Outgoing CFTC Commissioner warns of prediction markets risks, criticizes regulatory gaps

In her final public remarks as a member of the Commodity Futures Trading Commission (CFTC), Commissioner Kristin N. Johnson issued a strong warning about the growing risks posed by prediction markets, particularly to retail investors. Speaking at the Brookings Institution on Wednesday, Johnson called attention to the regulatory blind spots surrounding event-based trading platforms and urged the agency to set clearer boundaries.

“As of today, we have too few guardrails and too little visibility into the prediction market landscape,” Johnson said. “There is an urgent need for the commission to express in a clear voice our expectations related to these contracts.”

Appointed to the CFTC in 2022, Johnson expressed frustration over the agency’s failure to establish definitive rules on event contracts, which allow speculation on outcomes such as elections and sports events. These contracts have seen rapid growth in both popularity and trading volume, yet remain in a regulatory gray zone.

Johnson said that current conditions leave retail investors exposed to undue risk as market participants begin offering leveraged and margined products. Her comments come amid concerns over the regulatory framework governing the rapidly expanding prediction market space.

Johnson criticized what she described as a loophole in the licensing process, where firms secure regulatory approval for traditional financial products and later pivot to offering prediction markets under the same license.

“In a number of instances, these businesses approach the Commission seeking licenses to offer traditional products, only to quickly shift once a license is in hand and seek to self-certify prediction market contracts,” she said. “In other contexts, firms that have received a license quickly auction their newly minted license to others.”

She warned that such practices, combined with inadequate internal controls and compliance mechanisms, mirror patterns seen in previous financial collapses: “If we fail to rightly prioritize consumer protection or market stability on the road to capturing the benefits of innovation or growth, the results can be devastating."

“The stakes are high. And, if I only have one piece of wisdom to share, it would be the following: get it right. Measure twice, cut once," Johnson added.

Johnson’s remarks come as the CFTC granted regulatory relief to QCX LLC and QC Clearing LLC, two entities associated with the event trading platform Polymarket, through a no-action letter. The letter effectively allows Polymarket to resume operations in the U.S. without immediate enforcement action, though it does not exempt them from future compliance obligations.

Polymarket had previously exited the U.S. market following a 2022 settlement with the CFTC over operating an unregistered platform. In July 2025, the company acquired QCEX, a registered exchange and clearinghouse, for $112 million. Polymarket CEO Shayne Coplan announced the CFTC’s no-action stance on social media earlier this week, though a launch date for U.S. operations has yet to be disclosed.

Johnson’s departure marks the fourth commissioner exit from the CFTC this summer. Caroline Pham, the acting chair and only remaining commissioner, has stated she will also step down once President Donald Trump’s nominee, Brian Quintenz, is confirmed by the Senate. A vote on Quintenz’s confirmation was delayed in July without explanation.

The regulatory ambiguity around prediction markets is becoming increasingly urgent as the space grows. Kalshi, which won a legal battle against the CFTC earlier this year, offered contracts on the outcome of the November 2024 U.S. elections. Sports prediction markets are gaining traction, drawing both federal and state attention.

Traditional betting companies are also exploring the space: FanDuel recently announced plans to launch a prediction market product, prompting a warning from the Ohio Casino Control Commission that such offerings could jeopardize operators' sportsbook licenses. State regulators in Nevada and Ohio have issued cease-and-desist letters to various event trading platforms, citing concerns that the contracts constitute unlicensed gambling.

The conflicting approaches between federal oversight and state-level gambling regulations have intensified debates over how to classify and supervise prediction markets. Analysts estimate the U.S. prediction market sector could handle several billion dollars annually if provided regulatory certainty.

Other companies are also moving quickly. Underdog this week launched a prediction market feature through its existing fantasy sports app in partnership with Crypto.com. Meanwhile, financial platforms like Robinhood and Webull have partnered with Kalshi to offer prediction-based products tied to football and other events.

Johnson emphasized that innovation and stability in financial markets are not mutually exclusive. “Innovation and market stability should work together, enabling one to foster the other,” she said. “Deciding the course for financial markets and financial markets regulation simply requires remembering why we regulate and the catastrophic consequences that may follow if we fail to regulate well.”