Hong Kong Flags Prediction Markets as Gambling Risk

Hong Kong’s Investor and Financial Education Council (IFEC) has issued a warning over prediction market platforms such as Polymarket and Kalshi, suggesting their activities could fall under illegal gambling according to local laws. The council, operating under the Securities and Futures Commission (SFC), highlighted the risks in a statement released on Friday.

Lack of Investor Protection
The IFEC emphasised that users of these platforms are not protected by the Securities and Futures Ordinance and do not benefit from SFC oversight. As a result, participants have limited recourse if disputes arise or financial losses occur.

It also clarified that prediction market contracts are not classified as investment products. The council noted that these platforms often blur the line between investing and gambling, as outcomes are based on event predictions rather than underlying assets or financial performance.

Speculation vs Investment
According to the statement, genuine investment involves more than wagering on uncertain outcomes. Prediction markets, by contrast, allow users to speculate on events across areas such as finance, politics, sports and weather, with returns tied directly to results. This structure introduces elements typically associated with gambling.

Role of Blockchain and Crypto
Many prediction platforms operate using blockchain technology and cryptocurrency, enabling transactions without intermediaries. While this can improve efficiency, it also raises regulatory concerns in jurisdictions like Hong Kong, where oversight of such systems remains limited.

Legal and Regulatory Concerns
Hong Kong maintains strict gambling laws, permitting betting only through licensed operators. Authorities view prediction markets as occupying a grey area that may effectively constitute unlicensed gambling activity.

The IFEC warned that funds placed on these platforms are exposed to risks, including account restrictions, disputed payouts or platform failures, without access to regulatory protection.

Ongoing Regulatory Approach
The warning reflects broader efforts by Hong Kong authorities to address emerging financial products operating outside established frameworks. As prediction markets gain global traction, regulators continue to caution users against engaging with platforms that lack clear legal standing.

Overall, the IFEC urged individuals to carefully assess the risks and legal implications before participating in such markets, particularly given the absence of safeguards and the potential overlap with gambling activities.