The corporate watchdog has issued its strongest warning yet about the risk of offshore prediction markets, cautioning users they are likely to lose money without consumer protections.
Prediction markets allow users to place money on yes-or-no questions covering a vast range of topics from speculation on the oil price, to global conflict and pop culture. They are illegal in Australia.
The popularity of these platforms has skyrocketed across the world, especially two of the largest firms Kalshi and Polymarket, worth about $US22 billion ($31 billion) and $US15 billion ($21 billion) respectively.
Kalshi is another major player in the prediction market industry. (AP Photo: Erin Hooley)
The rise is being felt in Australia too, forcing the Australian Securities and Investments Commission (ASIC) to update its Moneysmart website with guidance and advice.
"If you are engaging their prediction market, you are doing so with an operator overseas and that means that you miss out on important protections that would apply to any other market you engage in within Australia," said ASIC's Commissioner Alan Kirkland.
It comes as FEX Global, a financial futures trading house, pitched what could become Australia's first regulated prediction market.
'Akin to gambling'
At the heart of ASIC's warning is that while these markets are often promoted as sophisticated financial products, they are fundamentally speculative bets on the outcome of future events.
Alan Kirkland says the presence of Australian-specific markets like RBA decisions indicates a high likelihood of Australian users on offshore platforms. (ABC News: Chris Taylor)
"Whatever the legal definition of a prediction market, let's just focus on the substance and in all practical terms, it is akin to gambling,"
Mr Kirkland said.
He said while it's hard to tell how many Australians are using these illegal markets, the fact that local events are available to place bets on indicates Australians are participating.
"We do see prediction markets that offer the right to bet on outcomes of events within Australia, such as RBA rate decisions," he said.
"It is possible that Australians are engaging in these markets, but we think it's important that they understand that they come with risks."
Why ASIC is intervening
No prediction market is licensed to operate in Australia.
That means consumers who use offshore operators are doing so without the protections provided under Australian financial services laws, including safeguards such as formal dispute resolution processes and other oversight designed to protect investors.
Prices fluctuate as traders reassess the likelihood of an event occurring, creating a market where participants can buy and sell contracts before the final result is known.
Supporters argue prediction markets can provide an efficient way of aggregating information and forecasting future events, with markets often producing remarkably accurate estimates ahead of elections, economic announcements and other major events.
It has prompted debate internationally about whether they should be treated as financial markets, gambling products or something entirely new.
Widespread ad campaigns
Many Australians have been exposed to prediction markets through social media promotion, and international sporting events.
ADI PredictStreet's Ajay Bhatia (right) on stage alongside FIFA president Gianni Infantino. (X: ADI Predict Street)
This year FIFA signed a multi-year partnership with ADI PredictStreet, where the firm broadcast their prediction ads across pitch side as keen soccer fans tuned into each game.
Earlier this year Kalshi created an AI-generated ad showing the vast array of markets people can speculate on including egg prices and the amount of hurricanes to pass over the US.
Kalshi released a commercial starring NBA champion and Kalshi investor Giannis Antetokounmpo that played during the NBA Finals. (Supplied: Kalshi)
ASIC is urging consumers to check whether a financial services provider is licensed before investing and to verify whether an online platform appears on the Australian Communications and Media Authority's register of blocked gambling websites.
The new guidance also encourages Australians to consider whether they can afford to lose the full amount of any money they place on a prediction market before participating.
"We've been watching the hype that's been rising in Australia around prediction markets and the fact that they're being pushed by a number of YouTubers and other influencers," Mr Kirkland said.
Insider trading
ASIC is also concerned about the possibility of insider trading as several legal cases are underway in the United States on the matter.
"They're potentially just the tip of the iceberg," Mr Kirkland said.
"We really don't know how much insider trading might actually be happening on these platforms."
Among the more infamous cases is a US soldier allegedly wagering on the ousting of Nicolas Maduro from Venezuela, while being involved in the highly secretive operation.
"It is very difficult to detect and difficult for overseas regulators to enforce insider trading laws where they apply."
Debating legal operation in Australia
There is an emerging debate about whether regulated versions should eventually be allowed to operate in Australia.
Financial futures trading house FEXGlobal has expressed a strong interest in becoming Australia's first licensed prediction market operator.
Daniel Crennan says prediction markets "are unable to be properly regulated as yet". (ABC News: Jerry Rickard)
Group executive for the firm Daniel Crennan argues regulatory authorities are falling behind.
"It is unfortunate in the sense that prediction markets, which are rapidly expanding and are covering all sorts of possible future events, are unable to be properly regulated as yet," he said.
While there is no timeline on his company's push to run an operation, Mr Crennan says a regulated operator within Australia could solve the problem of meeting consumer demand in a safe manner.
"It will be a good thing for Australia to have a domestically licensed regulated market and prediction markets."
Mr Kirkland said no formal submission to hold a licence had been sent to ASIC.
"If somebody was to submit an application to operate a prediction market in Australia, then of course we would determine that under the law, but that's not the reality now," he said.
For now, the industry at large remains illegal in Australia.
