{"id":14132,"date":"2026-05-27T14:35:49","date_gmt":"2026-05-27T14:35:49","guid":{"rendered":"https:\/\/www.comply.com\/resource\/prediction-markets-and-the-compliance-risks-firms-need-to-address\/"},"modified":"2026-05-27T14:35:49","modified_gmt":"2026-05-27T14:35:49","slug":"prediction-markets-and-the-compliance-risks-firms-need-to-address","status":"publish","type":"resource_posts","link":"https:\/\/www.comply.com\/en-gb\/resource\/prediction-markets-and-the-compliance-risks-firms-need-to-address\/","title":{"rendered":"Prediction Markets and the Compliance Risks Firms Need to Address"},"content":{"rendered":"

Prediction markets have moved from a niche concept to a daily client conversation,\u00a0and compliance teams are being asked questions they\u00a0may not\u00a0have clear answers to.<\/span>\u00a0<\/span><\/p>\n

If prediction markets have not come up at your firm yet, they will.\u00a0This article explains what prediction markets are, where\u00a0the compliance\u00a0risks sit, and what CCOs should be doing now.<\/span>\u00a0<\/span><\/p>\n

<\/span>What Is a Prediction Market?<\/span><\/b>\u00a0<\/span><\/span><\/h2>\n

A prediction market is a trading platform where participants buy and sell contracts based on the projected outcome of a specific event.<\/span>\u00a0<\/span><\/p>\n

Rather than trading stocks or commodities, participants are wagering on whether something will happen \u2014 an election result, an economic indicator, a policy decision, or a cultural event. Platforms like Kalshi,\u00a0Polymarket, and Robinhood’s prediction market offering allow users to take “yes” or “no” positions across a wide range of topics. Prices fluctuate in real time based on market sentiment, and contracts pay out based on the event\u00a0outcome.\u00a0Prediction markets are regulated by the CFTC as designated contract markets, but\u00a0not by the SEC.<\/span>\u00a0<\/span><\/p>\n

<\/span>Why This Is a Compliance Issue<\/span><\/b>\u00a0<\/span><\/span><\/h2>\n

At first glance, prediction\u00a0markets may seem outside the scope of a firm’s compliance program because they do not involve securities in the traditional sense. They are not subject to a Code of Ethics in the same way as personal securities trading. Even so, the underlying risks are familiar. In some cases,\u00a0prediction\u00a0market activity also intersects with digital assets. For example, certain platforms have used crypto-related infrastructure or tokens, which can bring an\u00a0additional\u00a0layer of compliance risk into\u00a0the conversation.<\/span>\u00a0<\/span><\/p>\n

<\/span>MNPI and Insider Trading Risk<\/span><\/b>\u00a0<\/span><\/span><\/h3>\n

Employees with access to material non-public information obtained through their advisory role could use that information to trade on prediction market platforms in ways that mirror insider trading\u00a0even if the instruments involved are not technically securities.<\/span>\u00a0<\/span><\/p>\n

The SEC’s classic insider trading framework may not squarely apply,\u00a0but the CFTC has its own parallel provisions.\u00a0CEA Section 6(c)(1) and Regulation 180.1 broadly prohibit fraud and manipulation in connection with commodity and\u00a0derivatives\u00a0transactions.\u00a0<\/span>\u00a0<\/span><\/p>\n

<\/span>Conflicts of Interest<\/span><\/b>\u00a0<\/span><\/span><\/h3>\n

Even absent MNPI,\u00a0prediction\u00a0market activity can create conflicts\u00a0of interest. An employee with a financial stake in the outcome of an event they are also\u00a0advising on\u00a0presents a real conflict that existing policies may not explicitly address.<\/span>\u00a0<\/span><\/p>\n

<\/span>Policy Gaps<\/span><\/b>\u00a0<\/span><\/span><\/h3>\n

Most compliance frameworks were not written with prediction markets in mind.<\/span>\u00a0<\/span><\/p>\n

Does your Insider Trading Policy prohibit trading on MNPI regardless of the instrument?\u00a0Explicitly\u00a0enough to cover event-based contracts? Does your Code of Ethics contemplate\u00a0prediction\u00a0market accounts?<\/span>\u00a0<\/span><\/p>\n

These\u00a0potential\u00a0gaps are worth\u00a0identifying\u00a0now, before a regulator or an incident does\u00a0it for you.<\/span>\u00a0<\/span><\/p>\n

<\/span>A Recent Example Makes the Risk Concrete<\/strong><\/span><\/h2>\n

In May 2026, the CFTC charged a Google employee with insider trading<\/a> after he allegedly used confidential information about the company’s internal search data to place trades on Polymarket \u2014 generating approximately $1.2 million in profits. The contracts weren’t securities. They were event-based instruments. But the CFTC pursued the case anyway under CEA Section 6(c)(1) and Regulation 180.1, the same provisions that apply to commodity and derivatives fraud.<\/p>\n

The case is a clear signal that regulators will look past instrument classification when the underlying conduct involves misuse of material non-public information. For compliance teams, the takeaway is straightforward: if an employee has access to information that could move a prediction market contract, your firm needs a policy that addresses it.<\/p>\n

<\/span>What CCOs Should Do Now<\/span><\/b>\u00a0<\/span><\/span><\/h2>\n

Prediction markets are not a wait-and-see situation. The regulatory framework is still developing. The compliance risks are not.<\/span>\u00a0<\/span><\/p>\n

Conduct a risk assessment.<\/span><\/b>\u00a0<\/span><\/p>\n

Identify\u00a0which employee populations have access to MNPI or are in positions where\u00a0prediction\u00a0market activity could create conflicts. Assess whether your current policies provide adequate coverage and document how those decisions were made.<\/span>\u00a0<\/span><\/p>\n

Review and update your policies.<\/span><\/b>\u00a0<\/span><\/p>\n

At minimum, the following should be evaluated for language that explicitly addresses prediction markets:<\/span>\u00a0<\/span><\/p>\n

    \n
  • Code of Ethics \/ Code of Conduct<\/span>\u00a0<\/span><\/li>\n<\/ul>\n
      \n
    • Insider Trading Policy<\/span>\u00a0<\/span><\/li>\n<\/ul>\n
        \n
      • Personal Trading Policy<\/span>\u00a0<\/span><\/li>\n<\/ul>\n
          \n
        • Training and certification programs<\/span>\u00a0<\/span><\/li>\n<\/ul>\n

          Take a position.<\/span><\/b>\u00a0<\/span><\/p>\n

          Some firms will choose to prohibit\u00a0prediction\u00a0market activity outright for certain employee populations. Others may\u00a0permit\u00a0it with disclosure requirements or pre-clearance for high-risk roles. Either approach is defensible; having no position\u00a0and documentation\u00a0is not.<\/span>\u00a0<\/span><\/p>\n

          Update your training.<\/span><\/b>\u00a0<\/span><\/p>\n

          If employees do not know prediction markets are on your radar, they will not think\u00a0to\u00a0flag issues or ask questions.\u00a0Initial and\u00a0annual training is an opportunity to build awareness before a problem arises.<\/span>\u00a0<\/span><\/p>\n

          <\/span>The Time to Act Is Now<\/span><\/b>\u00a0<\/span><\/span><\/h2>\n

          Prediction markets are not a fringe issue. They are coming up in client conversations across the industry, and regulatory attention is growing.<\/span>\u00a0<\/span><\/p>\n

          CCOs who build a defensible position now \u2014 documented policies, clear employee guidance, and a compliance program designed to hold up under scrutiny \u2014 will be better prepared for what\u00a0the future holds when\u00a0the regulatory framework catches up.<\/span>\u00a0<\/span><\/p>\n

          <\/span>Build a Defensible Position on Prediction Markets<\/span><\/b>\u00a0<\/span><\/span><\/h2>\n

          Prediction markets require compliance teams to make real decisions quickly and to document them in a way that holds up under scrutiny. Comply helps firms do that by enabling compliance teams to:<\/span>\u00a0<\/span><\/p>\n

            \n
          • update policies, Codes of Ethics, and training to explicitly address prediction market activity<\/span>\u00a0<\/span><\/li>\n<\/ul>\n
              \n
            • collect and store certifications, attestations, and disclosure acknowledgments<\/span>\u00a0<\/span><\/li>\n<\/ul>\n
                \n
              • document supervisory reviews, escalation decisions, and risk assessments in one centralized place<\/span>\u00a0<\/span><\/li>\n<\/ul>\n

                Informal guidance is not a compliance program. Firms that build documented controls and repeatable processes now will be better positioned to respond to regulators, to clients, and to whatever comes next.<\/span>\u00a0<\/span><\/p>\n

                <\/span>Frequently Asked Questions<\/span><\/b>\u00a0<\/span><\/span><\/h2>\n

                What are prediction markets and how are they regulated?\u00a0<\/span><\/b>
                \nPrediction markets are trading platforms where participants buy and sell contracts based on the outcome of specific events \u2014 elections, economic indicators, policy decisions, and more. Platforms like Kalshi,\u00a0Polymarket, and Robinhood’s\u00a0prediction\u00a0market offering fall into this category. They are regulated by the CFTC as designated contract markets, not by the SEC, which means they sit outside traditional securities law \u2014 but not outside compliance risk.<\/span>\u00a0<\/span><\/p>\n

                Do prediction markets count as securities?\u00a0<\/span><\/b>
                \nNo. Prediction market contracts are event-based instruments regulated by the CFTC, not the SEC. That distinction\u00a0matters for\u00a0how your policies are written, but it does not\u00a0eliminate\u00a0compliance exposure. MNPI misuse and conflicts of interest remain real concerns regardless of how the instrument is classified.<\/span>\u00a0<\/span><\/p>\n

                Can employees trade on prediction markets using inside information?<\/span><\/b>\u00a0<\/span>
                \nPotentially,\u00a0yes. The SEC’s insider trading framework may not squarely apply to non-securities instruments, but the CFTC has its own parallel provisions: CEA Section 6(c)(1) and Regulation 180.1 broadly prohibit fraud and manipulation in commodity and derivatives transactions. An employee who uses MNPI obtained through their advisory role to trade on prediction markets may face CFTC enforcement exposure even if no securities are involved.<\/span>\u00a0<\/span><\/p>\n

                Should our firm prohibit employees from using prediction markets?\u00a0<\/span><\/b>
                \nThat depends on your risk assessment. Some firms will prohibit participation outright for employees with MNPI access. Others may\u00a0permit\u00a0it with pre-clearance or disclosure requirements. Either approach is defensible. What is not defensible is having no documented position at all. CCOs should assess which employee populations pose the greatest risk and make a deliberate, documented decision.<\/span>\u00a0<\/span><\/p>\n

                What should CCOs do about prediction markets right now?<\/span><\/b>\u00a0<\/span>
                \nAt minimum,\u00a0conduct a risk assessment to\u00a0identify\u00a0exposed employee populations, review your policies for gaps, take a documented position on whether and how prediction market activity is\u00a0permitted, and update training so employees know this is on your radar. The regulatory framework is still\u00a0developing<\/span>,\u00a0<\/span>the compliance risks are not.<\/span>\u00a0<\/span><\/p>\n","protected":false},"author":4,"featured_media":14109,"menu_order":0,"template":"","resource_type_tax":[160],"delivery_method_tax":[],"certification_tax":[],"class_list":["post-14132","resource_posts","type-resource_posts","status-publish","has-post-thumbnail","hentry","resource_type_tax-blog-article"],"acf":{"resource_description":"","resource_button":{"title":"","url":"","target":"","0":""},"resource_date":"","include_bdt_time":false,"resource_location":"","is_press_release":false,"form_headline":"","form_id":"","is_paywall":false,"newsletter_type":"global","resource_feed_group":{"show_section":false,"section_headline":"","more_link":{"title":"","url":"","target":"","0":""},"use_recent_resources":true,"resources":false},"resource_feed_clone":{"resource_feed_group":{"show_section":false,"section_headline":"","more_link":{"title":"","url":"","target":"","0":""},"use_recent_resources":true,"resources":false}},"gate_this_content":false,"form_embed":"","introduction":"","full_content_":"","event_date_":"","new_blue_header":false},"yoast_head":"\nPrediction 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