The European Lotteries (EL), an umbrella organisation for state lotteries, has called for a careful approach towards prediction markets and other emerging products, exercising caution not to undermine existing consumer safety practices.
In particular, the organisation directed its focus towards prediction markets, which have divided regulatory and business views on both sides of the Atlantic.
These platforms essentially allow users to trade ‘event contracts’ against each other on the outcome of various events, from pop culture, to politics, to sports.
With Kalshi and Polymarket being the biggest players on the market, prediction market operators are treated as financial instruments in their home market of the US, regulated by the Commodities and Futures Trading Commission (CFTC).
Meanwhile, European jurisdictions – with some exceptions like Gibraltar – have stood against the idea that prediction market operators offer anything else but a gambling product.
Therefore, the current political climate has raised important questions about the intersection of financial services and gambling regulation.
‘Don’t conform with marketing language’
The European Lotteries has now issued a statement, urging for policymakers and business leaders to judge prediction markets based on their legal characteristics and the associated product risk, rather than the marketing terminology or the technology involved.
As a reminder, the organisation pointed to the common European regulatory framework, and in particular the Markets in Financial Instruments Directive, which states that financial instruments are subject to the applicable financial services rules.
If an events contract product fails to qualify as a financial instrument, it is then referred to the relevant national gambling framework.
As a side note, qualifying for one designation does not necessarily exempt the product from being applied to the other, as set out by the European Securities and Markets Authority (ESMA) earlier this year.
EL fell short of calling prediction markets gambling, instead stressing that regardless of the technology tied to prediction markets, be it distributed ledger technology, blockchain, smart contracts, tokenisation, or other, the regulatory assessments should remain impartial to those aspects and treat any activity with the equivalent rules.
Piet Van Baeveghem, EL Secretary General, said: “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.”
Individual approach required
EL’s statement was further expanded with the idea that prediction markets “must be assessed on a jurisdiction-by-jurisdiction basis”, given that gambling policies – and all aspects that they come with, including market structures and consumer protection mechanisms – are not universal across Europe.
Dealing with the matter on a national level would then contribute to a more effective international approach, EL alluded to.
Baeveghem added: “We welcome the recent statement by 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.”
Prediction markets are one of the hottest topics at this year’s SBC Summit Lisbon. You can follow along our live blog for real-time updates on the latest developments shaping the global gambling industry.
