Asian regulators face a growing mismatch between prediction-market activity and the laws available to supervise it, leaving users of offshore platforms outside domestic consumer-protection systems while governments miss potential tax revenue.
The gap is most visible in South Korea and Japan, where event-based contracts can resemble both financial derivatives and gambling products but do not fit neatly into either legal category. South Korea’s gambling rights are largely reserved for state-backed monopoly entities, while its financial law uses a closed list of assets eligible to underlie regulated derivatives. A contract on an election result, a court ruling, or a sporting outcome can therefore fall outside both systems.
That uncertainty has not stopped trading. The analysis estimates that more than $52 million, or roughly 72.8 billion won, flowed into prediction markets connected to South Korea’s June 2026 local elections. Those transactions occurred without a domestic licensing regime that could impose platform standards, oversee market conduct, or collect taxes from operators and users.
Prediction markets allow users to buy contracts tied to the outcome of a future event. A contract that pays $1 if a candidate wins, for example, may trade below or above that amount depending on the market’s perceived probability of victory. The model has drawn attention as an alternative source of real-time forecasting, but regulators must decide whether the contract is a wager, a financial instrument, or a distinct product requiring its own rules.
Asian laws leave little room for event contracts
South Korea’s Act on the Regulation and Punishment of Speculative Acts prohibits certain “prize businesses” that award money or property to people who correctly forecast an event. The law appears designed for an operator that collects stakes and pays winners from a centrally controlled pool.
Many modern prediction markets use a different structure. They match users taking opposing positions and settle contracts after the underlying event is resolved. That distinction could affect legal treatment, yet the analysis says South Korean courts have not provided a clear interpretation of how peer-to-peer or platform-matched contracts fit under the speculative-acts law.
Financial regulation has not provided an easier route. South Korea’s Capital Markets Act uses a positive-list approach to define eligible underlying assets for derivatives. Unlike a more open framework, that system limits the scope for treating political, social, or other non-financial outcomes as regulated derivatives without legislative changes.
Japan faces similar classification problems. The article describes platforms using arrangements comparable to the “three-store system” long associated with pachinko: the platform limits direct cash deposits and distributes rewards, a separate company issues vouchers or equivalent items, and cash conversion takes place through third parties outside the platform.
The structure reduces the direct connection between a wager and a cash payout within a single operator. It does not create a dedicated statutory regime for prediction markets, leaving participants and platform operators dependent on business practices rather than clear legal status.
Western systems offer two competing models
The United States has generally handled event contracts through commodities and swaps law rather than gambling regulation. The Commodity Futures Modernization Act of 2000 created an open-ended definition of “excluded commodities,” which can cover non-financial variables including weather and election outcomes.
The Dodd-Frank Act later gave the Commodity Futures Trading Commission authority over event contracts and allowed the agency, through Rule 40.11, to restrict contracts involving terrorism, assassination, war, and gambling. The framework did not create a prediction-market law by name, but it established a federal channel through which platforms can seek supervision.
Kalshi received approval as a Designated Contract Market from the CFTC in November 2020, allowing it to offer certain event contracts to retail users. Polymarket, which faced CFTC enforcement in 2022 over unregistered event-contract offerings, pursued a regulated route by acquiring the licensed exchange QCEX in 2025.
Britain has chosen a more direct gambling-law approach. The Gambling Act 2005 defines betting broadly enough to cover wagers on whether an event will occur, whether a proposition is true, or how likely an outcome may be. Section 13 also recognizes “betting intermediaries,” a category that can apply to platforms arranging bets between users.
In February 2026, the UK Gambling Commission said prediction-market platforms fall under the betting-intermediary category and require the appropriate licence. The approach places enforcement pressure on unlicensed operators while preserving a route for licensed platforms to enter the market.
Europe is split between financial and gambling rules
Continental Europe presents a more complicated environment because event contracts may encounter both financial-market restrictions and national gambling laws.
The European Securities and Markets Authority said in July 2026 that the binary-payout structure used by event contracts falls within the scope of restrictions on binary options. Binary options generally offer a fixed payout if a specified condition is met and nothing if it is not, a structure shared by many prediction-market contracts.
A platform that avoids treatment as a financial instrument may still face gambling restrictions. France has moved through enforcement steps that resulted in prediction-market operations being classified as illegal gambling under rules overseen by the Autorité Nationale des Jeux, or ANJ.
Gibraltar has taken a different path. In July 2026, it introduced a dedicated framework that places prediction markets in a separate third category rather than forcing them into derivatives or gambling law. Gibraltar’s status outside the European Union means that model does not carry EU-wide passporting rights, but it offers a possible template for jurisdictions seeking to regulate the products on their own terms.
The European Commission has included prediction markets in work linked to its review of the Markets in Crypto-Assets regulation. A related report is due by June 2027, leaving open the possibility of a more coordinated EU approach.
Tax and market-integrity questions are becoming harder to ignore
The article estimates global prediction-market trading volume could exceed $200 billion in 2026. If South Korean users represented 1% of that activity, domestic volume would reach about $2 billion, potentially generating between $4 million and $43.2 million in annual tax revenue depending on the tax model applied.
Those estimates depend heavily on how trading volume is measured. The Pew Research Center reported that global monthly volume on forecasting platforms reached nearly $24 billion in April 2026, a figure that illustrates how rapidly activity has expanded beyond early political-election markets.
Regulators also face market-integrity concerns. Thin liquidity, fragmented access across jurisdictions, and trading restrictions tied to residency can produce different prices for the same outcome on separate platforms. A user barred from one market may be unable to arbitrage price gaps through another, limiting the price convergence usually expected in open financial markets.
Three policy routes are now emerging: fitting prediction markets into gambling licensing, expanding derivatives definitions to include non-financial variables, or adopting standalone legislation for a separate category. The United States, Britain, and Gibraltar show that each path can support legal operation, but they also impose different obligations on platforms, from market surveillance and reporting to gambling safeguards and customer-verification controls.
For Asian regulators, leaving the category undefined increasingly means offshore platforms will continue to absorb local demand without a domestic framework for taxation, user recourse, or oversight of how event-contract markets operate.
Curious how prediction markets evolve next? Explore why 2026 will reshape prediction markets and key risks to avoid.
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