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ESMA Elevates Market, Contagion and Operational Risks to Very High

The regulator warned that growing links between crypto instruments and traditional finance, together with high valuations against a weakening economy, raise the chance of a sudden market correction.

ESMA warns prediction markets raise insider risks
European Union flags flutter outside the European Commission headquarters in Brussels, Belgium April 29, 2026. REUTERS/Yves Herman/File Photo

Overview

  • ESMA published its second 2026 risk monitoring report on Sept. 10 and placed market, contagion and operational risks at the highest level based on deteriorating macro conditions and geopolitical tensions.
  • The watchdog said a disconnect between upbeat investor valuations and a worsening economy increases the likelihood of an abrupt market correction if sentiment shifts.
  • Public data reviewed by ESMA show outstanding tokenized equities rising from about €0.3 billion at end‑2024 to roughly €1.9 billion by end‑June 2026 while Q4 2025 prediction‑market volumes hit about $12 billion on Polymarket and $8.8 billion on Kalshi.
  • ESMA flagged operational threats from cyberattacks, advances in AI, DeFi smart‑contract failures and fragmented wrapped‑token settlement that can cause irreversible losses and complicate recovery in stress.
  • The report urged ongoing monitoring and highlighted EU technical work such as the DLT Pilot Regime and ECB projects plus U.S. regulatory activity and private pilots as steps to address legal, settlement and oversight gaps.