UK urged to act as Polymarket takes bets on whether HSBC and Lloyds will fail
Treasury committee MP Bobby Dean says regulators should raise concerns with US counterparts as punters take $77,507 of positions on whether the world's biggest banks will go under by the end of the year.
The US-owned online prediction market Polymarket has been taking bets on whether HSBC and Lloyds Banking Group will fail, prompting a Treasury committee MP to urge British regulators to intervene over the risk to financial stability.
Users have taken $77,507 (£58,530) of positions on the question of whether “the world’s biggest banks will go under by the end of this year”, according to The Guardian, whose banking correspondent Kalyeena Makortoff reported the markets cover lenders from JP Morgan to BNP Paribas alongside HSBC and Lloyds, described as two of the largest on UK high streets.
Residents of the UK, US, Canada and the EU are banned from betting on Polymarket’s offshore platform, but the Guardian reports punters from roughly 150 countries can still profit from events that would create huge financial instability, and some users in restricted countries circumvent the ban with VPNs. Polymarket’s platform is blockchain-based, with accounts linked to crypto wallets that can be publicly traced but are hard to link to individuals.
Liberal Democrat MP Bobby Dean, who sits on the Treasury committee, said Polymarket has “a poor reputation for stopping insider trading or bad actors placing bets on their platform”, warning that if activity grew and a market escalated rapidly, “it could even trigger bank runs”. He urged regulators “to get in contact with their counterparts in the US to raise concerns”, adding: “We should not turn a blind eye to the risks because they are relatively small today.”
The Financial Conduct Authority told the Guardian it had been speaking to international regulators about prediction markets as part of efforts to protect “market integrity”. The Bank of England said its supervisors engage regularly with firms on emerging risks. Lloyds and HSBC declined to comment; the Treasury did not respond.
Polymarket’s chief legal officer, Neal Kumar, said the information in the markets was already public and that banks and hedge funds had access to credit default swap markets for years: “You shouldn’t need to work at an institution like that to have access to information on a topic of this importance like bank failures.”
The European Securities and Markets Authority warned last month that “a growing number of incidents illustrates that prediction markets are rife with inside trading”, citing newly created wallets that reportedly generated $1.2m profits shortly before a US-Israel strike on Iran became public in February, and a US soldier charged in January over alleged insider bets ahead of the capture of Venezuela’s Nicolás Maduro. Academics have warned the platforms create “a serious moral hazard”.
The warning comes as UK bank stocks tumbled this week on fears Chancellor John Healey could raise taxes on lenders in his Oct 28 budget, after he summoned the chief executives of Barclays, HSBC, Lloyds and NatWest to a meeting next Tuesday.
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