Key facts
- Polymarket is taking bets on whether HSBC and Lloyds will fail by the end of the year.
- Users have placed $77,507 on bank failure bets on Polymarket.
- The UK's FCA is discussing prediction markets with international regulators.
- Concerns exist about insider trading and market manipulation on Polymarket.
- ESMA has warned that prediction markets are rife with insider trading.
UK authorities are facing calls to intervene following the emergence of thousands of dollars in bets on the online prediction market Polymarket concerning the potential failure of major banks, including HSBC and Lloyds. The platform, which allows users globally to wager on various events, has enabled bets on whether large financial institutions will collapse by the end of the year.
Concerns are mounting over the potential for insider trading and market manipulation on Polymarket, with fears that such platforms could exacerbate bank runs, similar to those seen with Silicon Valley Bank and Credit Suisse in 2023. Liberal Democrat MP Bobby Dean has urged UK regulators to engage with their US counterparts to address the risks, emphasizing the potential for these markets to aggravate market sentiment and trigger bank runs.
Polymarket's chief legal officer, Neal Kumar, defended the platform, stating that the information used for bets is publicly available and that these markets democratize access to information previously limited to institutional traders. He argued that markets serve as a powerful tool for information dissemination and combating disinformation.
However, academics and regulators like the European Securities and Markets Authority (ESMA) have warned of significant moral hazard and increased risks of insider trading and market manipulation, particularly on DLT-based platforms like Polymarket that have limited identity verification. ESMA's recent risk report highlighted instances where new crypto wallets reportedly profited significantly before public announcements of geopolitical events and cited a case of suspected tampering with weather sensors to settle contracts.