The Regulatory Evolution of Prediction Markets in Malta: From Interim Regime to a Bespoke Legal Framework
Jul2026

The Regulatory Evolution of Prediction Markets in Malta: From Interim Regime to a Bespoke Legal Framework

14 July 2026

I. Introduction and Statement of the Problem

The dogmatic classification of prediction markets poses significant challenges to European regulatory authorities. Due to their hybrid legal nature, which combines elements of volatile financial derivatives trading with the aleatory elements of traditional gambling, these platforms elude a sharp demarcation within traditional statutory codes.

While an alliance of nine European gambling supervisory authorities (including those of Germany and France) has adopted a restrictive course, enforcing punitive measures against unlicensed platforms via geo-blocking, Malta is pursuing a progressive regulatory policy. In light of the massive trading volumes—illustrated by the buoyant market activity on platforms such as Polymarket in the run-up to the Maltese parliamentary elections in May 2026—the government is driving forward the establishment of a globally unique legal framework.

II. The Status Quo: The Bridge Solution via the Existing MGA Licensing System

 In the absence of a specific, isolated statutory text, the Malta Gaming Authority (MGA) subsumes prediction markets de lege lata under the existing, technology-neutral gaming legislation. Operators are consequently required to obtain a corresponding license to legally offer their services from Malta. In current regulatory practice, classification occurs through two established licensing categories, depending on the concrete contractual and technical structure of the platform:

  1. Type 2 License (Fixed-Odds Structures): This category applies when the end-user enters into event-based contracts at fixed odds directly against the platform operator. In this scenario, the operator acts as the direct risk-bearer and counterparty to the user. The first B2B software providers in Malta are already utilizing this structure to offer legally compliant white-label solutions.
  2. Type 3 License (Peer-to-Peer Structures): This concession authorizes the provision of a multilateral trading platform (e.g., betting exchanges). Users interact directly against other participants on a peer-to-peer basis. The operator merely provides the technical infrastructure and generates revenue via transaction fees (rake), without bearing any financial risk regarding the outcome of the event.

While this interim regime grants market participants temporary legal certainty, it reaches its dogmatic limits when applied to highly dynamic, blockchain-based trading mechanisms.

III. Pending Amendments: The Planned "Bespoke Framework"

To address the specific characteristics and risks of prediction markets—particularly within the Web3 and crypto sectors—a specialized piece of subsidiary legislation (the so-called "Bespoke Framework") is currently undergoing the legislative process in Malta. Following formal confirmations by Economy Minister Silvio Schembri and Prime Minister Robert Abela during the 2026 election campaign that Malta will be one of the first jurisdictions worldwide to dedicately regulate this sector, the project is taking concrete shape. The objective is a deliberate departure from mere analogical applications in favor of an independent, distinct legal category.

The proposed legislation focuses primarily on three core areas:

  1. Market Integrity and Anti-Abuse Measures: To ensure fair price-discovery mechanisms, the MGA will be vested with specific supervisory powers to effectively sanction insider trading, market manipulation, and the disruptive deployment of automated trading bots. Furthermore, the draft provides for material exclusion criteria for event contracts that are deemed contra bonos mores (contrary to public policy or morals).
  2. Risk-Based Consumer Protection: Instead of prohibitive stake limits or rigid trading bans, the new model relies on enhanced transparency obligations and algorithmic monitoring systems to manage the balancing act between technological innovation and the protection of end-users from gambling harms.
  3. Legal Anchoring of Decentralized Technologies: The framework establishes progressive technical requirements. It regulates the legally binding integration of Distributed Ledger Technology (DLT), the implementation of smart contracts, the harmonized interface with the European MiCA regulation (with regard to the underlying stablecoins utilized), as well as the mandatory certification of decentralized data oracles to ensure the manipulation-free and objective determination of event outcomes.

IV. Conclusion and Outlook

 With its current approach and the planned introduction of the Bespoke Framework, Malta demonstrates that technological innovations can be shaped through regulation rather than stifled by prohibitions. While the current system via Type 2 and Type 3 licenses serves as a functional bridge, the upcoming specialized legislation will create a tailor-made legal foundation. For the development of European law, it remains to be seen how this specialized supervisory regime will assert itself within the context of the freedom to provide services and against the restrictive tendencies of other EU Member States.