Prediction markets test Australia’s gambling and financial regulation

Prediction markets are emerging as the latest challenge to Australia’s gambling and financial regulators, prompting a warning to consumers that offshore platforms offering wagers on everything from interest rates to elections operate outside Australia’s consumer protection framework.

The Australian Securities and Investments Commission (ASIC) move comes as prediction markets, a niche financial product until recently, have become a multi-billion-dollar global industry that increasingly blurs the line between investing and gambling.

While supporters argue the platforms provide an efficient way to forecast future events by aggregating market sentiment, critics say they are little more than speculative betting dressed up as financial trading.

The rapid growth of the sector has been led by US-based operators Kalshi and Polymarket, whose popularity exploded during the 2024 US presidential election as traders wagered billions of dollars on political outcomes.

The companies have since expanded the range of contracts available to include interest rate decisions, inflation, commodities, sport, entertainment and geopolitical events, attracting millions of users worldwide.

Their growing profile has also extended to Australia, where consumers can access offshore platforms despite no prediction market being licensed to operate under national financial services laws.

Concern over that trend prompted ASIC to publish new guidance through its Moneysmart website warning Australians about the risks of participating in offshore prediction markets.

ASIC commissioner Alan Kirkland said consumers using overseas operators missed out on important legal protections available in Australia.

“If you are engaging with a prediction market, you are doing so with an operator overseas and that means that you miss out on important protections that would apply to any other market you engage in within Australia,” Kirkland told the ABC.

Unlike licensed Australian financial markets, offshore prediction market operators are not subject to Australia’s consumer protection regime, meaning users may have limited avenues for dispute resolution or regulatory oversight if problems arise.

ASIC is encouraging consumers to check whether an investment provider is licensed before committing funds and to verify whether a platform appears on the Australian Communications and Media Authority’s (ACMA) register of blocked gambling websites.

The regulator is also urging consumers to consider whether they can afford to lose the full amount they invest before participating.

Although prediction markets are often promoted as innovative financial products, Kirkland said their practical effect closely resembles gambling.

“Whatever the legal definition of a prediction market, let’s just focus on the substance and in all practical terms, it is akin to gambling,” he said.

That comparison mirrors the increasingly blurred boundary between financial markets and wagering, with participants effectively staking money on whether a future event will or will not occur.

Unlike traditional fixed-odds betting, however, prediction market prices fluctuate continuously as traders buy and sell contracts based on changing perceptions of probability.

Supporters argue those constantly updating prices can produce highly accurate forecasts of elections, economic data releases and other significant events by incorporating new information in real time.

ASIC, however, is concerned that ordinary consumers may be trading against participants with access to superior information.

“We do see prediction markets that offer the right to bet on outcomes of events within Australia, such as RBA rate decisions,” Kirkland said.

“It is possible that Australians are engaging in these markets, but we think it’s important that they understand that they come with risks.”

The regulator has also raised concerns about the potential for insider trading, with several legal cases in the United States examining whether confidential information has been used to profit from prediction markets.

“They’re potentially just the tip of the iceberg. We really don’t know how much insider trading might actually be happening on these platforms,” Kirkland said.

ASIC said it is difficult to estimate how many Australians are participating in offshore prediction markets, although the availability of contracts on Australian events suggests local demand is growing.

The industry’s rise has also been fuelled by aggressive marketing through social media, influencers and major sporting sponsorships that have increased awareness beyond traditional financial audiences.

This year FIFA entered a multi-year partnership with ADI PredictStreet, while Kalshi has attracted attention through advertising campaigns highlighting markets covering everything from egg prices to hurricane activity.

Despite ASIC’s warning, momentum is building for Australia to eventually develop a regulated prediction market rather than relying on offshore operators.

Financial futures exchange operator FEX Global has expressed interest in establishing what would become Australia’s first licensed prediction market.

ASIC said no formal application to operate a prediction market had been lodged.

“If somebody was to submit an application to operate a prediction market in Australia, then of course we would determine that under the law, but that’s not the reality now,” Kirkland said.

ASIC maintains Australians considering accessing prediction markets should treat them as high-risk speculative products and understand that, despite their investment branding, they operate outside Australia’s regulatory protections.