The Financial Times has reported that Polymarket is lobbying European and UK regulators to classify its prediction-market contracts as financial products rather than gambling.
The operator seeks regulation as a financial services firm instead of being subject to a fragmented array of gambling laws.
According to sources cited by the Financial Times, Polymarket is meeting with regulators in London, Brussels and across the EU. The company argues that its activities should fall under financial services laws. Specifically, it argues for regulation under Mifid rules, which typically govern financial services firms.
The argument is the same one it is pursuing in the US: its contracts should be treated like derivatives rather than bets. This argument faces challenges across multiple US states, although prediction market operators have significant Commodity Futures Trading Commission (CFTC) backing, the federal regulator that oversees certain prediction-market contracts as commodity derivatives.
Apparently, Polymarket is engaging with the EU financial regulator, the European Securities and Markets Authority (ESMA), and the European Commission. It has also met with some member-state regulators to obtain a license.
Regulators remain cautious
In June, ESMA’s chair, Verena Ross, met with two US-based members of Polymarket’s legal team. Also present were a Paris-based lawyer from A&O Shearman and a Brussels-based lobbyist from Hanbury Strategy, a public affairs firm. The following day, Polymarket executives met with Nikhil Rathi, chief executive of the UK’s Financial Conduct Authority (FCA).
For now, it seems Polymarket will have limited success in its lobbying. Although the FCA considered reforming its rules on access to prediction markets, it said its ban on binary options is appropriate given the ‘’speculative, gambling-like nature of these contracts.’’
The FCA noted that prediction markets on “financial or certain climatic events” fall under its remit. However, it still highlighted that markets on political outcomes and sports would fall under the Gambling Commission.
Insider trading concerns add another hurdle
ESMA is also likely to be reluctant to relax prediction market rules. Earlier this month, it warned that prediction markets face heightened insider trading risk.
In its risk assessment, the financial regulator said several incidents indicated that prediction markets were vulnerable to trading based on non-public information.
Polymarket faces tough battle
The Financial Times reached out to ESMA and FCA for comment, but both declined to answer.
Meanwhile, they are not the sole European regulators taking a stance against prediction market operators.European countries that have either blocked or restricted Polymarket include Lithuania, Denmark, Germany, Ireland, Belgium, Romania, Switzerland, Poland, the Netherlands, Greece, Portugal, Spain, Ukraine and the Czech Republic.
One positive development for prediction markets in Europe happened this summer when Gibraltar’s Minister for Justice, Trade and Industry, Nigel Feetham, announced that the jurisdiction formally introduced a new regulatory framework for prediction markets.
Still, because most European regulators characterise prediction markets as essentially gambling and have banned Polymarket for lacking local licenses, the platform faces a tough battle for access to the European markets under the financial-product status.
Earlier this month, Polymarket appointed Warren Jenson as its first CFO, who has over 30 years of senior finance experience at companies including Nielsen, Amazon, Electronic Arts and Delta Air Lines
