UK FCA weighs easing prediction market ban as Polymarket and Kalshi surge

Britain's Financial Conduct Authority has opened early talks with prediction market operators over a possible easing of its retail ban on event-based derivatives, according to a Times report on September 7, 2026. The discussions come as UK users increasingly route activity to offshore venues, most notably Polymarket and Kalshi, where volumes on US elections, Federal Reserve decisions and crypto price milestones have run into the billions of dollars over the past year. The FCA has not publicly changed its stance and continues to support the existing prohibition, leaving the gap between informal engagement and formal policy open.

Why is the FCA revisiting its stance on prediction markets now?

UK retail interest in event contracts has accelerated through 2025 and into 2026, driven by highly publicized markets on US presidential elections, key Federal Reserve meetings and major crypto catalysts. Regulators in Washington have moved in the opposite direction: the Commodity Futures Trading Commission has greenlit designated contract markets offering similar products, and the Securities and Exchange Commission has signaled a more permissive posture under its current leadership. That asymmetry has left the FCA managing a market that has effectively migrated offshore rather than disappeared. The Times report suggests the watchdog now wants to understand whether controlled re-entry could keep activity onshore under UK supervision.

The timing is delicate. A new FCA chief took office in early 2026 and has publicly committed to a growth-oriented agenda, while HM Treasury is preparing a wider review of the regulatory perimeter around crypto and derivatives. Sources cited by the Times described the talks as preliminary and exploratory, not a sign of an imminent rule change. Still, the meeting itself marks a shift: until now the FCA's posture toward prediction markets has been largely defensive, focused on warning consumers about unauthorized operators.

What is the background to the UK's prediction market ban?

The FCA's current position stems from a long-standing view that binary outcome contracts tied to real-world events fall outside its regulated activities framework unless structured as spread bets or CFDs offered by an authorized firm. In 2024 the regulator issued consumer warnings specifically naming Polymarket and several copycat platforms, telling UK residents that profits from such sites could be withheld and that firms operating without authorization could face enforcement action. The 2023 gambling-style ban under the Financial Services and Markets Act was reinforced by guidance clarifying that binary options on events such as elections or sporting results are treated as restricted financial products.

UK retail brokers like IG Group and Spreadex operate event markets under existing spread-betting licenses, a workaround that has limited scale and liquidity compared with offshore peers. By contrast, Kalshi's CFTC-registered exchange processed several hundred million contracts during the 2024 US election cycle, and Polymarket reported over $1 billion in notional volume across the same period on a wide range of political and crypto-related markets. Those numbers explain why the FCA's perimeter is under quiet pressure: capital, attention and tax revenue are flowing to non-UK venues, and British users access them with little practical friction through virtual private networks and crypto on-ramps.

Who are Polymarket and Kalshi, and why do they matter here?

Polymarket operates a blockchain-based exchange where users trade shares in the outcomes of real-world events using USDC, a dollar-pegged stablecoin. Settlement occurs on a smart contract, and positions are recorded on the Polygon network, giving the platform a transparent on-chain order book that has become a frequent reference point for traders and even newsrooms during election cycles. Kalshi is a CFTC-regulated designated contract market based in New York that lists similar event contracts but settles in US dollars through a traditional clearing structure. Both platforms now dominate global volume in event-based derivatives, with monthly trading volumes regularly exceeding $500 million each during peak periods.

For the FCA, the two venues represent very different regulatory challenges. Polymarket's decentralized architecture and stablecoin rails make enforcement harder, since no single UK-domiciled entity is clearly accountable. Kalshi, by contrast, is a US-regulated intermediary with identifiable leadership and a willingness to engage with foreign regulators. The Times report suggests the FCA has spoken with both types of operators, indicating the watchdog is preparing for a regime that could encompass centralized, on-chain and hybrid models rather than picking one architecture.

How would an easing of the ban change the UK market?

A shift toward permitting retail event contracts would require at least three things: a formal FCA consultation paper, amendments to the handbook rules on binary options and event-based derivatives, and sign-off from HM Treasury on any change to the perimeter under FSMA. Industry observers expect that even a permissive framework would impose conduct standards similar to those applied to CFDs and spread bets, including leverage caps, risk warnings, affordability checks and a prohibition on inducements to retail clients. Operators would also need to meet anti-money-laundering standards that Polymarket has previously struggled with under Bank Secrecy Act rules in the United States.

For users, the most visible change would be the return of liquidity to UK-domiciled venues. Spreads on major political and macro markets on platforms such as IG and Spreadex currently run several points wider than on Polymarket or Kalshi, and book depth on US election markets is a fraction of the offshore figure. If authorized UK venues were allowed to mirror that product set, retail traders would gain access without jurisdictional risk, and the FCA would gain direct supervisory reach. The downside is concentration: an authorized UK prediction market would still be exposed to information asymmetry, insider trading and event-manipulation risk that has already prompted CFTC investigations into irregular trading on Kalshi during sensitive political moments.

What are the risks and political headwinds?

Prediction markets sit at the intersection of several politically sensitive debates in Britain. The 2024 reform of gambling regulation placed stricter controls on online wagering, and any move to license event contracts could be cast as a parallel expansion of gambling without equivalent safeguards. Civil society groups have argued that markets on elections and referendums risk distorting democratic discourse, a view that gained traction after the 2024 US cycle when Polymarket odds became a recurring news ticker on cable television. The FCA will need to weigh those concerns against the practical reality that the current ban is not stopping British residents from trading.

There is also a competition dimension. London has spent the past two years positioning itself as a post-Brexit hub for wholesale capital markets and crypto-asset activity, with the FCA's crypto roadmap and the Bank of England's wholesale CBDC pilots both framed around that ambition. Allowing regulated prediction markets would fit that narrative, but only if domestic firms can build the technology fast enough. Otherwise, a permissive regime could simply result in Kalshi or Polymarket obtaining UK authorization while smaller British venues remain unable to compete on liquidity. The FCA is unlikely to act without a clear plan for onshore capacity, and the Times report suggests that plan has not yet been drawn up.

What should traders and investors watch next?

Three near-term signals will shape whether the FCA moves from talks to action. First, watch for any consultation paper or speech from the new FCA chief framing event contracts as a perimeter question rather than a gambling matter. Second, monitor HM Treasury's secondary legislation timetable under FSMA, since any lifting of the binary options restriction requires a coordinated statutory change. Third, track the platforms themselves: Polymarket has reportedly explored UK entity formation, and Kalshi has hired UK-facing compliance staff, both of which would precede any formal application.

Data points to watch include monthly volumes on Polymarket and Kalshi for UK-based IP addresses, currently estimated at single-digit percentages of global flow but growing fast, and any spike in FCA warning notices or takedown orders directed at unauthorized operators. Comparable episodes offer a useful template: the FCA's 2020 consultation on crypto derivatives preceded the formal ban by more than a year, while the 2023 spread-bet leverage cuts followed a six-month evidence-gathering exercise. Traders should expect a similar timeline, with policy direction emerging in late 2026 and any rule change unlikely to take effect before 2027.

How does this fit the global prediction market trend?

The UK is the last major Western jurisdiction still maintaining an outright retail ban on event-based derivatives. The European Union has no harmonized position, with member states such as France and Germany leaning on gambling regulators rather than financial supervisors. Australia permits prediction markets through licensed wagering operators, while Singapore and Hong Kong have so far taken a case-by-case enforcement approach. The United States remains the most developed market, with Kalshi and its CFTC-registered peers setting the global template for conduct, surveillance and market-making standards.

Crypto traders should pay particular attention to prediction markets as a sentiment layer. Polymarket odds on Federal Reserve rate decisions, SEC approvals of spot ETFs and major protocol upgrades have correlated with spot and derivatives prices during 2025 and 2026, often moving ahead of official announcements. Any UK authorization regime would deepen that signal pool, potentially adding a third major jurisdiction of liquidity to a market currently dominated by US participants. That would matter not just for event traders but for anyone who uses prediction markets as a real-time gauge of macro and crypto probability.