The United Kingdom’s financial regulator is considering repealing a ban on prediction markets as contract trading continues to proliferate across the world.
A Friday report from The Times said that the Financial Conduct Authority (FCA) was deciding if it wanted to remove a ban on platforms such as Kalshi and Polymarket.
Key Takeaways
- The U.K. instituted a binary options trading ban over seven years ago.
- Prohibiting prediction markets led to a rise in illegal offshore trading.
- Bernstein research suggested the prediction industry could reach $240 billion in annual trading this year.
The U.K. implemented a ban on selling binary options, including prediction markets, for retail investors in April 2019. That precedent has held British traders out of a multi-billion-dollar industry that has quickly grown to rival sports betting and other forms of investment.
“Binary options are gambling products dressed up as financial instruments,” said the FCA’s executive director of strategy and competition, Christopher Woolard, at the time the ban was implemented.
Despite the ban, an estimated millions of U.K.-based retail investors are trading on prediction platforms at offshore platforms. The unregulated outlets do not offer basic consumer protections and expose users to a variety of dangers.
The Times also reported that many U.K. residents are using VPNs to get around the country’s restriction on buying and selling contracts at Kalshi and Polymarket, among other platforms.
“It’s like most prohibitions—they are largely ineffective,” the report claimed that a government source said. “The concerning thing is that regulators who have an obligation to prevent consumer harm are by their actions effectively driving consumers to operators with no regulatory standards at all.”
The Times also said that the FCA declined to comment when provided with the opportunity.
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Prediction platforms coming to the UK?
Prediction markets afford traders the opportunity to purchase outcomes associated with “Yes” and “No” options. Markets include politics, sports, finance, weather, entertainment, pop culture, and those based in other industries.
The Times noted that there are several barriers preventing prediction market platforms from coming to the U.K. In addition to the FCA binary option ban, they would need a gambling license to offer markets on political events and sports matches.
“Our current view is that the financial PMPs we have seen are binary options,” the FCA wrote in a perimeter report published in July. “As such they remain subject to the FCA’s permanent ban on the sale of binary options to retail consumers, which we consider appropriate given the speculative, gambling-like nature of these contracts and the high risk of consumer harm.”
The report didn’t completely shut down the possibility of regulating prediction markets, however, noting “[it would] consider whether [it wants] to do further work on access to these products, and/or clarify the perimeter.”
The FCA continuing its anti-prediction market stance would significantly minimize revenue potential. Bernstein Research suggested in April that the prediction market industry could generate $240 billion in annual trading volume in 2026 and reach $1 trillion by 2030.
UK inviting more problems?
While significant money is at play, bringing prediction markets to the U.K. would inevitably create more legal dilemmas.
Recent prediction market news has largely settled on the now 20 U.S. states that are involved in disputes about the platforms’ operational authority.
Forty-four attorneys general signed a letter sent to the Commodity Futures Trading Commission that expressed concern about the direction of the industry, and just last week, New Jersey’s Jennifer Davenport asked the U.S. Supreme Court to decide whether these platforms should be locally or federally regulated.
