In an interview with European Gaming, Roman Baranovskyi, head of iGaming and investment practice at SBSB Fintech Lawyers, unpacks why Portugal’s January block of Polymarket carries more regulatory weight than a routine enforcement action, why the European Securities and Markets Authority’s stance on binary event contracts changes the calculus, and why he expects the global regulatory map to fragment rather than converge. 

Key findings

• On the ‘financial instrument’ defence: ‘What we’re calling a ‘prediction market’ is really a financial wrapper around human curiosity about an event.’
• On the line regulators should draw: ‘A house that profits when the player loses belongs under bookmaker rules, and a venue that earns the same fee whoever wins looks a lot more like an exchange.’
• On Portugal’s ruling: ‘The decision stood entirely on its own — no Brussels sign-off needed, and nothing another member state can do to soften it.’
• On the closing loophole: ‘Calling yourself a derivative no longer gets you out of gambling law, and calling yourself gambling no longer gets you out of financial law either.’
• On settlement integrity: ‘The penalty is written into the protocol itself, so a regulator can verify it without taking anyone’s word for anything.’
• On the global outlook: ‘There is no scenario where Washington, Brussels, and Beijing agree on one framework for prediction markets.’

Where the ‘financial instrument’ argument breaks down

European Gaming: Platforms like Polymarket and Kalshi have built their business on a specific claim that their contracts are financial derivatives, not betting products. Do you buy that?

Roman Baranovskyi: On paper, they have a point: these contracts function the same way as binary options. In finance, a derivative exists to hedge, to move risk off somebody’s balance sheet. If a business owner buys a contract that pays out when inflation goes above 4%, he’s hedging a real economic exposure.

But then you get a user trading on whether a celebrity couple is getting divorced, or who wins a World Cup match, and there’s no economic risk being moved anywhere. 

‘It’s a bet on something that will either happen or it won’t. That’s the textbook definition of a game of chance.’

What we’re calling a ‘prediction market’ is really a financial wrapper around human curiosity about an event.

Sportsbook or exchange: How the business models actually differ

EG: Take the World Cup, then. When a user trades an event contract on a match, functionally, he’s betting on that match. Can a regulator realistically distinguish that from unlicensed sports betting at all?

Roman Baranovskyi: From the player’s side? No, and I wouldn’t pretend otherwise. Whether the interface calls it a bet slip or an order book, the player is doing the same thing.

‘Where the two genuinely differ is in the business underneath, and that’s where I think regulators should be looking: where each one makes its money.’

A sportsbook sets odds. If the underdog is much weaker, you get a bigger multiplier — bet $10 at 8.5-to-1, and you walk away with $85 if the weak team wins. The bookmaker’s profit is built into those numbers. A prediction market works differently: every contract is a simple yes or no, traders bet against each other rather than against the house, and the platform earns a transaction fee on every trade.

A house that profits when the player loses belongs under bookmaker rules, and a venue that earns the same fee whoever wins looks a lot more like an exchange.

Why Portugal’s Polymarket block landed harder than expected

EG: That grey zone stopped being theoretical in January, when Portugal and Hungary both moved against Polymarket in the same week. What actually triggered it, and what does it signal for the rest of Europe?

Roman Baranovskyi: Two things, I think. First, this is the clearest signal yet that European regulators aren’t going to let prediction markets route around state gambling monopolies just because nobody’s agreed on what to call them.

Unlike crypto, where the Markets in Crypto-Assets Regulation (MiCA) lets a company get licensed once and passport it across the whole bloc, gambling law is written country by country. So when Portugal decided Polymarket was acting as a bookmaker on Portuguese soil, that decision stood entirely on its own, no Brussels sign-off needed.

Second, and this is the part that matters more, what triggered Portugal was the target. The volume was concentrated on a domestic election, which makes it hard to argue the platform wasn’t aimed at that market. And a market on a domestic election raises a harder question than whether players lose money: it asks whether money is influencing the vote itself.

Two exits closing at once: Gambling law and MiFID II

EG: That reasoning leaves room for platforms that don’t target a domestic market. Or does it? What actually closes now that this precedent is out there?

Roman Baranovskyi: What’s closing is the loophole itself. For years, nobody had settled whether these contracts are derivatives or gambling, and that ambiguity is exactly what let the platforms sit in an unregulated middle ground.

On the gambling side, the pressure is already coordinated: nine European gambling regulators announced a joint push against unlicensed prediction platforms in June, timed to the start of the World Cup, a pattern also playing out around Gibraltar’s move to become the first jurisdiction to adopt a dedicated prediction-markets framework.

Then, in July, the financial side joined in, and this is the bigger shift. The European Securities and Markets Authority (ESMA) said publicly that event contracts with a binary, yes-or-no payout can qualify as financial instruments under the EU’s core investment-services rulebook (MiFID II). 

That matters because this is the same category that got binary options banned for retail investors across the EU back in 2018. Unlike gambling law, this rule applies once, across all 27 member states at the same time.

Put those together, and both exits are closing at once: 

• Calling yourself a derivative no longer gets you out of gambling law; Portugal just proved that. 
• And calling yourself gambling no longer gets you out of financial law either, because ESMA has now claimed the same product from the other side.

What legitimising a platform actually costs

EG: So if a platform actually wants to get ahead of that and legitimise itself properly, globally, what’s standing in the way?

Roman Baranovskyi: The first thing we do at SBSB when a platform comes in with that question is split the world map in two, because the obstacles aren’t the same kind everywhere.

‘The first cut is prohibition, and it’s binary. If a country classifies event contracts as gambling and bans that category, the conversation is over: there’s nothing to comply with, because the activity itself is illegal there. No budget fixes that, so those markets come off the map first.’

Everywhere else, entry exists, and then it has a price in two parts. 

• The first is the classification patchwork. A platform serving 20 markets can be a broker in ten of them, and a bookmaker in the other ten, and those two rulebooks are written for different businesses. A financial regulator treats you as an exchange: segregated client funds, market surveillance, execution rules. A gambling regulator treats you as a casino: deposit limits, self-exclusion registers, and affordability checks. The platform has to be both at once, in the same product.
• The second part is onboarding. Most of these platforms run heavily on crypto, and a crypto deposit means a user can arrive from a wallet and trade anonymously. Regulators, especially in Europe after MiCA, are ending exactly that: full know-your-customer (KYC) checks, anti-money-laundering controls, and age verification. Once every user has to be identified and screened, some of them leave, and the platform finds out what share of its volume depended on staying unnamed.

Guarding against price manipulation

EG: Anonymous money raises a bigger worry than lost volume, though. An unnamed, well-funded player could move the price on a geopolitical or sporting event. When a regulator asks a platform to prove it can withstand that, what does the platform actually have to show?

Roman Baranovskyi: It’s worth clarifying what’s at stake first, because it’s more than money changing hands. 

On these platforms, the price is the forecast: a contract trading at 70 cents tells the world the event is 70% likely. Move the price, and you move what the public believes about a candidate’s chances. Portugal saw a version of that worry live, in the trading surge two hours before the election results.

When that’s the scenario a regulator starts from, a platform answers it with three exhibits.

The first is that the economics punish the attempt. Push a contract to 95% when the real probability is 5-10%, and you’ve handed free money to everyone else: traders short the mispricing, the price falls back to fair value, and the manipulator funds their own losses.

The second is the surveillance stack. The market’s own correction is passive; it works after the fact. Regulators expect active monitoring too: software of the same category NASDAQ or Coinbase run, built to catch schemes that look like normal trading from the outside. The classic one is wash trading, where one person moves volume between his own connected accounts so the market looks busier and deeper than it is.

Who rules on outcomes, and what stops them lying

EG: Those two exhibits cover the trading itself. But every contract ends the same way, with settlement. What’s the regulator’s third question?

Roman Baranovskyi: Who makes the settlement call, and what stops them from lying. Falsify a result, and you don’t need to touch the price at all; you simply collect on an outcome that didn’t happen.

And the answer to that depends on who does the settling. A licensed platform like Kalshi rules on outcomes itself, and then the answer is the boring one: the regulator supervises the process directly, the same way it supervises a clearing house.

The on-chain platforms took the human out of it instead. Settlement goes to independent validators, outsiders who stake their own money on what the true outcome was. If a validator lies about the result, that stake gets burned immediately, whether or not anyone else even notices.

The penalty is written into the protocol itself, so a regulator can verify it without taking anyone’s word for anything.

A fragmented map, not a unified framework

EG: Do you foresee a unified global framework emerging for prediction markets, or a deeply fragmented map of local bans and strict regional licences?

Roman Baranovskyi: Fragmented. The cleanest way to see why is to look at the one place where a common rulebook had every advantage – the EU. Twenty-seven countries that already share financial regulation, one passport for banks, one for investment firms, and now one for crypto under MiCA. If gambling could be harmonised anywhere, it would have happened there.

It didn’t, and that was deliberate. Gambling is explicitly carved out of EU common law, the Services Directive excludes it by name, and since 2017, the European Commission doesn’t even pursue member states over their national gambling rules. Governments collect gambling taxes and run state lottery monopolies, so any government voting for a common rulebook would be voting away its own revenue.

Now scale that up. 

‘If countries sharing a currency and a court system won’t hand over gambling, there is no scenario where Washington, Brussels and Beijing agree on one framework for prediction markets.’

This divide is already visible in how Europe’s licensed operators are approaching the sector compared with offshore platforms.

There are only two working answers for a platform facing that split: 

• Either drop the political and sports contracts that keep getting banned and live entirely under financial regulation, or 
• Move fully on-chain, where there’s no company left for any regulator to reach

Where licensed operators land in the reshuffle

EG: And the licensed side of the industry, the sportsbooks and casinos that have spent two years watching these platforms take World Cup volume without a licence? Where do they land in that split?

Roman Baranovskyi: In a better place than they might think. A prediction platform that wants to keep World Cup volume will end up holding a gambling licence somewhere, with the same compliance costs and taxes the licensed industry already carries. 

What’s actually closing is the arbitrage, a competitor that spent two years playing by different rules is being pulled onto the same field.

No safe camp: The conditions attached to each route

EG: And for the platforms themselves, once they’ve picked a camp, is that it? Are they safe?

Roman Baranovskyi: No, because each camp comes with a condition, and most platforms only half-meet it. 

Take the financial route: it works if you genuinely drop the contracts that the gambling law wants. The moment a platform keeps sports or political volume under its financial licence, which is exactly what Kalshi is doing in the US right now, gambling regulators treat that as their territory, and a licence from the US Commodity Futures Trading Commission (CFTC) means nothing to a state gambling authority.

The on-chain route has its own open flank. There’s no company to shut down, but users still have to turn crypto into cash through exchanges and banks, fiat rails that sit squarely inside state control. That’s where the pressure lands.

‘So my forecast is two camps, both under permanent tension. The regulated one gets bigger and duller, more licences, fewer contract types. The unregulated one gets smaller and harder to reach.’

Watch what the ESMA statement turns into over the next 12 months: if member states enforce it the way they enforced the binary-options ban, the grey zone we started this conversation with won’t exist by the next World Cup.

About SBSB Fintech Lawyers

SBSB Fintech Lawyers is an international law firm advising on fintech, gambling, crypto and investment law, with a team that has secured gambling licences across jurisdictions, including Curaçao, Malta, Costa Rica and Kahnawake. Roman Baranovskyi leads the firm’s iGaming and investment practice, advising operators on licensing across more than 90 jurisdictions.

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