Kristin N. Johnson, the outgoing Commissioner of the Commodity Futures Trading Commission (CFTC), has expressed severe concerns about the hazards that prediction markets pose to ordinary investors.
In her departure speech, she emphasized the lack of clear regulatory control. She urged immediate action to establish strict norms for leveraged prediction market contracts. These prediction markets allow bets on political events and sporting outcomes.
Johnson questioned the trend of companies exploiting licensing loopholes by obtaining licenses for traditional products and then self-certifying prediction market contracts.
She stressed the importance of stronger consumer protection. She claims that inadequate governance in these markets could result in financial instability akin to previous crises. Johnson quoted the 2008 financial disaster and crypto company bankruptcies as examples. Johnson also noted pervasive weak internal controls among new market participants, particularly in the crypto and prediction markets. To avoid damaging failures, Johnson underlined the importance of balancing innovation with market stability.
Her warning coincides with the CFTC's recent no-action letter, which allows Polymarket to run event-based markets in the United States without facing immediate fines, highlighting regulatory concerns in this evolving field.
