Gibraltar is well known for being nimble and its track record remains unchanged when it comes to prediction markets. In this area, rather than subjecting entrepreneurs to bureaucratic delay while a new regulatory branch was established, Gibraltar instead licensed a prediction market operator under the existing gambling framework. Below we look at the market impact of the licence and what steps might be taken next to allow Gibraltar to take advantage of its globally recognised reputation as a remote gaming and finance centre.
Prediction markets are defined by Investopedia as a market “[…] where individuals trade contracts based on the outcomes of unknown future events such as election results or sports competitions.”
Over the last 18 months, prediction markets have moved from a niche interest to a multibillion-dollar industry. Early starters in the early 2000s included Hedge Street whose latest iteration was sold to Crypto.com in 2020 and the US Department of Defence’s Policy Analysis Market (which proved a tool at the time). Players such as Polymarket and Kalshi have come to dominate the market as well as the conversation around prediction market products. Volumes of trades are now large enough to attract supervisory attention (estimates put Polymarket’s trading volume for March 2026 alone at 10 billion USD), and these businesses are now firmly in the sights of regulators worldwide. There is a race to determine whether these products are gambling, financial instruments, information markets or something else entirely.
For Gibraltar, there is a clear and pressing opportunity to address an important challenge. For an economy that has benefitted from, and developed a strong reputation as, a sophisticated remote gambling hub, Gibraltar is well placed to attract prediction market operators and has already done so. The existing regulatory framework stems from the Gambling Act 2005 (the “Act”), which has recently undergone a major overhaul. While the Act was originally designed for sportsbooks, lotteries, sweepstakes and betting exchanges, it is now being used to licence prediction market operators. However, operators are keen to differentiate prediction markets from ‘traditional’ betting markets, by 1) treating prediction markets as more akin to financial products and 2) leveraging technologies (decentralised markets, blockchain settlement etc.).
Existing position under the Gambling Act
We now know that the Act, which focuses on inter alia sports betting, pool betting and betting intermediaries, is considered to be sufficiently broad in scope to capture prediction markets. A single licence in Gibraltar has already been issued under the Act.
For operators, the more important question that arises is that while the activities of a prediction market might fit within the existing definitions, as the market develops, regulatory reform may be required to continue to provide clarity, best-in-class oversight and regulatory tools for modern prediction markets (as Gibraltar has continuously done in the past). Again, Gibraltar’s track record as a nimble jurisdiction will no doubt allow it to respond efficiently to any changes that may be required.
What makes prediction markets different to traditional gambling products may drive adoption of a new, tailormade framework. We explore those differences below.
Why are prediction markets different to traditional gaming products?
Prediction markets differ from existing products in some subtle but key ways – especially how they operate and how they are regulated.
1) Gambling v Finance. Prediction markets operate in a grey area between gambling and finance. While betting is typically seen as recreational, much of the marketing and hype from prediction markets has been driven by the professional and ‘financial’ feel of such markets and the companies which host them. However, whether something is a financial product or simply looks like one, can be a matter of opinion. Betting on how many yellow cards there will be in 45 minutes of a football match and trying to beat the market by predicting where the Bank of England will take interest rates seem fundamentally different. In the US, prediction markets are already being regulated by the Commodity Futures Trading Commission, and are considered distinct from traditional betting tools. Furthermore, much of the language used to describe them and how they are used (hedging, speculation, arbitrage etc.) lends a distinctly professional sheen to prediction markets.
2) Technology and Operating Models. Prediction market operators are leveraging novel technology to drive adoption, and enhance settlement. Outside more prosaic systems of settlement and market making, some operators are adopting DLT (wallets, smart contracts, DAO governance structures, liquidity pools, cross-chain settlements etc.). The Act assumes clearly identifiable and licensable operators who can be supervised effectively. This gives rise to issues that must be considered, including:
- Accountability: who is licensed in a decentralised market?
- Compliance: who is responsible for fulfilling regulatory obligations (AML, CDD, regulatory reporting etc.)
- Customer protection and outcomes: who handles complaints, mediates dispute resolution?
- Market integrity: who is liable for insider trading/market manipulation?
- Control and assurance: who is responsible for establishing and maintaining the effective systems of controls and procedures?
3) Consumer protection and conduct risk. Prediction markets, unlike traditional betting, are marketed as providing analytics and dispensing the ‘wisdom of the crowd’, more like investing rather than betting, even when the activities and therefore risks are so similar.
They also raise ethical and reputational questions. Existing betting markets can strictly police what markets are available for their clients to bet on, while prediction markets have fewer guardrails. Prediction markets provide access to markets from the trivial (e.g. release date of a highly anticipated video game) to the serious (military action) or even criminal conduct. Users will face exposure to the risk of insider information, market manipulation, parties coordinating to skew markets, bot activity etc.
4) International regulatory exposure. At present prediction markets have either been prohibited, classified as financial instruments, regulated as gambling or simply fallen between the gaps.
Operators face higher multi-regulator risk than those offering more traditional betting products. There is a question over how much local legislative certainty can protect operators overseas.
Is the Act still fit for purpose?
In the short term and for certain product offerings, yes. The Act is broad enough to permit prediction markets to be licenced as remote gambling products. This response will likely change as products evolve, and operators seek certainty in order to better scale their products and approach new markets.
The Act appears sufficiently flexible to allow for the licencing and supervision of prediction markets and their operators with a licence already granted.
However, for founders, investors and management, there are five key areas of uncertainty and risk:
- How should prediction markets be classified?
- How much overlap with financial regulation can there be allowed?
- How does the existing framework address novel technology movements such as decentralisation and -chain components of product offerings?
- How are consumer protection elements enforced – what conduct, disclosure and safeguarding is required?
- How will international risk, cross-border enforcement and reputational risks be managed?
Continuing to offer regulatory certainty will give Gibraltar a competitive edge and will allow for quicker establishment and enabling access to suppliers and service providers.
There is a commercial driver for operators that offer prediction market products to be perceived, and supervised, separately from traditional betting products particularly where such offerings want to be seen as trading venues as opposed to entertainment.
Gibraltar can bring new legislation into force efficiently, but any legislation must provide clarity on those five key areas of uncertainty listed above.
In order to provide that clarity, any legislation should;
- Clearly define what a prediction market is to avoid unnecessary classification disputes;
- Provide certainty in respect of oversight. Introduce rules for modern technology products to deal with the opportunities that arise from decentralised offerings and blockchain capable tools.
- Mandate strong market integrity standards (including controls against insider trading and market manipulation) and ensure they are enforceable.
- Protect Gibraltar’s reputation by limiting markets in unethical areas ( e.g. death, terrorism, criminal conduct etc) and setting clear standards.
- Require clear, prominent disclosure of risks aligned with prediction markers investment like presentation and separate to traditional gambling style messaging.
Conclusion
The prediction market boom offers opportunities to operators. However, the big driver in introducing legislation for prediction market products is to allow for differentiation between existing traditional betting products, and to account for the structural differences between the same.
Any framework must be credible on conduct with satisfactory provisions for consumers and consumer protections (disclosure, listing standards, enforcement) to avoid abusive behaviours.
As prediction market products diversify, the Act alone may not be adequate to cover every case. Gibraltar is well placed to act early and set a workable standard akin to Gibraltar’s approach to gaming, financial services, and virtual asset services legislation. The stakeholders in the process of building out the framework will need to consider definitions, oversight, and integrity and balance it with the requirement to allow operators to develop new markets.
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