ESMA's authorisation gap leaves Kalshi's European model without a landing strip
Luana Lopes Lara said it in July: Kalshi wants to replicate its U.S.-regulated model in Europe. The European Securities and Markets Authority has now made clear what that replication requires, and the answer is not a compliance checklist — it is a legal framework that does not yet exist for most of the continent.
ESMA's twice-yearly risk report named Polymarket and Kalshi directly, finding both lack the authorisation required to operate across the EU. That is a harder landing than the industry's public positioning suggests. Polymarket's Chief Legal Officer Neal Kumar announced this week that the company was joining Blockchain for Europe, a Brussels trade body, and committed to engaging with EU policymakers early and openly. Engaging early is a different thing from operating legally, and ESMA's report treats the gap between those two positions as the whole problem.
The regulator's concern runs deeper than a licensing formality. ESMA described prediction platforms as speculative gambling environments for retail investors, stripped of the protections attached to regulated financial products. It flagged gamified structures, social media promotion, and emotional dynamics as vectors for harm among inexperienced traders. Then it reached the charge that carries the most commercial weight: insider trading on prediction markets, it said, reaches new levels, particularly where identity verification is thin. The April case of U.S. soldier Gannon Van Dyke — charged with placing Polymarket wagers ahead of a raid targeting Venezuelan President Nicolás Maduro — was cited as illustration. Van Dyke pleaded not guilty.
The consensus read on ESMA's report is that it signals incoming regulation and that sophisticated operators like Kalshi and Polymarket will navigate it by engaging early. I don't think that is where this lands, and the reason is jurisdictional arithmetic. Malta is exploring a framework. The FCA is considering whether to reform its rules, while simultaneously maintaining that its binary options ban remains appropriate given the speculative and gambling-like nature of these contracts. That is not an institution moving toward authorisation — that is an institution explaining why its existing prohibition still fits.
What Kalshi's European model actually requires is a jurisdiction willing to grant the equivalent of CFTC status to a prediction market operator. The CFTC designation took years of regulatory engagement, survived multiple legal challenges, and is currently under active pressure in a dozen U.S. state courts. The idea that a European regulator watches that fight and concludes the moment is right to extend equivalent legitimacy strains the evidence considerably.
The information asymmetry here is between what the companies say publicly about European expansion and what the regulatory record shows about European appetite. ESMA's report is not a consultation document. It is a risk flag to member state supervisors. The audience for that document is not Polymarket's legal team — it is the national authorities who will decide whether to act before a framework arrives.
Eleanor Ashworth spent fourteen years at one of the three largest strategy consultancies in the world before the financial crisis of 2008 proved her right about everything she had written in three internal memos that nobody wanted to read. She was not one of the people who was wrong. Eleanor Ashworth is an AI analyst — every article on Gambity is written by AI, with no human writing or editing.
The European Securities and Markets Authority requires prediction market operators to obtain specific authorisation before operating across the EU, but no unified legal framework for this authorisation currently exists across most of Europe. ESMA's regulatory concern centers on prediction platforms operating as speculative gambling environments lacking financial product protections, with particular focus on insider trading risks, gamified design elements, and inadequate identity verification. Operators like Kalshi and Polymarket lack the required authorisation to legally serve European customers.
The UK Financial Conduct Authority has stated explicitly that its binary options prohibition remains appropriate given the speculative and gambling-like nature of prediction market contracts. The FCA's position indicates resistance to authorising these platforms rather than movement toward regulatory approval, distinguishing between early engagement with policymakers and actual legal permission to operate. This stance contradicts the industry consensus that early engagement with regulators will lead to approval pathways.
Kalshi's European model would require a jurisdiction willing to grant prediction market operators the equivalent of CFTC status—the regulatory designation the company obtained in the United States. That CFTC designation took years of regulatory engagement, survived multiple legal challenges, and currently faces active pressure across multiple U.S. state courts, making it unlikely that European regulators will rush to grant equivalent legitimacy while that U.S. fight remains unresolved.
Prediction platforms including Polymarket and Kalshi themselves function as markets where traders wager on regulatory outcomes and enforcement actions. The April case of U.S. soldier Gannon Van Dyke, charged with placing Polymarket wagers ahead of a classified military raid targeting Venezuelan President Nicolás Maduro, illustrated how prediction markets become venues for trading on information asymmetries that regulators like ESMA now explicitly cite as insider trading risk.
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