Prediction Markets to Become Categorized Under Gambling Laws: UK Regulator

The world of online speculation is always finding new avenues, and prediction markets have certainly captured attention lately. These platforms allow individuals to buy and sell contracts tied to the outcomes of various events, from political elections and sporting contests to economic indicators. While these markets have seen considerable uptake, particularly across the Atlantic, their potential launch in Great Britain brings them under the watchful eye of the UK Gambling Commission (UKGC). The regulator has made its position clear: it views these products as gambling services, not financial instruments, meaning any commercial operator would need to secure a gambling license.

Understanding Prediction Markets: A Global Phenomenon

Prediction markets operate on a simple yet effective premise: participants stake money on a future event. An event contract typically has a nominal value, often $1, and traders can buy “yes” or “no” positions for a fraction of that value. When the event concludes, the correct predictions pay out. This mechanism aggregates collective intelligence, suggesting that the wisdom of the crowd can often forecast outcomes more accurately than individual experts.

These platforms have recently gained significant momentum, especially in the United States. Companies like Kalshi, Polymarket, and PredictIt have become notable players, allowing users to wager on everything from the next presidential election to the price of cryptocurrency. This market segment experienced explosive growth, reportedly soaring from less than $100 million in monthly volume in early 2024 to over $13 billion by the end of 2025. Kalshi and Polymarket alone accounted for a combined volume exceeding $37 billion in predictions placed in 2025. Major US platforms such as DraftKings, FanDuel, and Robinhood have also moved into offering prediction markets, indicating a strong interest in this form of event-based trading.

The UK’s Regulatory Lens: Gambling, Not Finance

For Great Britain, the situation is distinct. Brad Enright, the UKGC’s Director of Strategy, recently articulated the Commission’s perspective. He emphasized that any commercial product fitting the legal definition of gambling under British law requires a license and UKGC oversight. While some prediction market operators internationally might frame their services as akin to financial trading, the UKGC suggests that current models would be seen as “Betting Intermediaries” in Great Britain. This classification aligns them with established betting exchanges, which have been a part of the UK’s gambling landscape for over two decades.

The UK Gambling Act 2005 forms the bedrock of this regulatory framework, aiming to prevent crime, ensure fair and open gambling, and protect vulnerable individuals. The UKGC’s role is to uphold these objectives, imposing stringent requirements on licensed operators. These include robust consumer protection measures, guarantees of fairness, maintaining the integrity of betting markets, and proactive efforts to prevent criminal activity. The Commission actively monitors compliance and is prepared to take enforcement action when rules are broken.

The Spread Betting Exception and FCA’s Remit

There is, however, one clear exception to the UKGC’s jurisdiction regarding event-based speculation: spread betting. This particular financial product falls under the regulation of the Financial Conduct Authority (FCA), not gambling laws. The distinction is crucial. Spread betting is generally viewed as a form of financial trading, requiring skill and strategy, involving analysis of market movements, economic data, and financial news, much like traditional trading. Profits from spread betting are also exempt from capital gains tax and stamp duty in the UK, a notable difference from general gambling winnings.

The FCA’s oversight reflects a view of spread betting as a legitimate financial activity, focusing on consumer protection and market integrity within a financial services context. In contrast, the UKGC’s domain covers activities primarily driven by chance or the outcome of events outside of regulated financial markets. The two regulators even have a Memorandum of Understanding that outlines their collaboration and information sharing, especially concerning products that might blur the lines between gambling and financial services.

Consequences for Unlicensed Operations

The UKGC has issued a stern warning to prediction market companies currently operating without UK licenses. These businesses are expected to ensure they do not market to or accept customers from Great Britain. Failing to do so could lead to criminal offenses and potentially impact any existing gambling permissions a company might hold elsewhere. The implications extend to commercial viability, as the significant revenue potential of prediction markets would be inaccessible without proper licensing. The regulatory landscape also brings additional costs, including application fees, ongoing compliance, and the need for robust systems to meet consumer protection and anti-money laundering standards.

For companies like Matchbook, which already hold a UKGC license as a betting exchange, introducing a prediction market product can be a more streamlined process. They are leveraging their existing regulatory framework and technical infrastructure to offer event-based predictions to a UK audience. This approach highlights how established betting operators might adapt to incorporate these new product types within recognized legal boundaries.

A Tale of Two Markets: UK vs. US Regulatory Contrasts

The differing approaches to prediction markets between Great Britain and the United States reflect broader structural differences in their respective gambling and financial regulatory systems. Great Britain operates under a singular, national framework for sports betting, which is well-established and universally applied. This creates a consistent environment for operators and consumers alike.

The US, however, presents a more fragmented picture. Legal sports betting is a newer phenomenon there, having expanded rapidly since 2018, and regulation varies significantly from state to state. Prediction markets in the US have faced ongoing legal debates, primarily between state authorities, who sometimes view them as unregulated sports betting, and federal watchdogs like the Commodity Futures Trading Commission (CFTC), which has regulated some prediction market platforms as derivatives. Companies like Kalshi, for instance, are CFTC-regulated and even won a federal appeals court case in October 2024 to revive election prediction markets. Polymarket, another prominent platform, paid a $1.4 million fine to the CFTC and subsequently moved some operations offshore, later acquiring a CFTC-registered entity (QCX LLC) to operate its US platform. This patchwork of regulation and the ensuing legal battles likely contribute to why prediction markets have flourished in the US in a way that might not immediately translate to the UK’s more unified system.

Moreover, tax treatment varies significantly. In the UK, gambling winnings are generally not subject to income tax. In contrast, gambling winnings in the US are typically considered taxable income at both state and federal levels, with taxes often withheld upfront. These economic factors also shape the commercial drivers and consumer appeal of such markets in each region.

The Broader Betting Ecosystem and Technological Evolution

Prediction markets fit into a broader trend of technology reshaping how people engage with predictions and probabilities. The underlying mechanics of these platforms often resemble betting exchanges, where individuals bet against each other rather than against a bookmaker. This peer-to-peer model has existed in the UK for a long time through platforms like Betfair and Smarkets. The integration of advanced analytics and artificial intelligence (AI) helps in setting odds, managing risk, and personalizing user experiences across the gambling industry. AI agents, for example, are now being used in blockchain oracles to check real-world results accurately and quickly for prediction markets.

Blockchain technology, in particular, offers compelling features for prediction markets, enhancing transparency and security through decentralized ledgers and smart contracts. Platforms like Polymarket, built on the Polygon blockchain, allow trading using stablecoins like USDC, providing a trustless environment where transactions are immutable and publicly verifiable. The rise of blockchain based prediction markets runs parallel to the growth of crypto gambling, where users can wager on outcomes using cryptocurrencies, offering a different layer of anonymity and often faster transactions. For more on this side of the industry, you can check out InsideBitcoins.com/crypto-casinos.

From a financial perspective, the UK gambling industry is already significant. However, recent legislative changes are tightening the fiscal backdrop for remote gambling. From April 1, 2026, remote gaming duty is set to increase from 21% to 40%, and a new 25% remote betting rate will be introduced within the General Betting Duty from April 1, 2027, excluding UK horseracing bets. Such adjustments aim to raise revenue and discourage higher-risk products, adding another layer of consideration for any new market entrants.

Ultimately, the UKGC’s position ensures a level playing field for all operators offering services deemed to be gambling. It emphasizes that innovation in prediction markets must occur within existing regulatory boundaries designed to protect consumers and maintain market integrity. As the global gambling industry continues to evolve, shaped by technological advancements and shifting consumer interests, regulators like the UKGC remain vigilant, ensuring that new products adhere to established standards, regardless of how they are presented.