Canadian Regulators Shut Door on Sports Prediction Contracts

The Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization (CIRO) yesterday (Aug. 27) issued a joint notice saying they will not allow sports and entertainment prediction market event contracts in Canada. 

“It is important for investors and market participants to understand that event contracts based on sports- or entertainment-related activities or outcomes should not be regulated within securities and derivatives legislation,” said Stan Magidson, CSA chair and chair and CEO of the Alberta Securities Commission.

“This notice provides important clarifications regarding the role and responsibility of Canadian securities regulators when it comes to certain types of event contracts.”

Regulators Draw Firm Boundary

In March, CIRO announced it would allow investment management service Wealthsimple to set up prediction market trading for event contracts around financial markets, climate, and economic indicators. 

Interactive Brokers Canada Inc. is the only other CIRO Investment Dealer Member to have been authorized to allow trading in event contracts.

The CSA is an umbrella organization that coordinates Canada’s provincial and territorial securities regulators to harmonize rules across the country’s capital markets.

Financial Contracts Remain Permitted 

CIRO is the national self-regulatory organization that governs investment dealers, mutual fund dealers, and trading activity on Canadian debt and equity marketplaces.

Yesterday’s announcement means the Canadian prediction market will not follow in the United States’ footsteps. 

Companies like Polymarket and Novig are offering sports event contracts nationwide in the U.S. under federal authority issued by the Commodity Futures Trading Commission (CFTC).

Canada Rejects U.S. Approach

Those companies and the CFTC are currently mired in dozens of lawsuits over the legality of prediction market platforms, with those companies and the CFTC on one side and states, attorneys general, and gaming regulators on the other, arguing whether federal derivative laws pre-empt state gaming laws. 

The CSA and CIRO joint announcement was applauded by the Canadian Gaming Association (CGA), the national body that works with operators, suppliers and other stakeholders in the regulated iGaming industry.

Canadian Gaming Association Welcomes Clarity

CGA president and CEO Paul Burns said sports event contracts are the same as sports betting. 

Sports wagering on prediction market platforms carries risks around anti-money laundering controls, responsible gambling safeguards, and know-your-customer checks that provincial gaming regulators are specifically equipped to manage.

“The Canadian Gaming Association welcomes [yesterday’s (Aug. 27)] guidance from CSA and CIRO staff,” said Burns. “It brings clarity to a question that matters a great deal to Canadian consumers, provincial governments, and the licensed gaming industry.

“Online gaming and sports betting are entertainment products. The CGA recognizes that more companies may seek to enter prediction markets and that securities regulations may evolve over time. The Association is ready to work with CSA, CIRO, and provincial regulators as further guidance is developed, and to support efforts to ensure a consistent, high standard of consumer protection for sports wagering across Canada, regardless of how a product is structured or marketed.”

Regulatory Reasoning Questioned

Evan Thomas, a Toronto-based lawyer advising fintech clients, told Casino.org that while the CSA and CIRO decision not to broaden the scope of event contracts available through Canadian investment dealers was not surprising, the absence of reasoning was.

“CSA staff acknowledge that event contracts may fall within the broad definitions of securities or derivatives, then conclude that sports and entertainment contracts should not be regulated within that framework, without explaining why,” he said.

“The notice offers no legal analysis and no policy rationale either. This is disappointing because if securities regulators make a significant policy decision like this, they should be transparent and provide reasons.”

Provincial Gaming Route Remains

The staff notice closes a path for sports contracts that had a working framework, he added: products traded and cleared on U.S.-regulated exchanges reaching Canadians through registered investment dealers, all subject to CIRO supervision.

“It cements a dislocation with the U.S., where sports event contracts currently trade on CFTC-regulated exchanges under a single federal framework,” said Thomas.

The only potentially open route for sports event contracts is provincial gaming registration, less appealing to companies like Polymarket while they’re arguing in U.S. courts that their products are derivatives, not gaming, he added.