ESMA Says Polymarket and Kalshi Lack EU Authorization as 20.8 Billion USD Quarter Draws Scrutiny

The European Securities and Markets Authority has concluded that the largest prediction market platforms, including Polymarket and Kalshi, do not hold the authorization generally required to market and sell event contracts in the European Union, and it has openly questioned whether the partial geo-blocking measures the platforms use are effective.

In a statement that lands as one of the most consequential regulatory assessments of the prediction market sector to date, ESMA said the event contracts offered by the major platforms are, in its view, fully fledged financial derivatives — not games, not novelty sports bets, but instruments that fall under the same investor-protection framework as structured products sold to retail customers. Under that reading, selling them across the bloc without authorization is not a gray area.

The scale that forced the issue

The numbers explain why regulators could no longer look away. ESMA’s review highlighted a surge in sector activity that traces directly to the 2024 United States presidential election cycle. In the fourth quarter of 2025 alone, Polymarket generated roughly 12 billion USD in trading volume and Kalshi about 8.8 billion USD, bringing the combined quarterly total to approximately 20.8 billion USD.

That is no longer a niche corner of internet culture. Over an equivalent period, that level of activity rivals the turnover of some regional European exchanges — and it is precisely the comparison that puts the platforms inside ESMA’s field of vision.

No single European passport

The structural problem is that European regulation has not kept pace with the product. Each contract offered on these platforms — whether it concerns an election, a sports result, an economic indicator, or a cryptocurrency price level — can carry a different legal status depending on the user’s country, the technology used, and the nature of the underlying event.

There is no single European passport that covers all forms of event contracts at once. Under ESMA’s position, each contract must effectively be evaluated individually before it can be lawfully marketed in a given member state. For platforms built as borderless, largely automated protocols, that is an existential design mismatch.

ESMA has also pushed back on the compliance shortcuts the platforms have adopted. The regulator questioned the effectiveness of partial geo-blocks of the kind used by Polymarket and Kalshi, which restrict access for users in some jurisdictions while leaving the service available elsewhere. ESMA further asked the platforms to strengthen identity checks and transaction monitoring to comply with national specifics — a demand that goes beyond obtaining a generic license and requires adapting practices market by market.

National restrictions are multiplying

Individual member states did not wait for the European-level assessment to act. France ordered a complete block of access to Polymarket in July 2026. Spain had already imposed temporary restrictions on both platforms in May, citing the absence of required gaming licenses. Similar measures have followed in Switzerland, Poland, Belgium, and Portugal.

Each national restriction represents a distinct problem for the platforms, because European regulatory fragmentation means there is no central window and no single rule to comply with. Every country brings its own laws, licensing requirements, and tolerance thresholds. Adapting offerings, business models, and controls country by country is slow and costly — a burden that observers suggest may be underestimated by management teams that built these products for a borderless global market.

Implications beyond the two platforms

ESMA’s analysis did not stop at prediction markets. The regulator also flagged bubble risks tied to massive credit-financed investment in artificial intelligence by major technology groups, warning that a turn in those positions could trigger cascading liquidations that spill into other risk assets, including cryptocurrencies.

The more immediate signal for the digital asset industry is what the derivatives classification means for decentralized infrastructure. Polymarket operates on the Polygon blockchain, and if regulators begin treating on-chain event contracts as financial instruments as a category — a direction ESMA appears ready to take — the implications extend to other decentralized protocols offering similar mechanics. How far this reaches remains unresolved, but the direction is clear.

For Polymarket and Kalshi, the immediate challenge is proving their operations comply with the rules of every European country they serve. Without that, expansion on the continent stays frozen, and with 20.8 billion USD in quarterly volume at stake, entire markets’ worth of potential revenue is being left on the table.

ESMA says it continues to monitor the sector and is working on more precise guidelines. Until those arrive, the two platforms operate in a costly legal void — tolerated in some jurisdictions, blocked in others, and officially unauthorized in the bloc as a whole.