UK authorities are being urged to intervene after it emerged that the online prediction market Polymarket has been taking thousands of dollars worth of bets over whether HSBC and Lloyds will fail. Polymarket – the US-owned company which holds bets on anything from football matches, to the existence of aliens, to when a bomb drops on a city – has allowed users to take $77,507 (£58,530) worth of positions on whether the world’s biggest banks will go under by the end of this year. That includes lenders ranging from JP Morgan to BNP Paribas, as well as two of the largest on UK high streets: HSBC and Lloyds Banking Group.
While residents from UK, US, Canada and EU are banned from betting on Polymarket’s offshore platform, it leaves punters from across roughly 150 countries in a position to monetarily benefit from events that would create huge financial instability and threaten the health of entire economies. In a sign that authorities are taking the issue seriously, the UK’s Financial Conduct Authority (FCA) told the Guardian it had been speaking to international regulators about prediction markets, as part of efforts to protect “market integrity”. There are growing concerns over insider trading and market manipulation on Polymarket by bad actors hoping to win big on online bets.
That raises the stakes for the banking industry, which has already been told to prepare for the risk of social media-fuelled bank runs, where customers withdraw cash at speed. Silicon Valley Bank and Credit Suisse collapsed in 2023 after big stock sell-offs and bank runs, both of which were accelerated by a frenzy of speculation on platforms such as X and WhatsApp. The Treasury committee member and Liberal Democrat MP Bobby Dean said UK authorities should intervene.
We should not turn a blind eye to the risks because they are relatively small today, we’ve all seen how quickly things can move in this sector.” Polymarket bosses said they did not see a problem with the bets themselves, arguing they were democratising markets that were previously restricted to elite traders and institutions. The company’s chief legal officer, Neal Kumar, said: “The information in these markets is already public. Banks, hedge funds and credit professionals have had access to credit default swap markets for years.
You shouldn’t need to work at an institution like that to have access to information on a topic of this importance like bank failures. Meanwhile, the European Securities and Markets Authority (ESMA) used its twice-yearly risk report last month to warn that “a growing number of incidents illustrates that prediction markets are rife with inside trading”. Accounts are linked to crypto wallets that can be publicly traced but are difficult to link back to an individual.
While Polymarket is headquartered in the US, its markets are international and its users are anonymous. Some users from restricted countries can find workarounds via virtual private networks (VPNs), despite this violating Polymarket’s terms of use. ESMA’s report pointed to cases such as the US-Israel strike on Iran in February, when several newly created wallets reportedly generated $1.2m profits shortly before the military operation became public.
Extract — continue reading at the source.
