FCA holds UK-entry talks with Kalshi and Polymarket amid binary-options ban

The Financial Conduct Authority has held discussions with Kalshi and Polymarket about a potential entry into the UK, adding regulatory scrutiny to two prediction-market operators seeking to expand their reach. FCA markets chief Simon Walls confirmed the talks on Oct. 6, according to the Financial Times.

Any entry would confront a split regulatory system and an existing retail ban on certain products. Yahoo Finance reported that financial prediction-market contracts examined by the FCA were binary options and therefore remained subject to its prohibition.

The FCA permanently barred firms acting in or from the UK from selling, marketing or distributing binary options to retail customers from April 2, 2019. The regulator introduced the intervention after finding consumer harm associated with the products' inherent risks and poor conduct by providers. It estimated that the measure could save retail customers up to £17 million a year.

The prohibition applies to all binary options, including securitised binary options that had not been covered by a temporary European Securities and Markets Authority restriction. The FCA said such products have predetermined binary payouts, are priced similarly to fixed-odds betting products and are unlikely to be profitable for investors over time.

The relevant regulator depends on what an event contract concerns. The FCA oversees prediction-market products tied to financial and certain climatic events, while contracts on non-financial outcomes such as politics and sport fall within the Gambling Commission's remit. A UK platform offering both political and financial contracts would therefore need a gambling licence as well as relief from the FCA's financial-products prohibition.

The Gambling Commission said in February that, depending on their business model, current prediction-market products appeared likely to fall within the UK definition of a betting intermediary. Their core features were akin to a betting exchange, it said. Commercial products that meet the statutory definition of gambling must be licensed, and an unlicensed operator targeting or transacting with consumers in Great Britain may commit criminal offences.

The commission defines prediction markets as platforms where participants trade contracts linked to financial, sports or political events. It noted that betting exchanges have operated in the UK since 2000 and that licensed firms must meet requirements on consumer protection, fairness, market integrity and crime prevention. It also said sports betting was already widely available in Great Britain under a single overarching regulatory framework.

Polymarket has disputed the characterisation of its service as gambling. Its chief legal officer, Neal Kumar, said the platform did not set odds or benefit from customer losses, and instead matched users' orders on a central limit order book by price and time priority. He argued that participants traded against one another and that such markets turned dispersed information into prices expressing the perceived likelihood of events.

The UK discussions come as the operators have faced regulatory action elsewhere. New York authorities have sued Kalshi and Polymarket, alleging they operated unlicensed gambling businesses, while Spain opened proceedings against both in May and ordered their websites blocked as a precautionary measure over suspected licensing breaches. France's gambling regulator ordered internet providers to block Polymarket in July, saying the site promoted illegal gambling.