ESMA Says Prediction Markets Are ‘Rife With Inside Trading’ in Dedicated Risk Monitor Chapter

The European Union’s securities regulator has put prediction markets on its formal risk agenda. In its Trends, Risks and Vulnerabilities Risk Monitor No. 2, 2026, published Thursday, Sept. 10, the European Securities and Markets Authority (ESMA) devoted an in-depth section to the sector, concluding that “a growing number of incidents illustrates that prediction markets are rife with inside trading” and that continued monitoring is warranted.

The assessment — which gives prediction markets their own in-depth chapter in the twice-yearly report — lands as platforms like Polymarket and Kalshi post surging volumes in the United States while remaining largely unauthorized across the EU. It is a risk-monitoring assessment, not an enforcement action, rulemaking, or a finding of illegality in any specific market.

What ESMA said about market integrity

ESMA wrote that market manipulation and insider-trading risks “reach new levels” on prediction markets, particularly on DLT-based platforms such as Polymarket that operate with limited identity verification, “where the platform itself may not know who is behind a given wager.” The pseudonymous nature of blockchain-based participation, where users can hold multiple accounts, hinders detection of insider trading, wash trading and coordinated manipulation, the report said.

The regulator described platform responses as “largely reactive,” noting that investigations are often initiated only after an event has occurred and profits have already been realized. It added that the EU’s Market Abuse Regulation could help address such risks — but only where prediction-market contracts fall within the financial regulatory perimeter.

Three incidents behind the warning

The report cites three episodes. In the context of the February 2026 US/Israel strike on Iran, several newly created wallets reportedly generated $1.2 million in profits shortly before the military operation became public — a figure ESMA attributed to press reporting. Separately, a US soldier was criminally charged for allegedly using classified information to place profitable bets on Polymarket ahead of the operation to capture Nicolás Maduro. And in April 2026, suspected tampering with weather sensors used to settle Polymarket weather contracts prompted Météo-France to file a police complaint, ESMA wrote, citing an FT report.

The second incident rests on a Justice Department case. In an April 23, 2026 press release, the DOJ announced an indictment charging Gannon Ken Van Dyke, a U.S. Army soldier, over his alleged trading ahead of “Operation Absolute Resolve,” the mission to capture Maduro. According to the indictment as described by DOJ, Van Dyke created a Polymarket account around Dec. 26, 2025, placed approximately 13 “YES” bets on Maduro- and Venezuela-related contracts totaling about $33,034, and allegedly profited roughly $409,881 after the operation became public on Jan. 3. He faces charges including three counts of violating the Commodity Exchange Act, one count of wire fraud and one count of an unlawful monetary transaction. These are allegations in an indictment, not findings; the DOJ noted Van Dyke was to be presented before a magistrate judge in the Eastern District of North Carolina, with the case assigned to a judge in the Southern District of New York.

Retail-harm and concentration concerns

ESMA characterized prediction platforms accessed without EU authorization as “speculative gambling environments” lacking the investment protections of regulated financial products, warning that gamified design and social-media-driven promotion expose inexperienced users to financial loss, addictive behavior and exploitation by sophisticated and algorithmic traders. It cited a Wall Street Journal analysis finding that 67% of profits on Polymarket accrued to just 0.1% of accounts, and a Bloomberg analysis reporting that most Polymarket users lose money — both cited within the ESMA report itself.

Why the EU has barely seen these markets

Prediction markets “do not appear to have gained significant traction in the EU” compared with the US, ESMA found — and it attributed that to regulation rather than demand. Depending on their characteristics, event contracts may qualify as financial instruments under MiFID II, fall within MiCA where they are DLT-based, or be treated as gambling under national law. Marketing and selling them in the EU generally requires an EU authorization the largest platforms do not hold, and where the contracts are financial instruments they are generally classified as derivatives caught by national product-intervention measures on binary options — originally adopted through ESMA Decision (EU) 2018/795 and later made permanent at national level — which prohibit their distribution to retail investors.

Against that backdrop, ESMA questioned the platforms’ access controls. Polymarket and Kalshi state on their websites that users in some, but not all, EU countries are prohibited from placing orders. “It is unclear why all EU Member States are not included in the list of restricted jurisdictions,” the report said, given the risks of unauthorized service provision. Geographic blocks also do not prevent EU users from reaching the platforms via VPNs, ESMA noted; while both platforms prohibit VPN use, the “practical effectiveness of these restrictions remains uncertain.” Malta is the first member state to publicly explore a dedicated prediction-markets framework, announcing the effort in March 2026.

Scale, mix — and some balance

ESMA’s own data, drawn from the platforms’ public APIs, shows quarterly trading volumes reaching approximately $8.8 billion on Kalshi (data as of Nov. 25, 2025) and $12 billion on Polymarket (as of Jan. 31, 2026), with the 2024 US presidential election acting as the major catalyst. Sports account for 73% of identified Kalshi activity, while Polymarket is more diversified — politics at 29%, sports at 19% and crypto-related markets at 15%.

The report was not uniformly negative. ESMA credited prediction markets with “informational and analytical benefits,” generating real-time, continuously updated signals on expectations for political, economic and social outcomes, and noted growing traditional-finance interest in the sector, including ICE’s commitment to invest up to $2 billion in Polymarket and new prediction-style products from established exchanges.

The platforms dispute the regulator’s framing. As Decrypt reported, Polymarket chief legal officer Neal Kumar drew the opposite lesson from the Maduro case, arguing that “it’s not anonymous — you will be found just like this guy.” Kalshi said it surveils, investigates and punishes insider trading, telling the Financial Times that event contracts “distil trading into a single question,” which may make insider trading “simpler to prove” because the material information is narrower.

For now, ESMA’s conclusion is procedural rather than punitive: prediction markets remain limited in scale within the EU, but given rapid growth, new risks and diverging regulatory approaches elsewhere, “continued monitoring is warranted.”