ESMA’s Prediction Markets Reminder Triggers 2018 Ban

Europe’s top markets regulator has not written a new rule against prediction markets. It has reminded firms that one is already on the books. On 3 July 2026 the European Securities and Markets Authority (ESMA) issued a Public Statement (reference ESMA35-243228190-8148) telling companies offering event contracts to check whether their products fall inside existing product intervention measures on binary options, first adopted in 2018 under Article 40 of MiFIR. The statement targets both firms and the EU’s national competent authorities, and its message is plain: classify the contract first, then apply the rule.

The reminder lands as Polymarket and Kalshi, the two platforms that together run roughly 88% of global prediction-market volume, face a sequence of national blocks across Europe, a state-level lawsuit in Kentucky, and a parallel federal fight between the U.S. Commodity Futures Trading Commission (CFTC) and a growing list of U.S. states. ESMA’s intervention pulls those threads into a single continental question: does the 2018 ban already cover the products these platforms sell?

What ESMA Actually Said on July 3

ESMA framed the statement as a response to “the growing popularity of prediction markets – or event contracts – and increasing retail participation globally.” It defined event contracts as products whose financial outcome is binary, a fixed payout or no payout at all, depending on a yes-or-no answer about a future event. The regulator added that “event contracts may (also) qualify as bets under national gambling legislation.”

From that definition ESMA drew a sharp line: where event contracts qualify as financial instruments, they classify as derivatives and, given the binary outcome, fall within existing national product intervention measures on binary options that prohibit marketing, distribution, or sale to retail clients. Distribution of qualifying event contracts in the EU also requires authorisation as an investment firm, even where only non-retail clients are involved. Not all event contracts are financial instruments; only those whose event question ties to an underlying listed in MiFID II Annex I Section C(4) to (10) make the cut.

ESMA published the full text of the statement on its website on 3 July 2026 and circulated the reminder to national regulators the same day.

• Public statement reference: ESMA35-243228190-8148
• Financial instrument test: MiFID II Annex I Section C(4) to (10)
• Retail ban triggered automatically for qualifying contracts
• Investment firm authorisation required even for non-retail distribution
• National competent authorities reminded to apply existing measures

The reminder itself, with its definition of event contracts and its reminder to national authorities, is the primary source for what changed this week (the ESMA reminder on binary option measures).

The 2018 Ban Already on the Books

ESMA first prohibited the marketing, distribution, or sale of binary options to retail investors in 2018 under Article 40 of MiFIR. The reasoning in 2018 matters because it is the reasoning ESMA is now applying to event contracts. The regulator said binary options have “a structural expected negative return,” meaning the expected payoff is lower than the initial investment, and that retail investors lack “access to information and systems to properly price these products” while trading against professional investors. It added that binary options are “inherently like gambling products” and can “attract compulsive gambling behaviour.”

ESMA also defined a binary option as “a cash-settled derivative in which payment at close-out or expiry of a predetermined fixed monetary amount or zero depends on whether one or more specified events in relation to the underlying occur at, or prior to, the derivative’s expiry.” The 2018 prohibition was renewed repeatedly and has since been adopted on a permanent basis by most EU national competent authorities. ESMA has separately confirmed that binary options do not meet the criteria to be regarded as “non-complex” financial instruments under MiFID II Article 25(4) and Commission Delegated Regulation (EU) 2017/565.

ESMA noted that binary options have ‘a structural expected negative return’ – that is, the expected payoff is lower than the initial investment. Because retail investors lack ‘access to information and systems to properly price these products’ while trading against professional investors, ‘the more positions an investor takes, the more likely they are to lose money on a cumulative basis.’

The 2018 framing, drawn from ESMA’s original product intervention reasoning, was summarised this June by the Atlantic Council (how ESMA framed the 2018 retail binary options ban).

How National Regulators Built the Case File

Before ESMA’s reminder, national regulators had spent eighteen months converting that 2018 logic into local enforcement. France’s Autorité Nationale des Jeux (ANJ) ordered Polymarket to implement geo-blocking in November 2024, classifying it as unlicensed gambling. On 25 February 2026 the ANJ published a statement reaffirming that prediction market platforms remain unauthorised and considered illegal gambling in France.

The Netherlands’ Kansspelautoriteit (KSA) issued a penalty order against Adventure One QSS Inc., Polymarket’s operator, dated 20 January 2026 and published 17 February 2026. The order imposed a penalty of €420,000 per week, capped at €840,000. A collection decision dated 19 May 2026 and published 16 June 2026 found the operator had breached the order and confirmed €420,000 had been forfeited.

Belgium’s Kansspelcommissie blacklisted Polymarket effective 30 January 2025 after three unanswered warnings for operating without a Belgian gambling licence, and Belgian ISPs were instructed to block access. Portugal’s SRIJ issued a 48-hour cease order against Polymarket on 17 January 2026, citing no licence and a statutory ban on political betting, with ISP-level blocks following through MEO and Vodafone Portugal.

Germany’s GGL warned on 5 September 2025 that paid “society bets” on political and social events of the kind offered on Polymarket cannot be licensed under German law and are therefore illegal, and in June 2026 opened a review into ADI Predictstreet’s World Cup advertising. Italy’s ADM prohibited prediction market products in October 2025.

The pattern across these enforcement actions is documented in detail by European Gaming’s legal tracker (the European Gaming legal tracker on prediction market enforcement).

Spain Lit the Fuse in May

Spain joined the list on 26 May 2026. The Ministry of Consumer Affairs, acting through the Dirección General de Ordenación del Juego (DGOJ), opened disciplinary proceedings against Polymarket and Kalshi and ordered internet service providers to block access for an expected three to four months while the formal investigations proceed. The DGOJ published the directive in Spain’s official state gazette, giving ISPs a clear mandate to restrict access.

The regulator cited consumer protection failures: absence of identity verification, missing safeguards for minors, and no self-exclusion options for problem gamblers. “In Spain, in line with other European jurisdictions, prediction markets are considered gambling when bets are placed on uncertain future outcomes,” the ministry said. “Therefore, operating them in Spain requires obtaining a specific administrative licence.”

Combined, Kalshi recorded roughly $5.9 billion in 30-day trading volume and Polymarket processed about $3.8 billion, together representing nearly 88% of the roughly $11 billion in trading volume among the sector’s top markets during the period, per DeFiLlama. Polymarket said it was committed to engaging constructively with authorities in every jurisdiction. Kalshi did not reply to a request for comment.

We welcome the opportunity to collaborate with Spain on a path forward that supports responsible innovation, transparency and user protection in prediction markets.

Those words came from a Polymarket spokesperson after Spain’s 26 May 2026 order, reported in detail by The Guardian (Spain’s gambling licence investigation of Polymarket and Kalshi).

Kentucky and the U.S. Counterweight

The U.S. picture is the mirror image of Europe’s, with a federal agency and state attorneys general fighting over the same products. On 17 June 2026 Kentucky Attorney General Russell Coleman filed three lawsuits in Franklin Circuit Court against Kalshi, Polymarket, and the sweepstakes casino operator VGW. The complaint against the two prediction-market platforms alleges they are “doing business without a Kentucky gaming license or following state regulations.”

Kentucky’s filing carried a striking statistic: sports betting made up approximately 70% of Kalshi’s trading volume during a selected sample period in 2025, and the platform saw nearly $23 billion in contract volume last year, 89% from sports wagering. Polymarket, the complaint says, runs “flashy advertisements on social media and elsewhere” that give “the false and misleading impression that it is authorized to offer sports wagering under Kentucky law.”

“Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws,” Coleman said. “These multi-billion dollar corporations and their legal fictions don’t pass the sniff test. As one of our state legislative leaders said it best, ‘If it looks like a duck and quacks like a duck.'” Kentucky’s Wagering Consumer Protection Act (26 RS HB 904), which becomes law on 15 July 2026, will prohibit licensed sports wagering operations from contracting with Kalshi or Polymarket.

Six days later, on 23 June 2026, the CFTC sued Kentucky, the ninth state the agency has sued in defence of what it calls its exclusive jurisdiction to regulate prediction markets. Kentucky is the first state with a Republican attorney general to face such a lawsuit. “Kentucky is the latest state attempting to shut down federally-regulated event contracts,” said CFTC Chair Michael Selig. In all, 20 states are actively involved in litigation against prediction market platforms. Senators John Curtis (R., Utah) and Adam Schiff (D., Calif.) have separately asked Selig whether the CFTC is investigating Polymarket after a Wall Street Journal report that Polymarket paid creators to stage trades on fake websites.

Kentucky Attorney General Russell Coleman’s press release, including the full text of the three complaints, is the primary source for the 17 June 2026 filings (Kentucky Attorney General Coleman’s announcement of three lawsuits).

What MiFID II Demands of Any European Entrant

For any prediction market hoping to serve EU customers, ESMA’s reminder narrows the path to a single route. Classify each event contract by its underlying. If the underlying sits in MiFID II Annex I Section C(4) to (10), the contract is a derivative and the 2018 retail ban on binary options applies automatically. If it does not, the contract falls outside MiFID II but generally still hits national gambling laws that require a local licence in most major EU jurisdictions.

The classification matters because each route carries a different compliance load. A platform offering financially-referenced event contracts must hold investment firm authorisation across the EU, must run appropriateness and suitability assessments for each client because binary options are not “non-complex,” and must comply with MiFID II conduct, product governance, and best execution rules. A platform offering non-financial event contracts must hold a national gambling licence in each jurisdiction where it serves users, with identity verification, age checks, and self-exclusion systems built in. The same product can hit both gates at once in different member states.

• Investment firm authorisation across the EU
• Appropriateness and suitability assessments for each client (binary options are not “non-complex”)
• Compliance with MiFID II conduct, product governance, and best execution rules

The legal mechanics of the classification test, including the relevant MiFID II sections and the ESMA binary-option definition, are walked through in a Norton Rose Fulbright analysis (the legal framework for classifying event contracts under MiFID II).

Where a European Prediction Market Could Still Land

Switzerland is the only OECD nation in Europe that allows retail investors to trade binary options, though the Swiss Financial Market Supervisory Authority has warned that unauthorised platforms “lure investors [into binary options] with the promise of quick profits and low starting capital.” Inside the EU, no major jurisdiction has issued a pan-European licence to a prediction market operator, and the only EU-style route on the table is a national gambling licence where one exists. None currently exists for Kalshi or Polymarket.

The MiCA compliance deadline on 1 July 2026 added a separate constraint for crypto-native platforms. Outcome tokens that settle at a fixed rate can be defined as unregistered, surrogate stablecoins, which can force EU geo-blocking regardless of the gambling question. The exit of Tether’s USDT from regulated EU venues the same week shows how stark that cliff is, as detailed in USDT pulled from EU venues as MiCA’s deadline hit. On the U.S. side, the SEC’s 60-day comment window on novel ETFs tied to prediction markets, covered in the SEC’s 60-day comment window on novel prediction market ETFs, will shape the global market structure ESMA’s reminder now sits on top of.

Frequently Asked Questions

What did ESMA actually change on 3 July 2026?

ESMA did not pass any new rule. It reminded firms that its 2018 binary options product intervention measures already apply to event contracts that classify as financial instruments under MiFID II Annex I Section C(4) to (10), and that national competent authorities should apply those measures to prediction-market products that meet the test.

Are prediction markets banned in the EU now?

Not everywhere, not uniformly. Event contracts whose underlying sits in MiFID II Section C(4) to (10) are derivatives and fall under the 2018 retail ban on binary options. Event contracts with non-financial underlyings fall outside MiFID II but generally still hit national gambling laws, which require a local licence.

Why is Spain blocking Polymarket and Kalshi?

Spain’s DGOJ opened disciplinary proceedings on 26 May 2026 and ordered ISPs to block Polymarket and Kalshi for an expected three to four months, citing a lack of gambling licence and missing consumer safeguards such as identity verification and self-exclusion systems.

What is the Kentucky v. CFTC fight about?

Kentucky sued Kalshi and Polymarket on 17 June 2026 alleging illegal sports betting. The CFTC counter-sued on 23 June 2026 to defend its exclusive federal jurisdiction. Kentucky’s Wagering Consumer Protection Act, banning contracts with the two platforms, takes effect 15 July 2026.

Can a prediction market legally launch in Europe today?

In theory, yes, either via an EU MiFID II investment firm authorisation for financially-referenced event contracts, or via a national gambling licence for non-financial event contracts. In practice, no major EU jurisdiction has licensed a leading prediction market operator, and crypto-native operators face an additional MiCA constraint from 1 July 2026.