Regulatory clarity a key challenge as prediction markets emerge in APAC

Despite being blocked in jurisdictions such as Singapore, prediction market platforms like Polymarket have been offering APAC-related event contracts in recent months, with prediction topics ranging from interest rate hikes and weather to sports and elections.

Homegrown prediction market platforms such as Hong Kong-headquartered Opinion Labs and points-based platforms like Miraima in Japan have also popping up across the region.

However, such platforms are largely operating in a grey zone and their legal status remains uncertain in the region.

Grace Chong, head of financial services regulation at Singapore-headquartered law firm Drew & Napier, said that the principal challenge for regulators in APAC is one of regulatory characterisation.

“Depending on their structure and underlying event, prediction markets may fall within existing regimes governing gambling, derivatives, securities, financial products or digital assets,” she said. “Regulators are therefore likely to focus on substance over form rather than the terminology used by the platform.”

Beyond classification, supervisory concerns will include consumer protection, market integrity, market manipulation, misuse of confidential information, anti-money laundering controls, governance arrangements, and whether settlement outcomes are transparent, objective and resistant to manipulation.

While prediction market developments are rapidly evolving in the US and will undoubtedly be closely observed by regulators in the region, Chong said they are unlikely to be transplanted directly into APAC.

“Regulatory frameworks across the region differ significantly in both policy objectives and legislative architecture,” she said.

Most regulators are likely to assess prediction markets by reference to their existing regulatory perimeter, considering factors such as the economic substance of the product, the nature of the underlying event, the rights conferred on participants and the target customer base.

While it’s still early days for prediction markets to develop in APAC, where there is regulatory openness, Chong said that any evolution is more likely to occur within existing legal frameworks, or through carefully controlled pilots or limited licensing arrangements incorporating appropriate governance, surveillance, disclosure and market conduct requirements.

Rather than expecting a harmonised regulatory approach, market participants should anticipate that regulators in APAC will continue to assess prediction markets through the lens of existing legal frameworks and domestic policy objectives.

In the near term, Chong said that the more likely development is greater regulatory scrutiny and clarification as novel products emerge, rather than the introduction of comprehensive new regulatory regimes.

“Whether any jurisdiction moves towards a bespoke framework will depend on its broader policy approach to financial innovation, consumer protection and gambling regulation,” said Chong.

Rather than creating another speculative product, Chong believes that the greatest opportunity for prediction markets in APAC lies in the efficient aggregation of information.

Properly designed prediction markets can generate real-time signals on matters such as weather events, supply-chain disruption, commodity prices and macroeconomic developments, which may have genuine commercial utility for businesses in managing risk and informing decision-making.

“From a regulatory perspective, the strongest use cases are likely to be those where the market serves a clear economic function, the underlying event is objectively verifiable, and the design incorporates appropriate governance, transparency and market integrity safeguards,” said Chong.

From clearer laws around regulatory blindspots to connection to application programming interfaces, a number of factors can help drive institutional adoption of prediction markets.

The European Securities and Markets Authority in July issued a public statement reiterating that event contracts will be treated as heavily regulated financial derivatives under current rules.