Prediction markets in Italy create new challenges for regulators

For years, the boundary between betting and finance appeared relatively clear-cut. On one side was the regulated gambling sector, built around licensed bookmakers, state concessions and oversight by Italy’s Customs and Monopolies Agency. On the other hand, the world of financial instruments is supervised by CONSOB and governed by the European MiFID framework.

The distinction is now less clear. Prediction markets, digital platforms that enable users to trade on the outcomes of future events, are at the centre of this shift. The model combines elements of betting exchanges, online trading, and the crypto sector.

The phenomenon is still relatively new from a mainstream perspective, yet it has already attracted the attention of US regulators and the wider international financial community. Names such as Polymarket, Kalshi and PredictIt are now appearing more frequently in conversations surrounding speculative finance, crypto regulation and even political analysis.

The issue, though, goes far beyond technological innovation. Prediction markets are not simply another digital product entering the online ecosystem. They challenge regulatory distinctions that have taken decades to build between gambling and financial speculation.

The market of probabilities

At first glance, the mechanics behind these platforms are fairly straightforward. Users buy shares linked to the probability of a specific event occurring. Those events can range from presidential elections and central bank decisions to inflation trends, sporting results or movements in Bitcoin.

If the market increasingly believes a particular outcome is likely, the value of the contract rises. If confidence falls, the price declines. Users can buy, sell, or close their positions at any time, much like on a traditional financial exchange.

And this is precisely where the regulatory dilemma begins. Economically, the system resembles a sophisticated wager. Technically, however, the structure looks far closer to a derivatives exchange or a decentralised trading platform.

The result is a hybrid product that does not fit comfortably into either the gambling category or the traditional framework of financial instruments.

How prediction markets differ from bookmakers and CFDs

To better understand the issue, it is useful to compare prediction markets with existing regulated models. In the traditional betting industry, bookmakers act as the house. They set the odds, absorb the risk and generate profit through a mathematical margin built into the market. In Italy, the sector is tightly regulated through state concessions, technical compliance obligations, and tax requirements, all of which are overseen by ADM.

The CFD sector operates differently. Platforms such as Plus500, IG Group and XTB allow users to speculate on the movement of financial assets without directly owning them. Here, MiFID rules, ESMA leverage restrictions, anti-money laundering obligations and capital requirements all come into play.

Prediction markets sit somewhere in the middle. They are not bookmakers in the conventional sense because users often trade contracts directly with one another through peer-to-peer mechanisms. At the same time, they are not traditional financial brokers either, since the assets being traded are not conventional securities or listed instruments.

Operationally, the model closely resembles the betting exchange concept introduced by Betfair years ago. The difference is that the idea is now applied on a global scale and extended to virtually any real-world event imaginable.

The competitive advantage worrying the industry

The issue is beginning to generate tensions not only across the gaming and financial sectors, but also within the political sphere. The reason is straightforward: in some cases, international prediction market platforms are able to operate with significantly lower regulatory costs than traditional operators.

A licensed bookmaker in Italy faces substantial expenses linked to public concessions, technical compliance, ADM audits and responsible gambling obligations. A CFD broker, meanwhile, must deal with capital controls, investor disclosure rules and increasingly strict European regulations.

Many prediction market platforms – particularly those tied to the crypto sector – instead operate through offshore structures or decentralised systems, making it considerably harder to apply the same regulatory standards.

For licensed operators, this inevitably creates an asymmetrical form of competition. Users can gain speculative exposure to political, economic, or sporting events without going through either the regulated gambling system or the traditional financial framework.

And it is precisely this grey area that lies at the heart of the debate.

The US precedent and the Polymarket case

In the United States, the clash with regulators has already become very real. In 2022, the Commodity Futures Trading Commission challenged Polymarket for offering event-based contracts without the required registration under US law.

The company behind the platform later reached a settlement with the CFTC, agreeing to pay a $1.4 million civil penalty and to restrict access for US users.

The case had a significant impact on the industry because it highlighted a question that is likely to emerge in other jurisdictions as well: how should regulators classify instruments that simultaneously resemble wagers, derivatives and decentralised markets?

Kalshi’s position is somewhat different. The platform chose to operate within the US regulatory framework and obtained regulated market status from the CFTC. Yet even here, legal disputes surrounding contracts tied to US elections reignited the debate over where the line between gambling and financial instruments should be drawn.

The issue remains unresolved and could ultimately have implications far beyond the crypto sector alone.

Europe is watching but still lacks clear rules

Within Europe, the regulatory landscape appears even more uncertain. At present, there is no harmonised framework specifically designed for prediction markets. Inevitably, this creates uncertainty across multiple areas, including taxation, financial supervision and consumer protection.

Another particularly sensitive issue concerns the use of cryptocurrencies. Many platforms rely on stablecoins and decentralised wallets, making it more difficult to monitor financial flows and enforce anti-money laundering regulations.

For authorities such as ADM and CONSOB, the challenge is not only about the legal classification of these platforms, but also about the risk that a growing share of online speculation could develop outside traditional regulatory boundaries.

And this may become an increasingly important issue over the coming years, particularly if the sector continues attracting liquidity and retail users.

When markets attempt to predict the future

There is another aspect that makes prediction markets especially unusual compared with conventional speculative platforms: their informational role.

During the 2024 US presidential election campaign, the probabilities displayed on Polymarket were closely followed by journalists, analysts and market participants, often viewed as more reactive than traditional political polling.

The theory behind this is relatively simple. Someone risking real money on an outcome arguably has a stronger incentive to make accurate predictions than someone casually answering a statistical survey.

For that reason, many observers increasingly see prediction markets not only as speculative instruments but also as systems capable of aggregating collective expectations and information in real time.

It marks a significant shift in perspective. This is no longer merely about betting on who will win an election or a football match. It is about transforming virtually any real-world event into a globally tradable asset available around the clock.

And that is precisely why regulators and traditional operators are finding the phenomenon so difficult to ignore. Prediction markets are not simply an evolution of online betting. They are reshaping the relationship between information, speculation and digital finance at a time when long-standing regulatory categories are beginning to show their limits.

This article was originally published on the Italian SiGMA News page on 13 May 2026.

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