Polymarket’s HSBC and Lloyds failure contracts prompt UK regulatory concerns

Polymarket has listed contracts allowing traders to take positions on whether HSBC, Lloyds Banking Group and other major lenders will fail by the end of 2026, prompting calls for British regulators to raise concerns with their US counterparts.

About $77,500 (£58,530) had been traded or committed across contracts covering banks including JPMorgan, BNP Paribas, HSBC and Lloyds. The binary contracts resolve according to whether the named bank fails before year-end, rather than signalling that a failure is expected.

Bobby Dean, the Liberal Democrat member of the Treasury Committee, told the Guardian that an escalating bank-related market could itself aggravate sentiment and potentially trigger a bank run. He urged UK regulators to contact US counterparts, arguing that the products’ current small scale should not obscure their risks.

There is no evidence that trading in the HSBC or Lloyds contracts has affected depositor behaviour. HSBC and Lloyds declined to comment.

The concern nevertheless touches a vulnerability identified by the Bank of England, which has previously told lenders to prepare for bank runs that can move faster through social media and mobile banking. Silicon Valley Bank and Credit Suisse collapsed in 2023 following stock sell-offs and bank runs, with withdrawals accelerated by online discussion and digital communications.

Polymarket bars residents of the UK, US, Canada and EU from its offshore platform, while users in roughly 150 countries can participate. Eastern Eye reported that users in restricted jurisdictions have reportedly used VPNs in breach of the platform’s terms.

The Financial Conduct Authority has been discussing prediction markets with international regulators as part of work to protect market integrity. Its 2026 perimeter report identified such markets as an emerging issue and said financial prediction products it has examined can fall within its remit; it treats those products as binary options, whose sale to UK retail consumers is permanently banned.

The regulatory boundary depends on the contract. Sporting and political markets fall under the Gambling Commission, while contracts tied to financial and certain climatic events can come within the FCA’s perimeter. As reported in September, the European Securities and Markets Authority also said Polymarket and Kalshi lacked the authorisation generally required to market and sell event contracts in the EU.

Polymarket’s chief legal officer, Neal Kumar, argued that the contracts pose no novel problem because banks, hedge funds and credit professionals have long traded credit-default swaps to express views on credit risk. He said prediction markets make information available to a wider audience and can help counter disinformation.

Regulators’ concern centres on the potential for traders to profit from non-public information or from influencing the event on which a contract settles. Polymarket operates blockchain-based markets linked to crypto wallets: transactions are publicly traceable, but the wallets can be difficult to connect to real-world identities.

ESMA warned in September that insider-trading and manipulation risks reach particularly high levels on distributed-ledger platforms with limited identity verification. It cited newly created wallets that reportedly made about $1.2 million before the US-Israel strike on Iran became public. Separate incidents reported by the Guardian included criminal charges against a US soldier accused of placing profitable Polymarket positions using classified information, and suspected interference with weather sensors used to settle weather contracts at Charles de Gaulle airport.

The HSBC and Lloyds contracts remain small beside established financial markets. Their subject matter has nevertheless attracted attention because a bank failure can affect customers and the wider financial system.