KSA upholds Polymarket illegal gambling sanction despite appeal

Dutch gambling authority Kansspelautoriteit (KSA), has rejected an appeal by Adventure One QSS Inc, the operator behind prediction market platform Polymarket, to drop a sanction that penalised Polymarket for offering illegal gambling services to users in the Netherlands.

In January, KSA ruled that that Polymarket’s platform had provided Dutch users with “an opportunity to compete for prizes or rewards” through wagering on the outcomes of future events. The activity met the statutory definition of gambling under Dutch law.

According to Dutch gambling laws, both “event betting”, which includes bets on political results and other non-sport outcomes, and traditional sports betting constitute gambling activities subject to licensing requirements.

On 23 June, KSA published a new ruling, upholding its January sanction. Polymarket’s parent was threatened with a financial penalty if it did not comply with the sanction and wind down its Dutch operations.

KSA initially allowed Adventure One a four-week grace period to close its offering. But the operator missed its compliance deadline of 17 February, instead only implementing IP-blocking measures the following day. As a result, penalties began accruing automatically.

How are we here?

The original sanction was appealed by Polymarket’s parent in March. This included a request for its legal costs to be reimbursed.

It refuted the regulator’s claims that its offering counts as gambling, which it does not have a local licence to operate in Netherlands.

Adventure One argued its platform was merely an interface to an open-source blockchain protocol (Polygon). This is where users can trade peer-to-peer positions using crypto wallets and an external oracle validates outcomes. 

It also insisted that the product is regulated as a financial product in some cases. This was recently backed up by the EU’s financial regulator ESMA, which released a statement this week clarifying that certain contracts fall under existing binary options restrictions.

Rejection of operator’s defence based on decentralisation and blockchain

However, KSA rejected its argument and flagged that the element of chance, beyond the decisive influence of participants, indicated its offering was providing gambling services.

The involvement of blockchain technology, crypto wallets, or decentralised protocols does not exempt the operator from Dutch gambling laws. 

The gambling authority also pointed to Polymarket’s promotional materials which included the word “betting”. The tagline “Stay informed and profit from your knowledge by betting on future events” was used, KSA said.

Crucially, wagering on political events and similar event contracts are prohibited according to Dutch gambling laws.

In its initial investigation against Polymarket the operator identified several factors indicating the platform was readily accessible and effectively aimed at Dutch users. These included registration being available to users with Dutch IP addresses and customer service featuring a Dutch-language AI chat function. It also noted that players could bet on markets specifically related to Dutch politics and sporting figures. 

Legal, procedural and proportionality challenges dismissed

Adventure One’s challenges on legal grounds, including assertions that the sanction was disproportionate, legally uncertain, or inadequately motivated, were all rejected. The regulator affirmed that it had clearly communicated the legal basis for the order, invited and considered submissions and provided proper reasoning in its decisions.

The regulator also defended its decision to publish the remedial order under the Dutch Open Government Act, dismissing claims that doing so could be deemed unfair “naming and shaming”. 

Publication was justified on grounds of consumer protection, transparency regarding regulatory enforcement and deterrence.

Europe’s regulatory divide on prediction markets

This decision highlights a growing regulatory divergence within Europe regarding the classification and oversight of decentralised prediction markets.

Last month, nine European regulators announced a joint initiative to crackdown on unlicensed prediction markets. In a unified statement, the European authorities highlighted various consumer protection and market integrity risks associated with these platforms, particularly those operating without local gambling licences.