On Sep 7 2026 the Financial Conduct Authority confirmed it is holding informal talks with several trading platforms about potentially relaxing the 2019 prohibition on retail binary options and related prediction-market contracts. This development reflects the FCA easing prediction market ban in response to a rapid surge in UK-based activity on US-registered exchanges such as Kalshi and Polymarket, which British users access through VPNs.
Volume explosion forces regulator’s hand
- Five-fold growth: Combined monthly transaction volume on Kalshi and Polymarket jumped from under $5 bn in September 2025 to roughly $24 bn by April 2026, according to internal data cited by the editorial team.
- Cross-border traffic: A significant share of that volume originates from IP addresses linked to the United Kingdom, despite the platforms being officially unavailable to British residents.
- Liquidity implication: The influx of UK capital has turned these niche US venues into de-facto global liquidity hubs for macro-event contracts, raising the stakes for any regulatory shift.
Legal backdrop – binary options ban and jurisdictional split
- 2019 binary-options ban: The FCA classified binary options as high-risk retail products, citing systematic losses for everyday investors. Most prediction-market contracts fall under the same definition because they are essentially yes-or-no bets on price thresholds.
- Financial vs. non-financial contracts: The FCA retains authority over contracts tied to financial or climate outcomes. By contrast, the UK Gambling Commission (UKGC) regulates bets on political, sports, or other non-financial events.
- UKGC February 2026 stance: The commission indicated that commercial prediction markets dealing in non-financial outcomes may need a betting-intermediary licence, mirroring the framework applied to traditional betting exchanges.
FCA easing prediction market ban: regulatory outlook
- Full liberalisation: Lifting the binary-options ban for prediction contracts would allow UK traders to access US platforms without VPNs, dramatically expanding domestic liquidity and prompting other jurisdictions to reconsider similar bans.
- Partial carve-out: A more likely outcome is a narrowly scoped amendment that permits only contracts linked to verified financial data, leaving non-financial events under UKGC oversight. This preserves consumer-protection goals while acknowledging market demand.
- Hybrid licensing: The FCA could introduce a licence that mirrors the UKGC betting-intermediary model but adds AML/KYC layers specific to financial contracts, closing the two-tier gap and reducing operational risk.
- Enforcement risk: Until a formal regime is published, traders remain vulnerable to cease-and-desist notices. The FCA has previously targeted platforms offering binary options to UK residents; similar actions could extend to VPN-based users if the regulator tightens its stance.
Emerging domestic alternatives and the two-tier market
- Versus platform: A UK-licensed operator, Versus, has launched a prediction-market offering that complies with existing FCA and UKGC rules, providing a legal avenue for domestic traders.
- Access disparity: While Versus caters to compliant users, larger US platforms remain blocked through official channels. Tech-savvy traders bypass restrictions with VPNs, creating a split where sophisticated participants enjoy deep liquidity while average retail users are confined to limited domestic products.
- Operational risk: VPN-based access bypasses AML/KYC checks, exposing users to potential sanctions, tax-reporting gaps, and settlement failures if a platform experiences a smart-contract bug or regulatory shutdown.
Why prediction markets matter beyond speculation
- Macro-data contracts: Kalshi, regulated by the U.S. Commodity Futures Trading Commission, offers contracts on Fed rate decisions, CPI releases, and other macro indicators. These instruments provide price discovery for events that directly affect crypto markets and DeFi lending rates.
- On-chain transparency: Polymarket runs on Polygon, delivering immutable transaction records and automated settlement. This architecture reduces counterparty risk but introduces rollup risk, a concern highlighted in recent rollup risk summaries.
- Strategic relevance: Traders use these markets to hedge crypto exposure or gauge sentiment ahead of major policy announcements, influencing on-chain activity and token price dynamics.
Infrastructure considerations for platform operators
- Smart-contract audit: Polymarket’s reliance on Polygon means any rollup failure could freeze settlement, a scenario that would attract FCA scrutiny given the potential for retail loss.
- Cross-border data sharing: Platforms must reconcile UK data-privacy rules (UK GDPR) with U.S. reporting obligations, a non-trivial compliance hurdle that could affect onboarding speed.
- Liquidity provisioning: To attract UK capital under a new licence, operators may need to offer market-making incentives, similar to liquidity-mining programmes seen in DeFi, but structured to meet FCA capital-adequacy standards.
What to watch next
- FCA consultation timeline: The regulator typically publishes a formal consultation paper within 60 days of internal talks. Stakeholder responses will reveal industry appetite and highlight any remaining consumer-protection concerns.
- UKGC licensing guidance: Follow the UKGC’s upcoming guidance on betting-intermediary licences for non-financial prediction markets; alignment between the two bodies will be crucial.
- Platform responses: Monitor announcements from Kalshi, Polymarket, and emerging UK-focused operators about compliance roadmaps and any adjustments to KYC/AML procedures.
- Market reaction: Expect short-term volatility in crypto-related assets tied to macro data (e.g., BTC, ETH) as traders recalibrate hedging strategies based on the regulatory outlook.
Trusted source
For the original reporting, see the Cryptobriefing article.
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