Brazil’s National Monetary Council (CMN), which oversees the nation’s financial markets and monetary policy, has brought the boom down on products being offered by offshore prediction services.
Prediction markets, notably U.S. Manhattan-based Kalshi and Polymarket, have had their Brazilian activities restricted to the economic and financial space.
They will not be allowed to take bets, or “trades” on sporting results, political elections and entertainment events.
The move by the CMN is a major setback for Kalshi’s and Polymarket’s regional aspirations but it comes as a relief for fixed-odds betting operators in Brazil who were worried that the lack of differentiation between prediction markets and sporting bets.
Wild West
They argued that unfettered prediction markets would trigger a “Wild West” free-for-all in Latin America’s most populous nation and largest economy because of a blurred regulatory border between traditional and New World iGaming (NWiG).
“[This] decision comes amid the popularization of prediction market platforms in Brazil, which operate without their own regulation, unlike the betting sector,” the CMN stressed in a statement.
Concurrently, Brazil’s Ministry of Finance announced that prediction markets will not be able to operate sports betting without a betting license from its regulator, the Secretariat of Prizes and Bets (SPA).
Illegal Gambling
Anyone trying to offer sports betting under the cover of derivatives of financial products will be treated as an illegal gambling operator, the ministry warned.
The new CMN ruling comes into effect on May 4 with Resolution No. 5,298, which was authorized by Central Bank (BCB) governor Gabriel Galípolo.
The measure prohibits prediction contracts linked to sports, political and entertainment events. Contracts tied to economic indicators and financial variables remain under the supervision of the Brazilian Securities and Exchange Commission (CVM).
Signalling their first targetted expansion into international markets, Kalshi secured access to Brazil in January through a partnership with XP Inc., positioning its platform as an investment product for Brazilian consumers.
Trojan Horse
Fearing a Trojan Horse strategy, licensed sports betting operators in Brazil immediately lobbied regulator SPA to intervene – and block Kalshi’s entry into the fixed-odds sports betting market, now the world’s fifth largest.
Recent valuations of the two main prediction markets–Kalshi at US$22 billion (£16.23bn) and Polymarket at US$20 billion (£14.75bn)–place both companies ahead of the two main sports wagering operators in the United States: Flutter’s FanDuel at US$18 billion (£13.28bn) and DraftKings at US$11 billion (£8.11bn) – despite the clear regulatory risk of the prediction market business model.
In Brazil, the Securities and Exchange Commission (CVM) has yet to fix a formal timeline to regulate prediction markets; although Brazil’s telecommunications regulator Anatel has already taken action and blocked 28 sites of offshore prediction services offering contracts.
Curbs
Brazilian Finance Minister Dario Durigan and Miriam Belchior, President Lula’s Chief of Staff, held a press conference on Friday April 24 to announce that offshore prediction markets were declared illegal in the country.
“We do not want to expose Brazilians to risks and financial losses,” attested Minister Durigan.
Prediction contracts on derivatives markets will be allowed for interest rates, currency exchange rates, stock market indexes, commodity prices, GDP, inflation, unemployment and other macroeconomic data. And Bitcoin and crypto coins.
“[At the moment] prediction markets are not provided for in the legislation. Our goal is to curb any type of illegal betting,” underlined Durigan.
