In her final public remarks before departing the Commodity Futures Trading Commission (CFTC), Commissioner Kristin N. Johnson delivered a sharp critique of the agency’s handling of prediction markets, calling for immediate regulatory reforms to protect retail investors.
Speaking at the Brookings Institution, Johnson warned that oversight of these fast-growing markets remains inadequate. “As of today, we have too few guardrails and too little visibility into the prediction market landscape,” she said. “There is an urgent need for the commission to express in a clear voice our expectations related to these contracts.”
Concerns Over Retail Exposure
Prediction markets have grown rapidly, but Johnson fears they’re outpacing regulation. She emphasized that many of these contracts are marketed to retail customers and may involve leveraged or margined terms that increase financial risk.
“The stakes are high,” she said. “And, if I only have one piece of wisdom to share, it would be the following – get it right. Measure twice, cut once.”
Johnson, who joined the CFTC in 2022, expressed disappointment that the agency had not established rules for political event contracts—such as those proposed by Kalshi for the 2024 election, which were allowed after a federal court victory over the Commission.
Licensing Tactics Under Fire
A significant part of Johnson’s criticism focused on what she described as licensing manipulation by some market players. According to her, certain firms apply for licenses under the guise of offering traditional derivatives, only to pivot quickly and self-certify prediction market contracts.
“In a number of instances, these businesses approach the Commission seeking licences to offer traditional products, only to quickly shift once a licence is in hand,” she said. “In other contexts, firms that have received a licence quickly auction their newly minted licence to others.”
She compared these developments to the oversight lapses that contributed to past financial disasters such as the 2008 crisis and the collapse of crypto exchange FTX, cautioning that poor governance, internal controls, and compliance remain common across many emerging financial products.
While the CFTC’s approach has been relatively hands-off, state regulators have begun pushing back. In Ohio, officials warned that sportsbook operators offering prediction markets could jeopardize their licenses. Nevada has also issued cease-and-desist letters to similar platforms.
Polymarket Re-Enters the U.S.
At the same time, the CFTC issued a “no-action” letter to Polymarket, allowing it to reenter the U.S. market after acquiring licensed entities QCEX and QC Clearing in a $112 million deal. The move follows Polymarket’s 2022 exit after a CFTC settlement for operating an unregistered platform.
Though the letter does not exempt Polymarket from future compliance, it signals a degree of regulatory flexibility even as formal guidelines remain unsettled.
Industry Experts Urge Caution
A panel convened by Truist Securities echoed Johnson’s concerns, noting that state agencies are unprepared for the shift toward prediction markets. Industry executives warned that operators risk disrupting relationships with regulators and partners by moving too quickly.
Some panelists also predicted that sportsbook operators might use prediction markets to reduce tax burdens by bypassing state gaming taxes, potentially pushing states to legalize igaming to offset lost revenue.
Source:
“‘Too few guardrails,’ CFTC’s Johnson warns on prediction market risks”, cointelegraph.com, September 4, 2025
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