Putting a Spotlight on Prediction Markets
Explore the top questions from StarCompliance’s webinar attendees and the answers that will help firms prepare for this emerging area of employee conduct risk.
Prediction markets have quickly emerged as one of the most talked-about developments in financial services, creating new opportunities for participation while introducing entirely new compliance and conduct risks. As adoption grows, compliance leaders are increasingly asking how these markets fit within existing employee compliance programs and what controls firms need to implement to stay ahead of evolving regulatory expectations.
Unlike traditional securities and digital assets, prediction markets introduce new ways for individuals to speculate on real-world events, creating potential blind spots for employee compliance programs and raising important questions around insider trading, material nonpublic information (MNPI), conflicts of interest, and regulatory oversight.
I recently had the opportunity to sit down with Max Crowley, Vice President of Business Development at Kalshi, during StarCompliance’s (Star) Product Spotlight webinar to discuss the rise of prediction markets, the market integrity controls being implemented today, and how firms can begin preparing their compliance programs for this rapidly evolving asset class.
The response from attendees made one thing clear: compliance professionals are eager to learn more. We received more questions than we could answer during the live session, but we’ve got you covered. Below are answers to some of the most common questions we received, along with an overview of Star’s new Prediction Markets Monitoring Solution.
“Prediction markets represent an exciting evolution in financial markets, but they also introduce new questions around compliance, conflicts of interest, and insider trading. The industry has an opportunity to build these markets the right way from the start by embedding transparency, participant controls, and compliance into the foundation of how they operate. That’s why we’re excited to partner with StarCompliance to bring enterprise-grade compliance capabilities to this emerging market category and help firms participate responsibly as prediction markets continue to grow and evolve.” Max Crowley
To help navigate the challenges ahead, we’ve answered seven of the top questions from our webinar attendees.
1. How are prediction markets changing the employee compliance and conduct risk landscape for financial institutions?
Prediction markets are creating new avenues for employee trading activity that may not be captured by traditional compliance programs. Firms are increasingly recognizing the need to expand their policies, disclosure requirements, and surveillance capabilities to address this emerging risk area.
2. What insider trading, MNPI, and conflict of interest risks do prediction markets introduce?
Prediction markets create opportunities for individuals to potentially profit from material nonpublic information or specialized industry knowledge. Compliance teams should consider how existing insider trading and conflict of interest policies apply to these markets and whether additional controls are required.
3. How can compliance teams monitor and restrict employee participation in prediction markets?
Technology-enabled monitoring, configurable restrictions, and centralized case management can help firms apply risk-based controls consistently across employees and market categories. As firms develop their policies, scalable surveillance capabilities will be critical to supporting compliance programs.
4. Why do market categorizations matter?
Understanding how event contracts are categorized is essential when identifying conflicts of interest and applying employee restrictions. Market categories can help firms determine whether a particular contract presents elevated risks based on an employee’s role, business activities, or covered industries.
5. How is Kalshi approaching market integrity and participant controls?
As a regulated exchange, Kalshi has implemented a variety of controls to support market integrity, including CFTC-certified markets, participant restrictions on certain individuals, and ongoing surveillance. Users are now also required to provide their company name when creating an account, enabling Kalshi to help identify and mitigate potential insider trading and conflicts of interest before trading ever begins. The company continues to innovate around market integrity as prediction markets evolve.
6. What should firms look for in a prediction market compliance solution?
Compliance teams should prioritize solutions that provide centralized oversight, flexible policy controls, configurable alerts, and scalable surveillance capabilities that can evolve alongside new prediction market platforms and regulatory expectations.
7. What’s next for prediction market regulation?
Prediction markets continue to evolve globally, and regulatory frameworks are expected to develop alongside them. Compliance leaders should proactively assess their employee compliance programs today to ensure they are prepared for future regulatory developments and emerging conduct risks.
Looking Ahead
Prediction markets are still in their early stages, but one thing is already clear: they are introducing a new category of employee trading activity that compliance teams cannot afford to overlook. Firms that begin addressing these risks now will be better positioned to adapt as participation grows, and regulatory expectations mature.
Missed the live session or want to revisit the discussion? Watch the full Product Spotlight: Launching Prediction Markets Monitoring with StarCompliance + Kalshi webinar on demand by clicking [HERE].
To learn how Star can help your organization enhance Prediction Market Monitoring, strengthen oversight of emerging asset classes, and build a more connected compliance program, click [HERE] to connect with StarCompliance today.
WEBINAR
Product Spotlight: Prediction Markets Monitoring with Star + Kalshi
Join StarCompliance and Kalshi for an in-depth discussion on the evolving prediction markets landscape and the compliance challenges firms must address as adoption accelerates.
