Financial services companies seek approval to offer investment funds tied to prediction markets

Why prediction markets are knocking on Wall Street’s door

Prediction markets have long sat at the edge of finance, treated as curiosities or, in some cases, wagers best kept at arm’s length from regulated exchanges. That line is blurring. Canada has already begun to let mainstream brokers test the waters. Toronto-based fintech Wealthsimple confirmed it has gained approval from the Canadian Investment Regulatory Organization to offer event contracts, putting it alongside Interactive Brokers as one of the first firms in the country with a green light to list the products. While Wealthsimple has not set a launch date, the decision shows how a G-7 regulator can open a path for event-driven contracts to reach retail investors through established platforms. Supporters say the instruments can hedge real-world risks, while critics argue they look and behave like gambling and could expose novices to sharp losses, particularly if offered in easy-to-use apps. Those competing views are captured in Wealthsimple approved to offer prediction markets in Canada, which also notes that Canadian authorities have historically cracked down on high-risk products, including binary options, and continue to restrict certain event categories such as elections.

That split view is the backdrop for the latest bid by U.S. asset managers to import prediction signals into exchange-traded funds. If approved, ETFs tracking the odds embedded in political event contracts would turn what has largely been a niche market into index-like exposure, purchasable in ordinary brokerage accounts. The appeal is obvious: a new dataset that trades like a fund. The risk is equally clear: the closer these products get to contentious or speculative categories, the more oversight they invite. The Canadian experience suggests a narrow corridor for growth, at least initially, with election restrictions and risk warnings shaping what can be offered and how.

Regulators are already drawing the boundaries

Any push to list prediction-linked products is landing in a world where supervisors are aggressively policing the gray areas between speculation and gambling. In Australia, the federal communications regulator recently investigated four wagering firms for failing to honor the country’s self-exclusion protections. The probe found that Buddybet, Ultrabet, Topbet and VicBet sent marketing materials to people who had opted out of gambling, and that Buddybet also failed to close excluded accounts. Buddybet has since exited the market, Ultrabet has committed to improve compliance and two operators received formal warnings, while a separate operator, PointsBet, was fined AU$500,000. The case, detailed in Australian regulator warns betting companies over self-exclusion breaches, underscores how regulators are prioritizing consumer safeguards and data controls as digital betting proliferates.

The policy lesson for financial firms is straightforward: products that resemble betting attract rules designed for gambling, especially around vulnerable users. Canada’s limited permissions and Australia’s enforcement posture hint at how lines may be drawn elsewhere. In the United States, legal fights over sports prediction platforms and proposed legislation to curb contracts tied to sensitive areas such as elections are a signal that category boundaries could tighten, not loosen, as the market scales. The Canadian approval shows opportunity, but the enforcement wave shows the cost of missteps.

Consumer protection becomes a competitive edge

Even as new products inch toward the mainstream, operators are trying to differentiate on safety. In the Philippines, DigiPlus Interactive introduced a surety bond with Philippine First Insurance that automatically guarantees verified users’ balances on its platforms. The product, described in DigiPlus and PhilFirst launch surety bond for player funds, requires no separate purchase by players and functions as an added layer on top of existing know-your-customer checks and customer support. For an industry where trust can evaporate fast after a platform failure or fraud, a third-party guarantee can lower perceived risk and serve as a template for how consumer protections might be embedded into higher-risk, event-driven products.

That approach could matter if prediction-linked ETFs gain traction. While ETFs have built-in protections through custodians, market makers and disclosure rules, event-derived exposures could still face reputational and regulatory scrutiny. Operators that preemptively build auditability and loss safeguards — including insurance-like structures or ringfenced collateral — will likely have an easier time persuading regulators and investors that the products are fit for mass-market distribution. DigiPlus’ move shows that consumer protection can be more than a compliance box — it can be a product feature.

When speculation bleeds into public finance

The stakes of blending finance and wagering are not only personal; they can be public. In the Philippines, a district treasurer in Sarangani Province is accused of draining about PHP600,000 in public funds through online casino gambling, leaving only a fraction of the budget to cover daily expenses for local services. The allegation has triggered preparations for criminal complaints and revived calls to strengthen the country’s Bank Secrecy Law to allow authorities broader access to suspicious accounts. The case, outlined in Philippine district official accused of online gambling with public funds, is a reminder that weak controls and easy digital access can create governance risks that spill well beyond individual losses.

For financial firms courting prediction-linked products, the lesson is twofold. First, clear guardrails that prevent misuse of institutional or public accounts are essential. Second, transparency around flows, counterparties and risk ownership will matter as much as the products’ design. As lawmakers in multiple jurisdictions debate how to cordon off sensitive event categories, highly visible misappropriation cases harden political resistance to expansion, even when the products are pitched as tools for hedging rather than speculation.

Policy crosscurrents in a key regional hub

The Philippines also offers a view into how governments try to balance industry development with control risks. After ordering a wind-down of offshore-facing gambling operators, regulators have emphasized support for “special class” business process outsourcing firms that provide back-office services — such as human resources, marketing and accounting — to licensed international gaming companies. These firms cannot take or solicit bets and must staff at least 95% of roles with Filipinos, according to PAGCOR to support special class companies providing outsourced work to international gaming firms. The strategy aims to preserve high-quality jobs while limiting direct exposure to higher-risk activities.

That calibrated approach mirrors the broader regulatory posture emerging around prediction markets: allow certain functions to operate under tight parameters, wall off prohibited activities and use domestic capabilities to capture economic gains without importing all the risks. If ETFs tied to event contracts advance, expect a similar blueprint — narrow scopes, firm prohibitions and strict compliance obligations — to shape where and how they launch.

What’s at stake as ETFs test the limits

The drive to bring prediction signals into ETFs reflects a search for alternative data and diversified exposures as investors brace for volatile political cycles. If allowed, event-linked funds could become tools for portfolio hedging and expression of macro views, much like inflation or volatility products. Yet the international record shows that access typically comes with strings attached: category bans, retail restrictions, self-exclusion enforcement and prominent risk disclosures. Recent actions in Canada, Australia and the Philippines suggest that any path to mainstream adoption will be slow, conditional and more focused on investor protection than on innovation speed.

The next developments to watch are whether regulators formalize bright lines around political and sports events, how issuers propose to mitigate manipulation and liquidity risks, and whether consumer-protection features — from insurance backstops to opt-out mechanisms — become standard. The promise of prediction-linked ETFs is simplicity. Their permission to exist will likely depend on complexity behind the scenes.