clarity on the legal categorisation and treatment of event contracts remains missing in Malta, and generally across the EU and is effectively what any operator wishes.
That clarity is more nuanced than Polymarket’s reported lobbying. Conceptually, any verifiable event could be provided and, indeed, some non-conventional events are being made available.
Event-specific restrictions based on public policy and morality grounds would also be envisaged across any EU country. In Malta, gaming regulatory precedents already exist, such as those relative to bets on animal cruelty.
Addressing such regulatory clarity may be key to Malta’s ambitions. Regulatory fine-tuning to aspects of its gaming framework would be helpful to accommodate the model, but ultimately, the first point any operator or supplier may wish to know will always be which events can be lawfully offered? Commercial aspects are redundant thereon, as is any development to build the necessary systems.
For further information or assistance, please contact us at info@gtg.com.mt
Author: Dr Terence Cassar
This article was published in iGaming Capital 2027
