Decentralized finance is looked at askance in Europe by regulatory authorities. The financial police do not hide it and are increasing their warnings. In this area, ESMA intends to deprive crypto traders of a tool that is nevertheless popular with investors. These are bets on the future, these contracts which allow you to speculate on events. The European regulator has just reminded that these products, if they are financial, are already prohibited for individuals.
In brief
- ESMA recalled on July 3, 2026 that prediction contracts with binary outcomes are financial instruments prohibited for individuals since 2018.
- The commercial name “event contracts” does not change the legal qualification which depends on the intrinsic characteristics of the financial product.
- Platforms like Polymarket or Kalshi must carry out a thorough legal analysis and obtain MiFID II authorization for professionals.
- Contracts relating to political or sporting events are not covered, creating a legal gray area and unequal treatment.
ESMA: prediction contracts subject to restrictions on binary options
On July 3, 2026, ESMA published a press release which had the effect of a bomb in the world of predictive markets. The regulator points out that binary outcome prediction contracts are very likely financial instruments within the meaning of MiFID II. Their marketing under the name “event contracts” does not change the legal qualification.
“ The trade name provided by companies (e.g. “event contracts”) is irrelevant for the categorization under MiFID II of products distributed, marketed or offered to customers », warns ESMA in his press release. In other words, calling a spade a spade does not turn it into a dog.
The restrictions on binary options, adopted in 2018 and transposed into national laws, therefore already apply to these products.
Event contracts with a binary outcome and a binary payment are likely to be derivatives which are financial instruments, they are likely to fall within the scope of product intervention measures.
Source: ESMA, Public Statement, July 3, 2026
ESMA thus puts an end to ambiguities in the finance of uncertainty.
Prediction platforms in the crosshairs of European financial policemen
Polymarket, Kalshi, Myriad are familiar names to future betting and crypto enthusiasts. These platforms could well disappear from European screens if they do not comply. ESMA insists on the obligation for companies to carry out a thorough legal analysis of their products.
If the contract relates to a financial underlying listed in Annex I of MiFID II, it is a financial instrument. Distribution to retail customers is then prohibited. That for professionals remains possible but requires MiFID II authorization.
The distribution of these event contracts, even only to non-professional clients, requires this authorization.
Source: ESMA, Public Statement, July 3, 2026.
The platforms will have to review their offer or request authorizations to continue operating. Some could try to take refuge under the status of betting governed by national gaming law.
But ESMA warns: prediction contracts can also be qualified as bets or crypto-assets governed by MiCA. European regulation leaves little room for arbitrariness in finance.
A legal gray area that questions the future of prediction markets
The legal classification of prediction contracts remains unclear, and this is the central problem. Contracts relating to political, sporting or cultural events are not necessarily financial instruments. They do not relate to a financial underlying listed in the regulations.
This legal vacuum creates unequal treatment between platforms and insecurity for investors.
ESMA is not creating a new rule, but clarifying an existing framework in the face of the rapid growth of prediction markets. The regulator is indeed observing an increased supply of these contracts and a rapid expansion of these markets.
clarification could slow down innovation in Europe, while the United States is experiencing a regulatory battle. The dialectic is deeply troubling for observers: on the one hand, protective regulation, on the other, a risk of seeing innovations flee.
The regulator's ethics is to protect individuals, but at what cost for finance and crypto?
Key dates of regulation
- 2018: ESMA prohibits binary options for individuals;
- July 3, 2026: ESMA extends this ban;
- MiFID II: any distribution to professionals requires authorization;
- MiCA: token contracts can be regulated crypto-assets;
Prediction markets are entering a zone of regulatory turbulence. The EU plans to extend the powers of ESMA for stronger regulation. The finance of uncertainty will have to deal with the guardians of traditional finance.
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