- More than $77,000 has been traded on a Polymarket market covering major bank failures.
- HSBC and Lloyds are among the lenders included in the contracts.
- UK and European regulators are examining wider risks around prediction markets.
UK authorities are facing calls to intervene after online prediction market Polymarket allowed users to place thousands of dollars in positions on whether major banks including HSBC and Lloyds will fail by the end of 2026.
The market had generated about $77,500 in trading volume, with contracts covering lenders including HSBC, Lloyds Banking Group, JPMorgan Chase, BNP Paribas, Deutsche Bank and others. Polymarket's own market page currently shows the bank-failure contract with roughly $77,500 in volume.
The existence of the contracts does not mean the banks are expected to fail. Instead, users are trading binary contracts based on whether a specified event will happen.
That distinction is becoming increasingly important as prediction markets move beyond sports and entertainment into areas involving financial markets, geopolitics and other events with potentially serious real-world consequences.
The UK's Financial Conduct Authority has told reports that it has been speaking with international regulators about prediction markets as part of efforts to protect market integrity.
Could a prediction market make a bank run worse?
The concern is not simply that people are betting on a bank's failure.
Critics worry that information, rumors or even deliberate attempts to influence events could be used to profit from those bets.
Treasury committee member and Liberal Democrat MP Bobby Dean said UK authorities should contact US regulators over the issue.
“Polymarket has a poor reputation for stopping insider trading or bad actors placing bets on their platform, so it’s easy to see how it could be exploited to try to aggravate real shifts in market sentiment,” Dean said, according to reports.
“If the bank-related activity grows on the platform and then a particular market was to escalate rapidly, it could even trigger bank runs,” he added.
The concern has a precedent in recent banking crises.
The failures of Silicon Valley Bank and Credit Suisse in 2023 were accompanied by rapid withdrawals and intense discussion on social media. In the case of SVB, digital communications helped accelerate the speed at which depositors moved money out of the bank.
A prediction market introduces another potential layer: someone could potentially stand to gain financially if a bank failure occurs, creating a theoretical incentive to spread information or take actions that could influence sentiment.
That does not mean such activity is taking place in the HSBC or Lloyds markets.
But regulators are increasingly looking at whether the structure of these markets could make such behavior harder to detect.
The European Securities and Markets Authority warned in September that prediction markets face heightened risks of insider trading and market manipulation, particularly when they operate using distributed-ledger technology and limited identity verification.
ESMA has also separately reminded firms that some prediction-market contracts can qualify as financial instruments or derivatives under European rules. Where they fall within existing binary-options measures, their marketing, distribution or sale to retail clients can be prohibited.
The FCA's own 2026 perimeter report similarly identifies prediction markets as an emerging regulatory issue. It says financial prediction-market products can fall within the FCA's perimeter and that the products it has seen are considered binary options, which are subject to a permanent ban on their sale to retail consumers in the UK.
Polymarket says the markets provide information
Polymarket rejects the idea that the contracts themselves are inherently problematic.
Its chief legal officer, Neal Kumar, argued that the information underlying such markets is already available to banks, hedge funds and other professional investors through established financial markets.
“The information in these markets is already public,” Kumar said, according to reports. “Banks, hedge funds and credit professionals have had access to credit default swap markets for years.”
He argued that prediction markets could broaden access to information that was previously largely available to professional institutions.
“Polymarket simplifies the question, providing a much larger audience with information, and markets serve as a powerful source of information and combating disinformation,” Kumar said.
The company's platform is built around blockchain technology. Users trade through crypto wallets, which can make transactions publicly visible while making it harder to establish the real-world identity behind a wallet.
Polymarket officially restricts users in the UK, US, Canada and the European Union from trading on its offshore platform. However, reports have highlighted the use of workarounds such as virtual private networks, despite such activity violating the platform's terms.
That creates a difficult regulatory problem.
A conventional financial market generally operates within a framework of identity checks, reporting requirements and established rules around insider trading and market manipulation. A decentralized prediction market can operate across borders, with participants and transactions spread across different jurisdictions.
Regulators are therefore having to consider where these products fit within existing financial and gambling rules.
The issue has already produced examples that have attracted regulatory scrutiny.
ESMA cited incidents involving prediction markets in its recent risk assessment, including cases in which newly created crypto wallets made significant profits shortly before major geopolitical events became public. It said the use of crypto and decentralized infrastructure can make detecting insider trading, wash trading and coordinated manipulation more difficult.
Polymarket has also faced wider regulatory pressure. The company introduced voluntary deposit limits, trading lock-outs and access to mental health resources in September as it faced growing scrutiny over prediction-market activity.
For UK regulators, the question is therefore becoming broader than whether people should be allowed to bet on a bank failing.
It is whether markets designed to predict real-world events can remain separate from the events they are predicting — particularly when the outcome involves a financial institution whose collapse could affect millions of customers.
For now, the HSBC and Lloyds contracts remain relatively small compared with mainstream financial markets. But regulators are watching how quickly prediction markets are expanding, and whether the technology behind them creates new ways to exploit information or influence outcomes.
The FCA's involvement with international regulators suggests the UK is treating that question as a developing market-integrity issue, rather than simply another form of online gambling.
