Overview
UK authorities are facing calls to intervene after prediction market Polymarket accepted thousands of dollars in positions on whether major banks including HSBC and Lloyds will fail by the end of 2026.
Around $77,507, or £58,530, had been traded across contracts covering some of the world’s largest banks. The list included JPMorgan, BNP Paribas, HSBC and Lloyds Banking Group.
The contracts allow users to take positions on whether a specified bank will fail before the end of the year.
Polymarket’s offshore platform restricts users in the UK, US, Canada and EU from trading, leaving access to users across roughly 150 other countries. Reports have also documented attempts by people in restricted jurisdictions to bypass those controls through virtual private networks, in breach of the platform’s terms.
The Financial Conduct Authority told the Guardian it has been discussing prediction markets with international regulators as part of its work on market integrity. The FCA already treats financial prediction-market products it has reviewed as binary options, which remain subject to a permanent UK ban on sales to retail consumers.
Concerns focus on insider trading and market manipulation
The issue extends beyond people wagering on whether a bank survives. Regulators and politicians are examining whether people with private information, or participants seeking to influence market sentiment, have financial incentives to trade on outcomes involving institutions whose failure would have wider economic consequences.
Liberal Democrat MP Bobby Dean, a member of the Treasury committee, urged British authorities to contact US regulators.
Polymarket’s controls against insider trading and bad actors had raised concerns and argued that rapidly increasing activity around a bank-failure contract might aggravate shifts in sentiment.
Bobby Dean, a member of the Treasury committee
Dean also raised the possibility that a sharp move in one of these markets might contribute to a bank run. The warning comes after regulators spent recent years examining how quickly online discussion and digital banking accelerated withdrawals during the failures of Silicon Valley Bank and Credit Suisse in 2023.
The Bank of England has previously told lenders to prepare for faster bank runs driven by social media and mobile banking. In the current case, there is no evidence that trading in the HSBC or Lloyds contracts has affected depositor behaviour.
Polymarket rejects criticism of bank-failure contracts
Polymarket said it does not regard the contracts themselves as a problem. Neal Kumar, the company’s chief legal officer, argued that professional investors have long traded instruments linked to bank credit risk and that prediction markets make similar information easier for a broader audience to interpret.
The information in these markets is already public. Polymarket pointed to credit default swaps, which banks, hedge funds and other professional investors have used for years to trade views on credit risk.
Polymarket’s position is that its contracts present complex questions in a simpler format and provide another source of market information. Critics take a different view, focusing on the incentive created when traders stand to profit directly from damaging events.
European regulators raise insider trading concerns
The European Securities and Markets Authority addressed prediction markets in its September 2026 risk report. ESMA said a growing number of incidents had shown significant exposure to insider trading, with additional concerns around market manipulation on distributed-ledger platforms where identifying the person behind a transaction is difficult.
Polymarket operates through blockchain-based markets linked to crypto wallets. Transactions are publicly traceable on the blockchain, although connecting an individual wallet with a person’s real-world identity is more difficult.
Recent cases have increased regulatory attention. ESMA referred to reported trading ahead of major geopolitical events, including newly created wallets that generated about $1.2 mn in profits before the US-Israel strike on Iran became public.
Another case involved the US capture of Venezuelan leader Nicolas Maduro. A US soldier was later criminally charged over allegations that he used classified information to place profitable Polymarket positions before the operation.
Police were also contacted in April over suspected interference with weather sensors at Charles de Gaulle airport. Those sensors were used to settle weather contracts traded on Polymarket.
UK rules already cover some prediction markets
The FCA’s 2026 perimeter report identifies prediction markets as an emerging regulatory issue. Products linked to sporting or political outcomes fall under the Gambling Commission’s remit, while prediction contracts tied to financial or certain climatic events fall within the FCA’s regulatory perimeter.
The regulator said financial prediction products it has examined meet its definition of binary options. Retail sales of binary options are permanently banned in the UK because the FCA considers them speculative products carrying a high risk of consumer harm.
The HSBC and Lloyds contracts remain small compared with established financial markets. Their existence has still drawn attention because the underlying outcome is the failure of a major bank, where shifts in confidence and withdrawals have direct consequences for customers and the financial system.
The Bank of England said its supervisors regularly discuss emerging market developments and risks with firms. HSBC and Lloyds declined to comment.