In its statement issued on July 3, the European Securities and Markets Authority warned that event contracts may fall within the European Union’s long-standing retail ban on binary options. The regulatory body addressed a barely existing market in Europe and raised the bar for any future launch.
The forecast market boom has so far been an American story. Kalshi and Crypto.com operate under the supervision of the Commodity Futures Trading Commission (CFTC), Polymarket serves its global audience from abroad, and none of the major platforms runs a licensed European operation.
Any company considering a European launch must first answer a more fundamental question: How should its contracts be classified under EU law?
Regulators acted before the market arrived
European regulators have so far targeted platforms that reach local users without obtaining local licences. On May 26, the Spanish Ministry of Consumer Affairs Calcci and Polymarket have been temporarily banned To operate without a gambling license.
On June 19, gambling regulators from nine European countries issued a joint statement against unlicensed prediction market platforms targeting the region. The signatories, including Belgium, France, Germany and Spain, noted the consumer protection and integrity risks surrounding the FIFA World Cup, and urged sporting bodies to check the legal status of operators before signing the partnership.
On July 3, the Securities and Markets Authority said that existing national product intervention procedures on binary options apply to event contracts that qualify as financial instruments.
Until this month, the question was gambling licensing. National regulatory bodies in Belgium, France and elsewhere have treated event contracts as unlicensed betting products.
Statement by the Emirates Authority for Standardization and Metrology It adds another question: whether the product qualifies as a financial instrument under MiFID II. The regulatory body did not respond to him with a new ban.
Instead, it linked the consequences to the classification itself: where an event contract qualifies, existing national restrictions on binary options may apply to that contract. Legal commentators had pointed out this classification gap months before the SEC intervened.
Four methods, none of which have been tested
In principle, four business models could bring forecasting products to Europe. None currently do this licensed, and after ESMA each faces its own classification question first.
The fourth row reflects the current market situation. Nothing major MiCA licensed exchanges It has publicly announced plans to offer forecasting products in Europe.
crypto.comwhich is often cited alongside Kalshi and Polymarket, operates its forecasting offering through Crypto.com Derivatives North America, a CFTC-regulated exchange serving US clients.
The ESMA statement means that a company considering a European launch now faces a contract-by-contract legal assessment before it can decide which license, if any, to apply for.
The classification question comes first
In March, before the ESMA statement, lawyer Terrence Cassar Argue The University of Oxford Business Law Blog noted that the fundamental problem of the European market was the lack of a clear classification of forecast contracts.
He outlined three possible outcomes: the contract may qualify as a MiFID II derivative, and in some cases a binary option; It may be prohibited altogether for reasons of public policy; Or, if they are outside the scope of MiFID II, they may fall behind national gambling frameworks.
He proposed a structured “prediction test”, similar to Malta’s financial instruments test for crypto assets, to guide classification by exclusion.
The legal uncertainty identified by commentators is now beginning to receive regulatory clarification. The Emirates Authority for Standardization and Metrology (ESMA) statement states that for at least part of the universe of event contracts, the analysis begins with Mivid II.
The Securities and Markets Authority has clarified one piece of the European puzzle, without establishing a clear path to market. Any company considering a launch should start now by sorting out contracts, before licensing, distributing or designing the product.
This article was written by Tanya Chipkova at www.financemagnates.com.
Source link
