Finfluencer favourites Polymarket and Kalshi face growing scrutiny

Prediction market platforms Polymarket and Kalshi are facing growing scrutiny from regulators over how they use content creators to promote their services to consumers.

Lawmakers and regulators are examining the fast-growing sector, with concerns ranging from whether influencer partnerships are properly disclosed to whether some prediction market products should be treated as gambling or restricted financial products.

Prediction markets allow users to trade on the outcome of future events, from elections and sporting results to which songs will top the charts. The platforms are particularly popular among young male users, who are often introduced to prediction markets through social media.

Last month, US senators John Curtis and Adam Schiff called on the Commodity Futures Trading Commission (CFTC) to examine allegations that Polymarket used simulated trading websites and undisclosed paid influencer content to promote its services online.

In their letter, the senators said creators had allegedly failed to disclose they were being paid by Polymarket, while some videos used fake or misleading material to suggest large winnings. They said the allegations, if accurate, warranted immediate scrutiny from the regulator.

"With content creators routinely portraying prediction markets as 'free money', there is little basis for treating them differently from gambling," the senators wrote.

The CFTC is investigating Polymarket, according to multiple reports citing sources familiar with the matter, though the agency has not confirmed the probe publicly and the subject of the investigation has not been disclosed. 

On the same day the investigation was reported, a consumer advocacy group sued Polymarket, its chief executive Shayne Coplan and its chief marketing officer Matthew Modabber, alleging they used deceptive advertising campaigns targeting college students.

Rival platform Kalshi has also attracted regulatory attention. In June, it was referred to US regulatory authorities after declining to participate in an inquiry by the National Advertising Division (NAD), an independent self-regulatory body.

The inquiry examined whether relationships between Kalshi and influencers or affiliates were being clearly disclosed in social media advertising, and whether the company had taken adequate steps to comply with Federal Trade Commission endorsement guidelines. NAD did not make a determination on the company's underlying advertising practices.

Meanwhile, the wider sector is also attracting regulatory attention in Europe. Last week, the European Securities and Markets Authority (ESMA) warned that some prediction market products may already be covered by rules that prevent them from being marketed or sold to ordinary consumers.

While ESMA did not name any platforms, it said prediction markets that qualify as financial products can be treated as binary options, which are subject to existing restrictions. Whether a contract falls into that category depends on the event users are trading on.

The regulator also said firms need authorisation to distribute qualifying contracts in the EU, even when they are only offered to professional investors.