Seemingly overnight, “prediction markets” went from a niche fintech curiosity to a live compliance issue in New Zealand.

A recent Department of Internal Affairs (DIA) decision targeting Polymarket and Kalshi sends a clear message: products that blur the line between forecasting and wagering can still be treated as illegal gambling. If your organisation is building, investing in, or monitoring this space, or could be the subject of event contracts, here's what the decision means and what you should do next.

Prediction markets are online platforms that allow participants to buy and sell contracts based on the outcome of future events, whether political elections, economic indicators, or other real-world occurrences. Platforms such as Polymarket and Kalshi have gained significant international attention and often trade over a billion dollars per week, raising questions about how these markets should be regulated.

This risk is not just theoretical. Prediction markets can reward participants who identify and act on new information early. When a market moves sharply ahead of a major announcement, it can raise market integrity questions about whether the price move reflects non-public or confidential information (or manipulation in a thin market). For example, international media have reported instances where a small number of accounts took unusually large positions in sensitive event contracts relating to U.S.A./Israel air strikes on Iran shortly before major developments, generating significant profits.^[1]

There was also political pressure in the U.S.A. to crackdown on prediction markets after “morally corrupt” bets were placed on the lives of American soldiers in the Iran War.^[2]

If that kind of trading is linked to inside or confidential information, the concern is not only the financial gain, but the possibility that highly sensitive plans can be inferred or signaled in advance, creating reputational, legal, and in some cases national security risks.

The main platforms: Polymarket and Kalshi

To understand the regulatory debate, it helps to start with what Polymarket and Kalshi actually are and how their contracts work in practice.

Kalshi is a United States-based event-contracts platform founded in 2018 and is currently valued anywhere from $11 billion to $22 billion. It operates within the US commodities regulatory framework and, in 2020, was approved by the Commodity Futures Trading Commission as a Designated Contract Market permitted to list certain event contracts. Users buy and sell contracts that pay a fixed amount (typically US$1) if a defined outcome occurs, with prices moving in a way that resembles an implied probability. Although Kalshi primarily focuses on the US market, it has at times listed contracts referencing outcomes relevant to New Zealand, including the outcome of New Zealand’s general elections and whether New Zealand will acknowledge the state of Palestine before Switzerland.

Polymarket is a decentralised prediction market platform launched in 2020 and is currently valued anywhere from $9 billion. It runs on the Polygon blockchain and commonly uses USDC (a US dollar pegged stablecoin) as the trading currency. Polymarket attracted significant attention during major political and economic events, including the 2024 US presidential election, and has become one of the more prominent global examples of a crypto based prediction market.

Polymarket lists markets referencing New Zealand topics, such as Reserve Bank of New Zealand Official Cash Rate decisions and local sporting events. The presence of these New Zealand focused markets was a key reason for the DIA’s position and has practical implications for local users. It also demonstrates there is clear demand for contracts tied to New Zealand outcomes.

Both platforms have attracted attention for their forecasting performance. Some studies suggest prediction markets can be more accurate than polls in certain settings. A commonly cited explanation is that traders have financial incentives to seek out and incorporate new information quickly. Critics also argue these platforms can be vulnerable to manipulation or may raise ethical concerns when markets relate to sensitive events.

Prediction markets as illegal gambling

In February 2026, the DIA ordered Polymarket and Kalshi to cease providing services in New Zealand. The DIA's view was that these platforms met the definitions of "gambling" and "bookmaking" under both the Gambling Act 2003 and the Racing Industry Act 2020. As neither company was approved to provide wagering services in New Zealand, their operations were deemed illegal.

Importantly, the DIA made clear that this decision is likely to guide its approach to similar prediction markets with a New Zealand reach - not just Polymarket and Kalshi. The Financial Markets Authority (as the regulator of financial products such as derivatives, and financial product markets) and the Problem Gaming Foundation were consulted and were supportive of the DIA's stance. Kalshi has since blocked New Zealand-based users, though it remains unclear whether Polymarket has taken similar steps.

While individual users technically commit an offence by participating in these platforms, the DIA has indicated it will not pursue enforcement action against them. Nonetheless, the regulator’s message is clear: prediction markets are currently prohibited in New Zealand.

It is also unclear whether (and when) prediction market contracts could be regulated as derivatives under the Financial Markets Conduct Act 2013. If so, operators may face licensing and related compliance obligations under financial markets legislation in addition to any gambling law issues.

“No” is not the solution

From a policy perspective, the question is no longer whether prediction markets exist, but whether New Zealand is comfortable having them exist only offshore, with limited visibility for regulators and limited protections for users. The DIA’s recent enforcement stance may be justified on the law as it stands, but as a long term regulatory posture, an outright ban risks locking New Zealand into the worst of both worlds: local demand and local impacts, but offshore operators with patchy supervision, and offshore economic value.

A framework matters because event contracts can create real world externalities even when the platform is offshore. Markets can incentivise attempts to obtain (or misuse) confidential information, can amplify misinformation if outcomes and settlement sources are poorly defined, and can expose participants to loss, fraud, or operational failure where there is no effective local recourse. If New Zealand’s policy settings are “no” in every case, those risks do not disappear, they simply become harder to manage.

Until New Zealand defines the conditions under which prediction markets can be offered lawfully, organisations that could become the subject of event contracts should assume employee participation may occur at the edges and adopt clear internal policies. While employees do have duties of confidentiality, some offshore prediction markets may create sharper incentives and fewer guardrails than a licensed exchange.

Conclusion

The legal position on prediction markets in New Zealand is now clear: the DIA considers them to be illegal gambling platforms under existing legislation. Neither the Gambling Act 2003 nor the Racing Industry Act 2020 currently provides a lawful pathway for prediction market operators to offer services to New Zealand customers.

Although the possibility of regulation under financial markets legislation exists in theory, the overlap between the FMCA and gambling laws creates significant uncertainty. FMA licensing as a derivatives issuer or financial product market operator would not necessarily provide protection from DIA enforcement.

The recent reports of trading activity on prediction markets potentially linked to insider information highlight an additional dimension of risk. Organisations whose activities could become the subject of event contracts should consider implementing clear internal policies prohibiting employees from using confidential information to trade on these platforms.

Get in touch

If you are considering building, investing in, or partnering with a prediction market product, or think that your organisation may need a policy, contact us early to discuss whether New Zealand law applies to your activities, product design, licensing, geo-blocking and marketing controls, policies and compliance.