Prediction Markets: The Case for Enhanced Internal Controls

Key Takeaways:

• Prediction markets have scaled rapidly, with roughly $162.65 billion in 2026 national volume across more than 3 million users, and with that growth comes rising regulatory scrutiny over whether "event contracts" are gambling, derivatives, or something in between.
• Gambling regulators and financial-intermediary regulators start from different objectives. Gambling regulators focus on age, geolocation, and responsible-gaming controls, while financial regulators focus on custody, disclosure, capital adequacy, best execution, clearing, and systemic risk.
• Regulatory classification is unsettled and contested. Recent state actions in Connecticut and Massachusetts treat sports-related prediction markets as unlicensed gambling, while the CFTC asserts exclusive federal jurisdiction over event contracts, and the preemption question is in active litigation.
• The practical takeaway is that internal controls should follow platform function, not the product label. When a platform runs an order book, matches buyers and sellers, holds customer funds, or manages settlement, it should adopt controls proportionate to those financial-intermediary activities.
• A prediction market performing market-intermediation functions should layer financial-services controls, including trade surveillance, position limits, settlement controls, market-maker oversight, affiliate-conflict reviews, and clearing arrangements, on top of the gaming-style controls it already needs.

Prediction markets are where participants buy and sell contracts tied to the outcome of future events, such as elections, economic data, weather events, awards, or other measurable outcomes. In 2026, prediction markets reached $162.65 billion in notional volume, over 3 million unique users, and over 750 million transactions. Sports, crypto, politics, and geopolitics account for the largest share of trader attention. Due to growth, the industry is becoming more operationally mature, with rising protocol fees, stronger monetization, and increasing regulatory scrutiny.

Prediction market platforms are investing in identity verification, sanctions screening, anti-money laundering (AML) monitoring, trading surveillance, risk limits, governance committees, and formal compliance functions. In some cases, prediction market platforms also operate order books, match buyers and sellers, facilitate clearing and settlement, hold customer funds, and impose position limits.

A prediction market that calls its products “event contracts” may still create consumer protection, market integrity, and suitability concerns traditionally associated with gambling. The practical issue is whether the business model performs market functions that require enhanced internal controls, governance, and disclosure.

Gambling Regulation and Financial Intermediary Regulation

Gambling regulators and financial intermediary regulators start from different policy objectives. State gambling regulators generally focus on objectives such as age and geolocation controls, responsible gambling, and game integrity.

Recent state actions show that some regulators view sports-related prediction markets as unlicensed gambling. For example, Connecticut’s Department of Consumer Protection issued cease-and-desist orders in December 2025 to KalshiEX, Robinhood Derivatives, and Crypto.com, stating that only licensed entities may offer sports wagering in Connecticut. Massachusetts also sued Kalshi in 2025, alleging that the company promoted and accepted online sports wagers without complying with Massachusetts sports wagering laws. The Commodity Future Trading Commission (CFTC) and the Department of Justice filed federal lawsuits against various states as it argues that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over event contracts traded on CFTC-registered designated contract markets and therefore preempts conflicting state gambling laws. These lawsuits seek declaratory and injunctive relief to prevent states from restricting federally regulated exchanges, although the ultimate scope of federal preemption remains subject to ongoing litigation.

Financial intermediary regulators focus on a different set of risks:

• Customer protection
• Fair dealing
• Custody
• Disclosure
• Capital adequacy
• Conflicts of interest
• Best execution
• Clearing
• Settlement
• Systemic risk

The CFTC’s oversight of designated contract markets includes reviews of self-regulatory programs designed to enforce rules, prevent manipulation and customer abuse, and preserve trade information. Broker-dealer regulation, by contrast, applies when a firm is affecting securities transactions or acting as a securities dealer. Those obligations cover:

• Registration
• Conduct
• Financial Responsibility
• Books and records
• AML
• Customer protection
• Supervision

Without clear regulatory regime, prediction markets are left to grapple with appropriate designation and related regulatory requirements. Some event contracts may be regulated as derivatives, some may resemble sports wagers or gambling products, and some may raise securities-law questions depending on the contract design and underlying reference event. The regulatory classification matters, but the control environment should also follow the platform function. Given the risk and complexity of the industry, the practical question is not whether platforms need enhanced internal controls, but what those controls should look like. Prediction Markets Should Enhance Internal Controls

As prediction market platforms grow in scale and complexity, their internal control frameworks should evolve to address the operational, compliance, and market-integrity risks created by their activities. These risks may include customer onboarding, order handling, conflicts of interest, market surveillance, safeguarding of customer funds, cybersecurity, system resiliency, and the fair and timely settlement of transactions. Accordingly, platforms should implement controls that are proportionate to the nature, volume, and complexity of the products and market functions they provide.

A modern online gambling platform should have age verification, geolocation, self-exclusion controls, responsible-gaming limits, fraud monitoring, AML alerts, payment controls, and suspicious wagering reviews. A prediction market should add order-book monitoring, trade surveillance, position limits, settlement controls, market-maker oversight, affiliate-conflict reviews, and clearing arrangements. These enhanced internal controls are necessary to address risks that extend beyond those traditionally associated with retail entertainment or wagering platforms.

This does not mean every prediction market should be regulated as a financial institution. The applicable regulatory framework will depend on the nature of the contracts offered and the functions performed by the platform. However, when a platform facilitates trading, matches buyers and sellers, holds customer funds, manages settlement obligations, or otherwise performs market-intermediation functions, regulators and other stakeholders may reasonably expect a stronger control environment. Internal control expectations should therefore be driven by the platform’s activities and risks, not solely by how the business or its products are labeled.

What Platforms Should Do Now

For platforms operating at the intersection of gaming, financial services, and emerging regulation, the path forward starts with a candid assessment of current activities against the controls those activities require. Platforms that match buyers and sellers, hold customer funds, or manage settlement are performing financial-intermediary functions, and their control environments should reflect that reality.

EisnerAmper's Risk and Compliance team helps prediction market platforms and other financial intermediaries assess their current control environment, identify gaps, and design controls proportionate to the risks they carry. To learn more, contact our team.