UK regulators examine risks from bets on possible bank failures
Polymarket has accepted tens of thousands of dollars in positions on whether major banks, including HSBC and Lloyds, will fail by year-end. The UK Financial Conduct Authority says it has discussed prediction markets with international regulators, while lawmakers and academics warn of manipulation and bank-run risks.
UK authorities are being urged to examine bets placed on the possible failure of major banks through the online prediction market Polymarket. The platform has accepted positions worth $77,507 on whether banks including HSBC, Lloyds Banking Group, JPMorgan and BNP Paribas will go under by the end of the year. People in the UK, United States, Canada and the European Union are barred from using Polymarket’s offshore platform, although users in about 150 other countries can participate.
The Financial Conduct Authority told the Guardian that it had been speaking with international regulators about prediction markets as part of efforts to protect market integrity. The discussions come amid concern that anonymous betting could encourage insider trading or market manipulation. Bobby Dean, a Liberal Democrat MP and member of the Treasury committee, said UK authorities should contact US counterparts.
He warned that rapidly growing activity could aggravate changes in market sentiment and potentially contribute to bank runs. Polymarket’s chief legal officer, Neal Kumar, said the company did not regard the bets themselves as a problem. He argued that prediction markets made information available to a wider public rather than limiting it to banks, hedge funds and other institutions.
Academics have warned that such markets could create moral hazards by giving participants an incentive to manipulate events. The European Securities and Markets Authority has also warned that prediction markets face elevated risks of insider trading and manipulation, particularly when platforms have limited identity checks. Polymarket’s offshore platform uses blockchain technology and links accounts to crypto wallets.
Those wallets can be publicly traced but may be difficult to connect to individuals. The Bank of England said its supervisors regularly engage with companies about market developments and emerging risks. HSBC, Lloyds and the Treasury did not comment to the Guardian.
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