Prediction markets are facing heightened scrutiny from ESMA (European Union securities watchdog), which said the sector is rife with insider trading and devoted a chapter of its risk monitor to the issue. The regulator cited three episodes: new wallets generated $1.2 million ahead of February's strike on Iran; Bubblemaps later linked nine accounts to $2.4 million in Iran bets that won 98% of the time; and a U.S. Army master sergeant was charged over more than $400,000 in Polymarket profits tied to the capture of Venezuelan president Nicolás Maduro. In April, suspected interference with weather sensors used to settle Polymarket contracts led Météo-France to file a police complaint. ESMA said platforms generally respond only after profits have been taken, although Polymarket chief legal officer Neal Kumar argued the Maduro case showed that traders are not anonymous and can be identified. The regulator also said prediction markets have gained little traction in the EU because of regulatory rules rather than weak demand. Contracts can be treated as financial instruments under MiFID II, fall within MiCA, or be classified as gambling under national law. Where they qualify as financial instruments, they are derivatives, and national rules reflecting ESMA's binary-options intervention prohibit selling them to retail investors. Kalshi and Polymarket restrict access in some, but not all, EU countries; both prohibit VPN use, though ESMA said the practical effectiveness of those restrictions is uncertain. Malta is the only country drafting a framework. Market activity has since accelerated: ESMA's data ended in November 2025 for Kalshi and January 2026 for Polymarket, when quarterly volumes were $8.8 billion and $12 billion, respectively. The Block put their combined June monthly volume at $44.8 billion, including $31.5 billion for Kalshi as the World Cup attracted bettors. Sports represented 73% of Kalshi's volume, while Polymarket's activity was divided among politics, sports and crypto. ESMA also cited research indicating that 67% of Polymarket gains went to 0.1% of accounts and that most users lose money. In the United States, the CFTC (U.S. derivatives regulator) has defended its jurisdiction against states and proposed banning war and assassination contracts, while the CFTC and SEC (U.S. securities regulator) are bringing crypto perpetual futures onshore. The debate has focused on which contracts should be allowed, with CME's Terry Duffy and Kalshi's Luana Lopes Lara clashing over manipulation at a CFTC roundtable in August.