Prediction markets face intensified regulatory scrutiny after the European Securities and Markets Authority (ESMA) warned that the sector is rife with insider trading and investor-protection risks. In a risk report published Thursday, September 10, ESMA said Polymarket and Kalshi do not hold authorizations required to sell event-based contracts in the European Union and questioned whether restrictions in some member states effectively limit access. The regulator cited bets linked to a February strike on Iran, the operation to capture Venezuelan President Nicolás Maduro and alleged tampering with weather sensors used to settle Polymarket contracts. Newly created wallets reportedly made about $1.2 million from Iran-related bets placed hours before the strike, while Bubblemaps later traced nine linked accounts that made about $2.4 million and won 98% of the time. A US Army master sergeant involved in the Maduro raid pleaded not guilty to charges tied to more than $400,000 in Polymarket profits. ESMA said contracts linked to asset prices and political or sports outcomes may fall under EU financial-market rules depending on their characteristics, while financial-market, crypto and gambling rules restrict some contracts and their sale to retail investors. The platforms continue to expand elsewhere, with quarterly volumes of $8.8 billion for Kalshi and $12 billion for Polymarket, while combined monthly volume reached $44.8 billion by June. ESMA's broader report also flagged tokenized equities and decentralized-finance exploits as potential channels for spillovers between crypto and traditional finance, amid a US dispute over federal and state authority over event contracts.