ESMA Warns Prediction Market Event Contracts May Fall Under EU Binary Options Ban

The European Securities and Markets Authority (ESMA), the EU's securities regulator, said in a statement that many prediction market event contracts may already fall within the bloc's existing ban on marketing binary options to retail investors. The regulator reminded firms they must assess whether newly offered products fall under national product intervention measures already in force.

ESMA said the statement responds to the growing popularity of prediction markets and rising retail participation globally. It defines event contracts as products with a binary outcome, a fixed payout or nothing, depending on a yes-or-no answer about a future event, and noted they may also qualify as bets under national gambling law.

Derivatives, Not Just Bets

Where an event contract qualifies as a financial instrument, ESMA said it classifies as a derivative and, because of its binary payout, falls within the scope of national binary options measures that bar marketing, distribution or sale to retail clients.

Authorization Required Even for Professionals

ESMA added that distributing such contracts in the EU requires authorization as an investment firm under MiFID II, even when offered only to non-retail clients. The regulator did not name specific platforms, but the statement lands as crypto-native prediction markets such as Polymarket have expanded trading volumes tied to political, sports and economic outcomes.

The warning follows a wave of US regulatory attention on the sector; the CFTC said in February that prediction markets should fall under federal oversight and later opened a broader review of the category. ESMA's statement marks the first direct EU-level guidance tying event contracts to the bloc's 2018 binary options prohibition, raising the compliance bar for any platform seeking retail or professional distribution in the region.

ESMA gave no timeline for enforcement action and did not indicate whether specific national regulators have opened investigations into individual platforms.