Prediction markets have rapidly become one of the most discussed developments in financial services, opening new avenues for participation while introducing fresh compliance and conduct risks that firms are only beginning to grapple with.
Unlike traditional securities and digital assets, prediction markets let individuals speculate directly on real-world events. That creates potential blind spots for employee compliance programmes and raises pressing questions around insider trading, material nonpublic information (MNPI), conflicts of interest and regulatory oversight.
These issues were the focus of a recent StarCompliance Product Spotlight webinar, where Kalshi vice president of business development Max Crowley discussed the market integrity controls being built today and how firms can prepare their compliance programmes for this fast-evolving asset class.
Attendee interest was high, with more questions submitted than could be answered live. Among the recurring themes: prediction markets are creating new forms of employee trading activity that existing compliance frameworks may not capture, pushing firms to expand policies, disclosure requirements and surveillance capabilities.
Discussion also centred on how existing insider trading and conflict-of-interest policies apply when employees may hold specialised industry knowledge relevant to an event contract.
Compliance teams were encouraged to assess whether additional controls are needed, and how technology-enabled monitoring, configurable restrictions and centralised case management can support consistent, risk-based oversight across employees and market categories.
Market categorisation emerged as another key issue, with panellists noting that understanding how event contracts are classified is essential to identifying conflicts of interest and applying restrictions based on an employee’s role or business activity.
On the exchange side, Kalshi outlined the controls it has introduced to support market integrity, including CFTC-certified markets, restrictions on certain participants and ongoing surveillance. The platform now also requires users to declare their employer when opening an account, a measure designed to help flag potential insider trading and conflicts of interest before trading begins.
Kalshi vice president of business development Max Crowley said, “Prediction markets represent an exciting evolution in financial markets, but they also introduce new questions around compliance, conflicts of interest, and insider trading. The industry has an opportunity to build these markets the right way from the start by embedding transparency, participant controls, and compliance into the foundation of how they operate. That’s why we’re excited to partner with StarCompliance to bring enterprise-grade compliance capabilities to this emerging market category and help firms participate responsibly as prediction markets continue to grow and evolve.”
Looking ahead, panellists agreed that regulatory frameworks for prediction markets are still developing globally, and compliance leaders should act now rather than wait for rules to catch up. Firms that address these risks early, the discussion concluded, will be better placed to adapt as participation grows and regulatory scrutiny intensifies.
Read StarCompliance’s full post here.
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