A category of its own: why Gibraltar built a bespoke regulatory framework for prediction markets

Introduction

On 13 July 2026 Gibraltar became the first jurisdiction in the world to enact a standalone statutory framework for prediction markets. The Prediction Market Regulations 2026 (the “Regulations”) do not shoehorn event contracts into the existing categories of betting, gaming or a lottery, nor do they treat them as financial instruments regulated under financial services law. Instead, they create a third, purpose-built category of regulated activity with its own authorization gateway, conduct rules and supervisory architecture. This article examines why the Gibraltar Government concluded that a bespoke system was necessary, and works through the practical questions that operators, investors and their advisers are now asking: what it takes to be authorized, how the products themselves are vetted, how market integrity is policed, how digital-asset settlement is accommodated, and how the Gibraltar framework is supervised and enforced.

Prediction markets are neither new nor obviously unregulated. Platforms that allow participants to trade contracts referencing the occurrence, or non-occurrence, of a future event have existed in various forms for years, and they have consistently defied easy classification. In the United States they have been analyzed as event contracts within the derivatives perimeter of the Commodity Futures Trading Commission. In most other markets they have been forced into one of two categories: treated as gambling or treated as financial instruments subject to securities or derivatives rules. Neither category fits comfortably, and the resulting uncertainty has inhibited investment in the sector for many years.

Gibraltar has adopted a different approach. The Regulations made by the Minister with responsibility for gambling under sections 34 and 159 of the Gambling Act 2025 (the “Gambling Act”), and in force from the day of publication on 13 July 20261, establish what could be the first legal framework anywhere dedicated specifically to prediction market activity. The central question this article addresses is a policy one: why did Gibraltar decide that a bespoke framework was necessary, rather than simply regulating these products under its existing gambling licensing regime or under financial services legislation? The answer lies in how the Regulations classify prediction markets and attach bespoke prediction market-related legal obligations. Both are addressed in turn below.

A deliberate act of classification

The most striking feature of the Regulations is not any single conduct rule but the drafting choice at their heart. Regulation 4 provides that prediction market activity carried on in accordance with the Regulations constitutes a distinct activity for the purposes of the Gambling Act, and that it is not to be treated as betting, gaming or a lottery solely by reason of its characteristics as prediction market activity2. A prediction market is defined broadly as a system, platform or arrangement which facilitates the making, trading or settlement of prediction market contracts, and a prediction market contract is one whose value, return, payment or settlement is determined by reference to the occurrence or non-occurrence of an event, or to a value, index, measure, statistic, result or outcome derived from or connected with such an event3.

This is a conscious act of legal classification. Rather than stretching the statutory definitions of betting or gaming to accommodate a product they were never designed for, the legislature has recognized prediction market activity as a category in its own right. The practical benefit is certainty. Operators no longer have to litigate, or nervously self-assess, whether their product is a bet, a lottery ticket or a derivative. The Regulations answer that question are: the level of primary policy, and they do so in a way that no existing gambling definition could have delivered without considerable difficulty.

Why the existing Gambling Act was not enough

Gibraltar issued a betting intermediary’s B2C license to Predict Street in March 2026. Gibraltar could, in principle, have continued to license prediction market operators under Part 4 of the Gambling Act and left it there. It chose not to, and the Regulations are instructive in this regard. The combination of select parts of the new Gambling Act and the Regulations form the basis of the new framework.

First, the risk profile of a prediction market is considered different in kind from that of a conventional betting or gaming operator. The Regulations devote an entire part to ongoing requirements that read far more like the rulebook of a trader than of a bookmaker. Authorized operators must maintain effective arrangements to ensure fair and orderly trading, with systems and controls designed to prevent, detect and address market manipulation, insider dealing, misuse of confidential information, wash trading, self-trading, fictitious transactions, abusive concentration of positions and collusive or disorderly trading4. The Licensing Authority may require position limits and other trading controls. These seem more like the concerns of a market supervisor, not the concerns that a traditional gambling license raises.

Second, the object being traded is a contract that must itself be vetted, in a way that has no obvious analogue in conventional gambling regulation. This is touched on below.

Third, and more subtly, the language of the prediction markets framework signals a different supervisory philosophy. The traditional gambling framework is oriented towards consumer protection and the prevention of gambling-related harm. The prediction market framework keeps those concerns, but adds provisions designed to preserve market integrity, orderly trading and objective settlement. Gibraltar concluded that a product straddling both worlds needed a rulebook that spoke both languages, and that a general gambling license could not.

Why not financial services law either?

If prediction markets look, in places, like trading venues, why not regulate them as financial services under the well-established and reputable Gibraltar Financial Services framework? The Regulations are careful to close off that reading too. A prediction market authorization is expressly not a license under Part 4 of the Gambling Act, and, more importantly, it only authorizes the holder to carry on prediction market activity and does not authorize the holder to carry on any other regulated activity under the Gambling Act5 (see below). The Regulations borrow the supervisory language of financial markets, integrity, conflicts, safeguarding, wind-down, without asserting that prediction market contracts are financial instruments or that operators are carrying on investment business.

Bringing these products within the scope of a securities or derivatives framework designed for a different purpose and, in many cases, a different customer base was not deemed appropriate by the Gibraltar legislature. Gibraltar’s answer is to take the useful supervisory tools from the trading sector into a bespoke predictions framework, while leaving the legal characterization of the product firmly as a stand-alone category.

The authorization itself and the authorization process

An authorized operator may, subject to the Regulations and the conditions of its authorization, do one or more of the following: (a) facilitate the creation, listing and settlement of prediction market contracts; (b) provide a platform through which participants may enter into, trade or hold prediction market contracts; (c) operate systems for pricing, matching, clearing, settlement, reporting and market surveillance; or (d) undertake ancillary activities approved by the Authority. The breadth of the definition is one of the most significant features of the new regime. By defining a prediction market contract not merely by reference to the occurrence or non-occurrence of an event, but also by reference to any index, measure, statistic, result or outcome derived from that event, the Regulations

deliberately cast a wide net. This allows the regime to accommodate a broad spectrum of products ranging from binary event contracts and election markets to more sophisticated index-based, performance-based and data-driven prediction products, without requiring constant legislative amendment as the sector evolves6.

A recurring question is whether the new category signals an easier route to market. It does not. Part 2 of the Regulations establishes the licensing process, and it is a high barrier to entry. A person must not operate a prediction market in or from Gibraltar unless authorized and entered on the register, and only then does the exemption from the general prohibition in section 26 of the Gambling Act apply7. The Licensing Authority may grant a prediction markets authorization only if satisfied that the applicant meets the core conditions in Schedule 2, and in determining an application it must have regard to the regulatory objectives, in particular the need to protect participants, prevent financial crime, preserve market integrity and protect the reputation of Gibraltar8. The set of conditions in Schedule 2 is taken from the established approach for gaming regulation.

The existing well established regulatory approach in Gibraltar is applied also for prediction market authorizations: i.e. the applicant and its controllers must be fit and proper, capable of effective supervision, and able to comply with the Regulations, and they must demonstrate adequate financial and non-financial resources having regard to the nature, scale and complexity of the business9.

In practice, the question most often raised since publication of the Regulations is whether existing Gibraltar B2C licensees will be automatically grandfathered into the new regulatory framework. They will not. Existing Gibraltar gambling licensees enjoy no automatic passport: holding a Part 4 license does not, of itself, authorize prediction market activity, and a separate authorization is required. New entrants whose business is purely prediction markets, by contrast, can seek authorization without holding a general gambling license at all. In short, this is a distinct process and authorization, and applicants should expect the same intensity of scrutiny associated with Gibraltar’s established licensing process.

Vetting the product

The feature that most clearly distinguishes this system from traditional gambling regulation is that the product itself is vetted. Under Part 3, an authorized operator may not list or make available a prediction market contract unless it has been approved by the Authority, or certified under arrangements the Licensing Authority has approved, and unless the operator is reasonably satisfied that the contract is clear, capable of objective settlement, not readily susceptible to manipulation and consistent with the regulatory objectives10. The Authorised Operators’ Contract rules must make provision for: (a) the specification of each prediction market contract; (b) participant eligibility; (c) trading, matching and order handling; (d) suspension, cancellation, voiding and delisting; (e) error trades and market disruption; (f) objective settlement sources; (g) procedures for disputes relating to settlement; and (h) records, reporting and audit trails, including the reporting of transactions to the Licensing Authority.

Furthermore, the Licensing Authority retains the power to require an operator to suspend, amend, void, withdraw or delist a contract. This follows the close regulation of gambling operators in terms of the gambling offerings and critical suppliers.

It seems that contract approval is likely to prove one of the most significant practical differentiators between Gibraltar and other jurisdictions. Many operators have developed products in environments where the key regulatory question has been whether a product falls inside or outside an existing regulatory framework. Gibraltar instead asks whether a particular contract should be capable of being offered at all and, if so, upon what terms.

Supporting this is a detailed section in the Regulations for contract rules. An operator must maintain contract rules approved by the Licensing Authority making provision for the specification of each contract, participant eligibility, trading and order handling, suspension and voiding, error trades and market disruption, objective settlement sources, settlement dispute procedures, records and audit trails including regular transaction reporting to the Licensing Authority11. For example, a settlement source must be reliable, transparent, verifiable and, so far as reasonably practicable, resistant to manipulation12. This is a direct effort to regulate the source that determines who wins.

The prediction markets framework also expressly lists what may not be traded. The Licensing Authority may by direction prohibit or restrict a whole class of contract where it would be contrary to the regulatory objectives or the public interest of Gibraltar, and in doing so may have regard to whether a contract relates to criminal conduct, death, serious injury or terrorism, the occurrence of war or armed conflict, an event incapable of objective settlement, or any matter giving rise to significant manipulation, disorderly trading, consumer harm or reputational risk to Gibraltar13. This content-based scrutiny and restriction has no natural equivalent in a Gibraltar gambling license.

Policing the market

Part 4 provides the ongoing regulatory obligations. The market-integrity duty in regulation 15 is noteworthy and designed to maintain effective governance, internal controls and risk management, with senior management made responsible for compliance and adequate records kept to demonstrate it14. Operators must identify, manage and disclose conflicts of interest, with specific controls addressing proprietary and connected-person trading, market making, liquidity provision, settlement sources, contract approval and commercial incentives, precisely the pressure points where an operator’s interests can diverge from those of its participants15.

Participant protection is treated expressly by the regulations. Operators must provide participants with information that is clear, fair and not misleading, covering the nature and risks of the contracts, fees, financial exposure, settlement mechanisms and sources, suspension and delisting powers, and complaints handling16. Notably, an operator must assess whether participation is appropriate for a given participant, having regard to that person’s knowledge, experience and understanding of the risks, and must issue a clear written warning, and may refuse the participant, where it is not17. The appropriateness test is a recognizably financial- markets concept, adapted here to a stand-alone gambling product, and it reflects the hybrid characteristics of this framework.

From a commercial perspective, applicants should not underestimate the operational implications of these requirements. Designing an appropriateness framework, maintaining objective settlement methodologies and documenting contract governance arrangements are likely to require significant preparation well before an application is submitted.

Digital assets and crypto-native settlement

Nothing in the Regulations prevents an authorized operator from using digital asset payments, including stablecoins, to fund participant accounts, provide collateral, settle transactions or make payments to and withdrawals by participants18. Furthermore, the use of a digital asset payment does not, of itself, change the legal categorization of a prediction market contract, nor cause the operator or a participant to be treated as carrying on some other regulated activity solely by reason of that payment19.

Gibraltar already has a well-established framework for the licensing and regulation of digital assets under its distributed ledger technology legislation. Therefore, digital assets remain subject to the AML, sanctions and safeguarding requirements discussed below, and using them does not knock the operator out of the prediction- market category.

The inclusion of express digital asset provisions is unsurprising given Gibraltar’s long-standing focus on distributed ledger technology and digital asset businesses. In discussions with market participants, crypto-native settlement is frequently viewed not as an optional feature but as a core component of many proposed business models. Few competing jurisdictions currently offer such certainty.

Financial crime, sanctions and client money

The prediction markets framework does not create a carve-out from Gibraltar’s financial-crime framework; it reinforces it. An authorized operator must maintain effective systems and controls to prevent and detect money laundering, terrorist financing, proliferation financing and sanctions breaches, and must comply with the Proceeds of Crime Act 2015, the Sanctions Act 2019 and any other applicable enactment. Nothing in the Regulations limits those obligations20.

Operators must safeguard money, assets or other value held from or on behalf of participants, with arrangements for segregation, reconciliation, custody, settlement and protection of balances, and must not use participant money or assets for their own account except as expressly permitted by the Licensing Authority21. These are requirements more befitting of a market operator handling client funds, and compliment the requirement to maintain adequate financial resources and an approved recovery and wind-down plan providing for the orderly settlement, transfer or closure of contracts and the return or protection of participant money on exit22.

Substance and outsourcing

In Gibraltar substance has always mattered and continues to matter. Gibraltar took a conscious decision 25 years ago when it started to regulate online gambling to ensure it was not characterized as a “brass plate” jurisdiction. An authorized operator must maintain such substantive presence in Gibraltar as the Licensing Authority considers necessary for effective supervision23. The Regulations do not prescribe fixed headcount, office footprint or capital figures; instead the Licensing Authority assesses substance by reference to governance, decision-making, operational arrangements and overall presence, proportionate to the nature and complexity of the business. Outsourcing is permitted, but a material function may not be outsourced unless the operator has satisfied the Licensing Authority that it will not impair supervision, market integrity, participant protection or compliance, and in any event, the operator remains responsible for compliance regardless of any outsourcing arrangement24. This follows well-established gambling supervisory policy.

Having advised businesses establishing regulated operations in Gibraltar, substance is expected to remain an area of close regulatory focus. While the Regulations deliberately avoid prescriptive thresholds, applicants should anticipate detailed scrutiny of governance arrangements, decision-making structures and the extent to which key functions are genuinely controlled from Gibraltar.

Supervision, enforcement and appeals

Day-to-day supervision rests with the Gibraltar Gambling Commissioner, with information-gathering, investigatory and sanctioning powers under the Gambling Act expressly designed to supervise prediction markets activity25. This follows the compliance culture in Gibraltar. The Licensing Authority may require information, give directions, and vary, suspend or revoke an authorization, and may direct that the section 26 exemption ceases to apply where an operator is in breach26. Schedule 3 imports the powers, meanings and relevant statutory provisions under the Gambling Act relevant to the prediction market framework. This aligns with regulation 28 (Modified application of the Act) and the broader structure of the Regulations, which repeatedly emphasize that a prediction market authorization is not a Part 4 gambling license.

Appeals fall with the Supreme Court of Gibraltar under Part 627. Significantly, an initial refusal to grant authorization is not itself appealable, which places a premium on getting the application right the first time.

An activity-based, risk-based approach

This bespoke third category of regulated activity is the Government’s approach and initiative to regulating this activity according to its actual known risks rather than by analogy to financial services or traditional gambling.

Gibraltar Internationally

Many prospective operators are less concerned with whether prediction markets should theoretically be regulated as gambling or financial services, and more concerned with obtaining regulatory certainty. The commercial challenge in several jurisdictions has been the absence of a clear answer. Gibraltar’s framework seeks to address that uncertainty directly by creating a discrete legal category with its own dedicated rulebook.

The potential and significance of the new prediction markets framework is easier to see against the international backdrop grasping how best to regulate predication market business and consumers. In the United States, event contracts have been drawn into the derivatives framework supervised by the Commodity Futures Trading Commission, an approach that brings the heft of financial regulation but also its cost, complexity and definitional friction. In addition, state gambling regulators are also, it is reported, taking enforcement action under state law with mixed and conflicting court decisions. Tax treatment of the activity in the US to date appears to remain unresolved. Elsewhere, operators have been left to guess whether a national gambling regulator or a financial regulator, or both, or neither, will assert jurisdiction. Gibraltar’s answer is novel: it names the activity, gives it a dedicated rulebook, and supervises it through a regulator with decades of experience in remote, technology-enabled markets.

For operators currently offshore, operating under ambiguous status, or seeking a credible internationally recognized base, the combination on offer, bespoke legal characterization, experienced regulator, and explicit accommodation of digital-asset settlement, is a rare one. It is not, however, a soft option. The substantive-presence requirement, the fit-and-proper threshold and the demanding contract-approval and market-integrity obligations mean that the price of certainty is genuine scrutiny. Whether other jurisdictions follow the same route or reach for their existing toolkits, Gibraltar has set a benchmark against which those choices will now be measured.

Conclusion

Gibraltar’s decision to legislate a dedicated Prediction Markets framework reflects a simple but consequential conclusion: prediction markets are their own thing. They are not bets, they are not lotteries, and they are not financial instruments. Having reviewed and advised on several regulatory models internationally over 20 years, it is difficult to identify another framework that addresses prediction markets so directly on their own terms. Whether the Regulations ultimately becomes a template for other jurisdictions remains to be seen, but it undoubtedly provides operators, investors and advisers with something the sector has often lacked: a clear legal classification, a dedicated authorization route and a regulator prepared to supervise the activity according to its actual known risks.

Steven Caetano is a Partner at ISOLAS LLP

Read more articles about Prediction Markets

1 Prediction Market Regulations 2026 (LN.2026/176), regs 1 and 2, made under ss. 34 and 159 of the Gambling Act 2025

2 Prediction Market Regulations 2026, reg 4(2) and 4(3).

3 Prediction Market Regulations 2026, reg 3(1) (definitions of “prediction market” and “prediction market contract”).

4 Prediction Market Regulations 2026, reg 15.

5 Prediction Market Regulations 2026, reg 6(3), reg 6(5) and reg 3(3).

6 A “prediction market contract” under the Regulations is defined as “a contract, arrangement or instrument the value, return, payment or settlement of which is determined by reference to: (a) the occurrence or non-occurrence of an event; or (b) the value of, or any change in the value of, an index, measure, statistic, result or outcome derived from or connected with such event”.

7 Prediction Market Regulations 2026, regs 5 and 6.

8 Prediction Market Regulations 2026, reg 8 and Schedule 2.

9 Prediction Market Regulations 2026, reg 20(1).

10 Prediction Market Regulations 2026, reg 12(1), reg 12(2) and reg 12(4).

11 Prediction Market Regulations 2026, reg 13(1) and reg 13(2).

12 Prediction Market Regulations 2026, reg 13(3).

13 Prediction Market Regulations 2026, reg 14.

14 Prediction Market Regulations 2026, reg 16.

15 Prediction Market Regulations 2026, reg 17.

16 Prediction Market Regulations 2026, reg 18(1) and reg 18(2).

17 Prediction Market Regulations 2026, reg 18(3), reg 18(4) and reg 18(5).

18 Prediction Market Regulations 2026, reg 22(1).

19 Prediction Market Regulations 2026, reg 22(2).

20 Prediction Market Regulations 2026, reg 21.

21 Prediction Market Regulations 2026, reg 19.

22 Prediction Market Regulations 2026, reg 20.

23 Prediction Market Regulations 2026, reg 23(1).

24 Prediction Market Regulations 2026, reg 23(2) and reg 23(3).

25 Prediction Market Regulations 2026, Part 5 and Schedule 3.

26 Prediction Market Regulations 2026, reg 5(4) and regs 24-27.

27 Prediction Market Regulations 2026, reg 32.