Brazil Blocks 27 “Prediction Market” Platforms in Crackdown on Unregulated Betting
The Brazilian Ministry of Finance has prohibited 27 organizations from working within its borders due to violations revealed after the examination of their “prediction market” models, which were found to be working as gambling betting sites without being approved. This step is the next one in the context of enforcement within the rapidly changing digital betting environment.
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According to the government, companies worked as participants of “the prediction market“, describing their services as investments or trades in derivative instruments. Yet, the regulatory agencies concluded that their work scheme was close to gambling betting while there is no compliance with the national rules and regulations of the Brazilian legal gambling market.
Platforms Working Under Banned Types of Betting
These companies offered users the opportunity to bet on various events that were prohibited for gambling betting in Brazil. It involved political decisions and election results, economic indicators’ values, sport competitions’ scores, prizes in arts and music, winners of game tournaments, and other types of cultural and social phenomena. Moreover, some users were allowed to bet on political events and military conflicts in countries such as the USA, Venezuela, or Israel. They received money if their guesses were correct.
Thus, such betting activities, regardless of marketing, were out of the scope of the Brazilian betting legislation or any financial regulations.
CMN Resolution Prohibiting New Forms of Derivatives
The mentioned action follows a resolution adopted by Brazil’s National Monetary Council (CMN) on April 24. According to the decision, companies can work only with derivatives markets relating to financial or economic indicators with supervision from the Securities and Exchange Commission (CVM).
It is worth noting that this resolution prohibits transactions with other forms of events that cannot be associated with economics or finance.
Thus, such a move does not allow the formation of a parallel unregulated derivatives market that might expose users to financial risks due to a lack of regulation and consumer protection.
Prohibition of Gambling Business Model
The business model of the mentioned platforms has been identified as an illegal type of betting. Even when described as mediators of agreements or a new generation financial instrument, they worked according to principles similar to those of betting games. Officials highlighted that this business operates “on the edges of the financial system“, failing to satisfy all the conditions for gambling and financial markets.
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Thus, this prohibition also concerns the issue of possible social problems, such as over-indebtedness of users.
Users Impacted by the Decision
All the users working with these platforms across the Brazilian borders will face access restrictions and other sanctions. Thus, such a move can impact businesses of both local and foreign organizations involved in this niche.
Some of the most famous websites working according to this scheme and facing bans include Kalshi and Polymarket, two international platforms that operate in prediction markets. There is a large number of organizations involved in the prohibition.
Distinction from Legal Betting Market
Notably, this prohibition concerns only prediction-type platforms and does not affect the betting market operators working legally according to Brazilian regulations. For instance, all the licensed sportsbook platforms and online casinos will keep running normally and continue to accept bets for sports events or other approved games. Payouts will be based on predetermined odds.
The difference between the prohibited business model and betting is in the contract type. The latter involves pre-established odd rates, and there is no uncertainty in the result. In contrast, the platform works with contracts involving real-world uncertain events whose outcomes depend on many factors.
Consequences of the Decision
This decision means a significant change for the industry. CMN introduced an essential restriction for the further development of these prediction-type platforms within Brazil. The company must now choose between adaptation to new rules or leaving the market.
Source: BNL Data
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