The Malta Financial Services Authority (MFSA) has issued a Circular on Prediction Markets and Event Contracts, providing regulatory guidance on how Maltese and European Union law applies to online prediction platforms and event-based contracts.
The MFSA emphasises that determining the correct regulatory classification requires a comprehensive assessment of both the operator’s activities and the specific features of each event contract offered. It also acknowledges that existing regulatory frameworks were developed before these services became popular and did not specifically contemplate them.
Nevertheless, the MFSA’s 2015 notice and the European Securities and Markets Authority’s (ESMA) Public Statement of 3 July 2026 clarify that not all event contracts qualify as financial instruments. Their classification depends on the nature of the underlying event and the characteristics of the contract.
Under EU financial markets legislation (MiFID II), an event contract qualifies as a financial instrument only if it relates to certain specified underlying assets or reference values. If it meets these criteria, it is classified as a derivative and may fall within the scope of the rules restricting binary options. Consequently, such contracts cannot be marketed, distributed or sold to retail clients (individual consumers).
Binary options are financial products that pay a fixed amount of money or nothing, depending on whether a specified condition is met. In July 2018, ESMA prohibited their marketing, distribution and sale to retail investors across the EU due to the risks involved. After these temporary restrictions expired in July 2019, similar permanent measures were adopted by individual EU Member States. In Malta, these restrictions are included in the MFSA’s Conduct of Business Rulebook.
In its July 2026 statement, ESMA further clarified that event contracts must be assessed according to how they actually function rather than the name given to them. Event contracts with a yes-or-no outcome and a fixed payout may qualify as binary options and be subject to the same restrictions.
Where an event contract qualifies as a financial instrument, the provision of related investment services and activities requires authorisation under MiFID II.
Event contracts may also fall under other regulatory frameworks, depending on their nature and structure. Those that resemble bets may be subject to national gambling laws. However, gambling is not harmonised at EU level, meaning operators must comply with the licensing requirements of each relevant Member State.
For exactly this reason, Polymarket recently launched a lobbying campaign targeting European financial regulators to classify its contracts as financial products. The operator is seeking regulation as a financial services firm to avoid a fragmented set of gambling laws.
However, it faces an uphill battle, as European regulators seem unwilling to budge. ESMA previously warned that prediction markets face heightened insider trading risks.
While most European regulators are taking a restrictive approach to prediction markets, Gibraltar is moving towards a dedicated regulatory framework for the sector
