Prediction Markets: A British Virgin Islands Law Perspective

Prediction markets have grown rapidly over the past few years, evolving from a niche corner of decentralised finance into a well-capitalised segment of mainstream fintech. Platforms such as Polymarket and Kalshi now facilitate substantial monthly trading volumes on binary event contracts, and the sector has attracted institutional attention on a scale that would have seemed unlikely only a short time ago[1]. As adoption grows, so too does the range of corporate, fund and trust vehicles used to gain exposure to the asset class. A significant proportion of those vehicles are BVI incorporated or BVI administered.

None of this makes prediction markets conceptually new. Wagering on the outcome of future events, and taking financial positions on the movement of prices, rates or indices, are both long-established activities. What has changed is the infrastructure. Smart contracts and blockchain-based settlement now allow a market to be created, traded and settled without a conventional bookmaker, broker or exchange sitting at the centre of the transaction, and without any inherent limit on the type of event a market can reference.

This creates a genuine classification problem. A prediction market can look like a bet in some respects and a financial derivative in others, and in some cases plausibly resembles both at once. BVI legislation, however, is not concerned with how an activity feels commercially. Instead, each statute defines specific activities and products, and regulation follows from whether a given arrangement falls within those definitions. The task for any BVI entity involved in a prediction market structure is therefore to ascertain what a participant is acquiring, what determines its value, and what function the BVI entity performs in creating, operating or facilitating the arrangement. Two BVI statutes call for particular attention: the Virgin Islands Gaming and Betting Control Act, 2020, as amended (the “Gaming Act”), and the Securities and Investment Business Act, 2010, as amended (“SIBA”). Where digital assets are used, the Virtual Assets Service Providers Act, 2022, as amended (the “VASP Act”) also warrants consideration.

What is a prediction market?

Structures vary between platforms, but the basic mechanic is consistent. A market is built around a future event with an objectively verifiable outcome, and participants trade “YES” or “NO” shares tied to that outcome. At settlement, a “YES” share pays US$1.00 if the event occurs and nothing if it does not. A “NO” share pays the reverse. Because these shares trade continuously up to settlement, the market price at any given moment reflects participants’ collective view of the probability of the event occurring. For example, a “YES” share trading at US$0.65 implies the market currently prices the event at roughly a 65% chance of happening.

Contracts have been built around interest rate decisions, elections, sporting results, corporate events and even weather. Unlike a traditional fixed-odds bet, a participant is not locked in until the event resolves. Positions can be bought and sold throughout the life of the market, so a gain or loss can be crystallised well before the underlying outcome is known. In that respect, the product behaves more like a short-dated, continuously priced derivative than a conventional wager, even where the subject matter of the market is exactly what one would expect to find at a bookmaker.

The growing use of stablecoins adds a further dimension relevant to offshore structuring. Polymarket, for example, settles positions in USDC over public blockchain rails. That combination of derivative-like mechanics, gambling-adjacent subject matter and digital-asset settlement means a single platform can, in principle, touch several different areas of BVI financial services and gaming regulation at once.

The BVI regulatory landscape

The BVI has no legislation drafted specifically for prediction markets or event contracts. A BVI entity involved in launching, operating or supporting such a platform must instead work through legislation designed with other business models in mind. None of the statutory regimes referenced above treats “prediction markets” as a defined category, so the analysis has to be done at the level of the individual contract and the relevant BVI entity’s role, rather than by reference to how the platform brands itself.

The Gaming Act: gaming, betting, and betting transactions

The Gaming Act is the natural starting point of any analysis. It reversed the BVI’s historical prohibition on gambling and introduced a licensing regime overseen by the Gaming and Betting Control Commission. Section 29 of the Gaming Act prohibits a person from participating in a wide range of gaming and betting activities without an appropriate licence, and those activities extend well beyond running a casino or sportsbook. They include, among others, owning or operating a gaming machine location, performing a function connected with a licensed gaming or betting activity, manufacturing, supplying or repairing gaming equipment or software, and providing facilities for betting of any kind, or providing or utilising premises for gaming or betting. On its face, this language reaches infrastructure and technology providers as readily as the counterparty accepting the wager.

As presently constituted, the Gaming and Betting Control Commission contemplated by the Gaming Act has not yet been fully established. This leaves a practical gap for any BVI entity trying to comply. Any structure intending to operate, or provide services to, a prediction market platform should factor this gap into its risk assessment and its timeline.

Whether a particular prediction market falls within the Gaming Act then turns on three separately defined terms that do not map neatly onto everyday usage of the words “gaming” and “betting”.

This produces an odd result in practice. A market on a horse race sits squarely within “betting”, while a market on an election or a central bank decision does not, even though the two are economically indistinguishable in that they both involve a fixed stake and a binary outcome. The gap is narrowed, though not closed, by the separate concept of a “betting transaction”, which is not limited to sport and appears independently in operative provisions of the Gaming Act, including the restrictions on using premises to facilitate such transactions. Both concepts were revisited in a 2021 amendment to the Gaming Act, and the distinction between them was preserved rather than aligned. This suggests that the narrower scope of “betting” reflects a deliberate legislative choice rather than an oversight.

The practical consequence is that a non-sporting prediction market cannot simply be assumed to fall outside of the Gaming Act. It is unlikely to meet the narrower definition of “betting”, but it may still meet the broader definition of a “betting transaction” if it involves fixed-odds or pool-style wagering on an event. Structure therefore matters more than subject matter because whether the Gaming Act applies turns on how the market is built and operated, not on whether the underlying event happens to be a football match, an election, or something else entirely.

Does BVI incorporation alone matter?

A related question is whether a BVI entity’s involvement is, by itself, enough to trigger either regime, even where all operational activity happens elsewhere. SIBA and the Gaming Act take different approaches to this point. On the one hand, SIBA expressly deems a BVI business company that carries on investment business outside the BVI to be carrying on that business from within the BVI, so incorporation alone is sufficient to bring offshore activity within scope. On the other hand, the Gaming Act contains no equivalent deeming language. In its absence, the better view is that the jurisdictional question turns on where the licensable activities actually occur, where facilities are provided, and what the BVI entity actually does, rather than on the place of incorporation alone. That said, because the Gaming Act does not expressly limit its own territorial reach, the position is not free from doubt, and we would advise against assuming that operating entirely outside the BVI automatically puts a BVI company beyond the Gaming Act’s scope.

SIBA: is the contract an investment?

SIBA prohibits carrying on investment business in or from the BVI without a licence unless an exemption or exclusion applies. As noted above, a BVI company’s offshore investment business is deemed to be carried on from within the BVI regardless of where its operations actually sit.

Classification under SIBA turns on two important questions. Firstly, is the contract or token traded on the platform an “investment” under schedule 1 to SIBA? Secondly, if so, does the BVI entity’s involvement – including dealing, arranging, managing, or advising in investments, or operating an investment exchange – amount to regulated investment business?

Most prediction market contracts do not constitute options or futures because they rarely confer a right to buy or sell an underlying asset or provide for future delivery of property. The potentially more relevant category is the contract for differences. Ordinarily understood as a derivative tracking the price of an underlying financial asset, SIBA’s own definition is considerably wider. It captures any contract designed to secure a profit or avoid a loss by reference to fluctuations in the value or price of property, or in “an index or other factor designated for that purpose in the contract”. A binary contract on an election, a rate decision, or a corporate transaction fits this description surprisingly well because the occurrence or non-occurrence of the relevant event is capable of being the designated “factor” by which profit or loss is measured, irrespective of the underlying subject matter.

This is not to say that every prediction market contract is a contract for differences and the definition must be tested against the specific terms of the contract in question. However, it does mean that the SIBA analysis cannot be limited to markets on conventional financial products.

Operating an investment exchange

Even where the underlying contract is a SIBA investment, it is important to consider whether operating the platform itself amounts to operating an investment exchange. SIBA defines this as providing a facility – electronic or otherwise – for the orderly trading or listing of investments among members of the exchange. A platform that lets participants trade event contracts that resemble contracts for differences against one another could fall within this definition, in which case the operator may need an investment business licence.

The mechanics of the specific platform, rather than its marketing description, are important in ensuring that the classification is correct. Smart-contract-based matching is not obviously different, for these purposes, from a conventional order book because both perform the same function of bringing buyers and sellers together on defined terms. A platform also does not fall outside the scope of SIBA scope because it calls itself “decentralised”. Instead, what matters is which identifiable persons retain control over the interface, the underlying code, the admission of new markets, or the liquidity that makes trading possible. Those persons’ roles then need to be tested individually against SIBA’s categories of investment business.

The VASP Act

A platform that settles positions using digital assets brings the VASP Act into the analysis as well. Depending on how the platform is structured, exchanging, transferring or holding custody of virtual assets on behalf of participants is likely to constitute a “virtual assets service” requiring registration with the BVI Financial Services Commission.

This sits alongside, rather than replaces, the SIBA analysis. The VASP Act’s definitions carve out certain products already regulated under other BVI financial services legislation, so whether a contract qualifies as a SIBA investment can itself affect how it is treated under the VASP Act. As with the Gaming Act and SIBA, using blockchain technology does not automatically bring a platform within the VASP Act. The relevant question remains which activities the BVI entity actually performs.

Bringing the analysis together

Pulling the three regimes together, a “prediction market” is not a single regulatory category under BVI law. The same platform can produce different answers for different contracts, and a single-label approach to compliance is unlikely to hold up. Rather than running through an exhaustive checklist, most of the analysis can be captured by three broader questions:

• What does the contract actually reference, and how does it settle? The precise event, and whether the arrangement runs on a fixed-odds, pool, or other basis, determines whether “betting”, “betting transaction” or SIBA’s “contracts for differences” definition is engaged.
• What does the BVI entity actually do? Whether the entity merely provides infrastructure, controls admission of new markets, holds client assets, or matches trades determines which regulated activities, if any, it is performing, and under which regime.
• Where does everything actually happen? The location of activities, facilities, counterparties and, where relevant, the platform’s control functions will affect the jurisdictional analysis differently under each regime.

Corporate governance considerations

Beyond the licensing analysis, prediction markets raise governance questions that will be familiar from other emerging-asset contexts, but which apply here with particular force given the potential difficulties of classifying the underlying product.

Directors of a BVI company considering exposure to prediction markets should first confirm that doing so falls within the company’s corporate capacity and any investment mandate set out in its memorandum and articles of association, or agreed with shareholders. Even where such exposure is constitutionally permissible, directors remain subject to their fiduciary and statutory duties. Accordingly, directors must act in good faith in the best interests of the company, exercise their powers for a proper purpose, and generally exercise reasonable care, skill and diligence. Losses arising from prediction market exposure could found a derivative claim by shareholders alleging that directors acted imprudently or outside their mandate, particularly where the classification of the underlying contract is itself contested.

Accounting treatment follows from classification. Depending on whether a position is ultimately characterised as a bet, a derivative, or another form of financial instrument, it may need to be recorded at fair value, tested for impairment, or disclosed as a contingent exposure. A failure to record or disclose a material position correctly can itself generate governance and reporting disputes independent of the underlying legal characterisation question.

Practical takeaways for BVI structures

Some practical takeaways for BVI structures are as follows:

• Analyse contract by contract, not platform by platform. A single prediction market may offer contracts that are properly gambling products under the narrower definition of “betting”, contracts caught only by the broader concept of a “betting transaction”, contracts that are SIBA investments (including as contracts for differences), and contracts that involve a virtual asset.
• Don’t assume non-sporting events sit outside the Gaming Act. The concept of a “betting transaction” is not confined to sport and may catch political, economic or corporate event contracts that fall outside the narrower definition of “betting”.
• Treat the CFD analysis under SIBA as a live issue for any binary contract. The “other factor” language in SIBA’s definition of “contract for differences” is broad enough to capture event contracts with no connection to conventional financial markets.
• Map jurisdiction separately for each regime. SIBA’s deeming provision brings offshore investment business within scope regardless of where it is conducted. The Gaming Act has no equivalent provision, though its own silence on territorial reach means the position is not entirely free from doubt either.
• Build in controls for user-generated markets. A platform that allows users to create new markets should have governance in place to prevent newly created contracts from inadvertently shifting the platform into regulated territory.
• Revisit corporate governance. Confirm corporate capacity for prediction market exposure, and ensure that directors are compliant with their duties.
• Expect the compliance gap to persist for now. With the Gaming and Betting Control Commission not yet operational, entities that conclude that a Gaming Act licence is required may face a practical gap between the legal obligation to be licensed and the ability to obtain that licence. This should be built into risk assessments and timelines.

Conclusion

Prediction markets illustrate a familiar pattern when new technology arrives faster than legislation designed around older business models. That is not the same as a regulatory gap. The Gaming Act, SIBA and the VASP Act each supply a framework capable of capturing relevant prediction markets activity, but the legislation is not drafted with “prediction markets” as a defined category. The result is that any classification must happen at the level of the individual contract and the relevant BVI entity, not at the level of the platform’s brand.

For persons considering a BVI structure, the practical task is to work systematically through the Gaming Act’s three overlapping definitions, SIBA’s schedule 1 categories (including contracts for differences), and the VASP Act’s registration triggers, before deciding how a given contract or platform should be treated. Doing that early, contract by contract, is considerably more cost-efficient than resolving the question after a platform has already gone live.

Next Steps

If you want to know more about the content of this article, please contact Peter Vas below.

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication. This article was last updated on 16 September 2026.

[1] What are Prediction Markets? The Future of Real-time Trading and Forecasting | INN