ESMA escalates scrutiny of Polymarket and Kalshi over EU authorization gaps as platforms push into stock perps

The European Securities and Markets Authority (ESMA) has determined that major prediction market platforms are operating without required European Union authorization, specifically questioning the adequacy of geographic restrictions implemented by Polymarket and Kalshi to block EU users. The regulator is escalating its scrutiny of these authorization gaps precisely as the platforms expand beyond event-based contracts into sophisticated financial derivatives.

According to The Block, ESMA has identified that partial geo-blocking measures employed by these platforms may be insufficient to ensure compliance with European securities regulations. The finding raises significant questions about the legal basis for prediction market operations across the bloc, particularly as these platforms increasingly resemble regulated exchanges while maintaining offshore or non-EU registrations. The regulator's focus on the effectiveness of partial geo-blocks suggests that technical access restrictions alone may not satisfy EU market integrity requirements.

The regulatory attention in Europe coincides with an aggressive expansion by Kalshi into traditional equity derivatives. As reported by CoinDesk, the platform intends to seek U.S. regulatory approval for approximately 60 perpetual derivative contracts tied to individual stocks and exchange-traded funds. This product line would include 24-hour trading on perpetual contracts for major technology issuers such as Tesla and Nvidia, effectively importing the perpetual futures structure that dominates cryptocurrency markets into regulated equity trading.

The expansion represents a fundamental shift in prediction market business models from binary outcome contracts to leveraged, continuous trading products traditionally offered by futures exchanges and brokerages. By applying the perpetual mechanics—popularized by crypto derivatives platforms—to stocks and ETFs, Kalshi is entering direct competition with established financial market infrastructure while navigating complex regulatory classifications.

This push into equity perpetuals has triggered jurisdictional disputes among U.S. regulators regarding oversight responsibilities. The question of whether these stock-based perpetual contracts fall under the purview of the Commodity Futures Trading Commission—which historically regulates prediction markets and event contracts—or the Securities and Exchange Commission—which oversees equity markets—remains unresolved. This regulatory uncertainty creates compliance risks for the platforms while they simultaneously face ESMA's authorization challenges in Europe.

The convergence of European scrutiny over operational licenses and American regulatory ambiguity regarding product classification places prediction market operators in a precarious position. As Kalshi pursues approval for Tesla and Nvidia perpetuals while maintaining partial geographic restrictions questioned by European authorities, the platforms must reconcile crypto-inspired trading structures with traditional securities regulations that vary significantly across jurisdictions.