Prediction market platforms need coherent regulatory approach, European Lotteries says
EL says prediction market platforms require effective coordination between authorities and must be treated with a technologically neutral approach.
Key takeaways:
- European Lotteries has urged regulators to keep prediction markets within existing gambling and financial services frameworks, arguing that creating separate regimes could create regulatory loopholes, arbitrage opportunities and weaker consumer protections.
- Most European regulators have taken a restrictive approach to prediction markets, with countries including France, Spain, the Netherlands, Belgium, Germany and Italy acting against platforms, while Gibraltar and Malta have shown interest in developing dedicated regulatory frameworks.
- EL says regulation should be based on a product’s risks and legal characteristics, not its technology or marketing label, stressing that blockchain, smart contracts and other technologies should not change how prediction market products are assessed, and calling for closer coordination between financial and gambling regulators across Europe.
Belgium.- European Lotteries (EL), the Brussels-based umbrella organisation for national state-owned and state-controlled lottery and gaming operators in Europe, has called for a coherent regulatory approach on prediction market platforms. It argues that prediction markets should remain within the current European regulatory architecture, warning that it could weaken consumer safeguards if new and emerging products create gaps or arbitrage.
Controversy over the regulatory status of prediction markets has rapidly spread to Europe after initial concentration in the US, where the issue has become a conflict of federal vs state jurisdiction between gambling regulators and the Commodity Futures Trading Commission. European gambling regulators have largely maintained restrictive stances on the sector, with countries such as France, Spain, the Netherlands, Belgium, Germany and Italy all taking action to block prediction market platforms.
The notable exception is Gibraltar, which pounced on the prediction market space as a potential way to make up for the likely impact of the UK Remote Gaming Duty rise on its igaming sector. It granted Abu Dhabi-based ADI Predictstreet a gambling licence ahead of the FIFA World Cup this year and subsequently switched the operator to a new dedicated regime for prediction market platforms.
Malta has also shown interest in developing a dedicated regulatory regime. Meanwhile, Kalshi has stated that it is holding discussions with major European regulatory bodies, including the European Securities and Markets Authority (ESMA), regarding the future of the sector within the EU.
In this context, the EL says that prediction markets, which allow users to take positions on the outcome of future events, from elections and economic indicators to sporting competitions, through “event contracts,” raise important questions at the intersection of financial services and gambling regulation.
“The regulatory treatment of prediction markets should depend on the legal characteristics, economic substance and associated risks of the products concerned, rather than on the terminology used to market or describe them, or the technology through which they are offered,” it argues.
“Under the current European regulatory framework, event contracts that qualify as financial instruments under the Markets in Financial Instruments Directive (MiFID II) are subject to the applicable financial services rules. Where event contracts do not qualify as financial instruments, their treatment depends on the relevant national gambling framework. Importantly, qualification as a financial instrument does not, in itself, create an exemption from otherwise applicable national gambling legislation”.
It says that regulatory coherence and effective coordination between authorities has become vital given that the legality and regulatory treatment of prediction market services must be assessed on a jurisdiction-by-jurisdiction basis in Europe due to deeply rooted national legal frameworks.
The EL also stresses that technological developments, including distributed ledger technology (DLT), blockchain, smart contracts and tokenisation, should not alter the underlying regulatory analysis. Regulatory frameworks should remain technologically neutral, ensuring that equivalent activities are subject to equivalent rules regardless of the technology used to deliver them.
“Prediction markets are developing rapidly, and regulation should keep pace. EL’s position is simple: activities that present similar risks should be subject to similar safeguards. The focus should be on the nature of the product and activity, rather than the label or underlying technology attached to it.” says Piet Van Baeveghem, EL Secretary General.
He adds, “We welcome the recent statement by the European Securities and Markets Authority (ESMA), which explicitly recognises that event contracts may also constitute betting under national gambling law. This underlines the importance of close coordination between financial and gambling authorities to ensure a coherent regulatory approach.”
FAQs
How are prediction markets currently being treated across Europe?
Most European regulators have taken a restrictive stance, with countries including France, Spain, the Netherlands, Belgium, Germany and Italy moving to block prediction market platforms.. However, Gibraltar has developed a dedicated regulatory framework and Malta has shown interest.
What is European Lotteries’s stance on prediction markets?
The organisation argues that prediction markets should remain within existing European gambling and financial services regulations, warning that separate regimes could create regulatory gaps, arbitrage opportunities and weaker consumer protections. It urges regulators to coordinate and to ensure that products with similar levels of risks are subject to similar safeguards.
