Prediction Market Platforms Face Money Transmission Obligations Under Any Regulatory Outcome

On April 6, 2026, the U.S. Court of Appeals, Third Circuit held that Kalshi’s sports event contracts are likely swaps subject to the Commodity Futures Trading Commission’s (CFTC) exclusive jurisdiction. Less than six months later, the Ninth Circuit reached the opposite conclusion, holding that the same sports event contracts are gambling products that may be regulated by the states. This divide has significant implications beyond gaming regulation. Depending on the ultimate characterization of prediction market event contracts, platforms may face differing obligations under federal and state money transmission laws.

Event contracts are binary outcome instruments that pay a fixed sum based on whether or not an event occurs. The treatment of event contracts as either CFTC-regulated derivatives or as gambling products subject to state oversight may determine whether a platform must register with the Financial Crimes Enforcement Network (FinCEN) as a money services business (MSB) and/or obtain money transmitter licenses in 50-plus U.S. jurisdictions.

A Federal Regulatory Pathway

The Third Circuit’s decision in KalshiEX, LLC v. Flaherty held that sports event contracts are likely swaps and that the Commodity Exchange Act’s (CEA) exclusive-jurisdiction provision, 7 U.S.C. § 2(a)(1)(A), preempts New Jersey’s gambling statutes. The federal government has reinforced this position through affirmative litigation against multiple states. Federal authorities, including the CFTC, have asserted that these event contracts fall within the CEA’s exclusive federal commodities jurisdiction, preempting state gaming laws.

Because FinCEN regulations exclude from MSB status a person “regulated or examined by” the CFTC, if CFTC preemption prevails, a platform registered as a designated contract market (DCM) may not need to separately register with FinCEN as a money transmitter, although it would remain subject to the CFTC’s anti-money laundering (AML) regime. Notwithstanding federal preemption, state law is not uniform. Some states expressly exempt certain CFTC-regulated activities, while others do not, meaning the platform must conduct a state-by-state licensing analysis to determine its obligations.

Even if CFTC preemption prevails on gaming law, no court has addressed whether the CEA’s exclusive-jurisdiction grant displaces generally applicable state financial-services regulation. Litigation to date has focused on gaming-law preemption, which carries a presumption against preemption as an exercise of state police power, while money transmission licensing serves distinct consumer-protection and AML objectives. CEA preemption of gaming law may extend to money transmission licensing, but the issue remains untested. Platforms should therefore not assume that a CFTC victory on gaming preemption relieves them of state money transmitter obligations: a platform could hold DCM registration, be excluded from federal MSB status, and still need state money transmitter licenses, at least in some jurisdictions.

A State Regulatory Pathway

The courts may ultimately decide that event contracts are not swaps, or that the CEA does not preempt state gambling regulation even if they are. The Ninth Circuit’s recent decision in KalshiEX, LLC v. Assad did so, holding that Kalshi’s sports event contracts likely are not swaps and allowing the Nevada gaming commission to regulate the exchange under state gambling laws. This circuit split sets the stage for potential Supreme Court review to determine whether or not federal preemption applies.

If the states prevail, prediction market operators may lose access to the strongest arguments for relying on the CFTC-registrant exclusion because they may not be “regulated or examined by” the CFTC. The exclusion is written in entity-based terms, not activity-based terms, so a CFTC-registered entity could argue that it remains covered even for non-derivatives activity. That reading is untested, and FinCEN could take the contrary view as no administrative ruling has resolved the issue.

If the exclusion is unavailable, the platform must assess whether its handling of customer funds is money transmission. A platform that accepts user funds and distributes winnings may meet the federal definition. If so, the operator must register with FinCEN as an MSB, adopt a written AML program, file Currency Transaction Reports (CTR) and Suspicious Activity Reports (SAR), and meet other applicable obligations. Other exemptions or exclusions may apply, but compliance will be unavoidable in some cases.

State money transmission law remains a patchwork. Except for Montana, every state, the District of Columbia, and several U.S. territories require money transmitter licensing. States have moved toward harmonization, but definitions, exemptions, and requirements still vary. The Conference of State Bank Supervisors’ 2021 Model Money Transmission Modernization Act (the Model Act) and its predecessor, the 2004 Uniform Money Services Act, contain no blanket exemption for CFTC-registered entities, and adoption of the Model Act is uneven, including on the exemption for CFTC-related activities.

Because most state money transmission regimes look to user residency rather than platform location, a nationwide platform may face licensing in every state where it has users. Moreover, if there is no federal preemption of state gaming laws, a platform may need both a state gaming license and a money transmitter license in each such state, in addition to meeting state-specific conduct restrictions and financial requirements. Other exemptions may also apply, including the agent-of-payee exemption and public-interest exemptions for platforms already heavily regulated by another agency, including for AML or Bank Secrecy Act (BSA) purposes.

What Regulators May Do Next

Until courts or Congress provide clarity, platform operators should expect parallel enforcement risk from multiple regulators. State gaming commissions have issued cease-and-desist letters to several platforms and the CFTC has reaffirmed enforcement authority over DCM trading. State money transmission regulators and attorneys general may also pursue unlicensed-transmission claims. Even a platform that ultimately prevails on derivatives characterization could face state or federal claims for operating as an unlicensed money transmitter during the contested period.

Key Takeaways and Practical Steps for Platform Operators to Take Now

Given the unsettled landscape, platforms should build compliance systems that can withstand the stricter plausible outcome:

• Adopt a comprehensive BSA/AML program—including KYC, SAR/CTR filing, Travel Rule compliance, and OFAC screening—even if the CFTC-registrant exclusion may apply. This is generally less costly than defending an enforcement action or criminal prosecution.
• Conduct a state-by-state licensing analysis, prioritizing states with broad requirements. Where scope is unclear, seek no-action letters or geofence users in unlicensed states.
• Preserve flexibility by documenting the derivatives and clearing nature of fund flows and maintaining records that support any CFTC-registrant exclusion.
• Monitor the CFTC’s Special rulemaking and the developing circuit split and be ready to adjust the licensing strategy in response to a Supreme Court ruling or congressional action.
• Engage state regulators proactively and consider voluntary licensing where appropriate, given the asymmetry between licensing costs and potential criminal consequences.

Gaming-law preemption is only part of the regulatory analysis. Its outcome will affect whether the CFTC-registrant exclusion applies and whether state licensing is independently required—potentially determining whether a platform primarily deals with one federal regulator or also faces requirements in 50-plus jurisdictions—but it will not eliminate money transmission obligations. Operators should build to the stricter standard, prepare for state licensing regardless of the gaming outcome, and maintain systems and operations that preserve available exemptions and limit exposure. These issues will require ongoing independent analysis and proactive management under any final resolution, particularly given the number and variety of state laws and exemptions.

KalshiEX, LLC v. Flaherty, 172 F.4th 220 (3d Cir. 2026).

KalshiEX, LLC v. Assad, No. 25-7516 (9th Cir. Aug. 28, 2026).

Similar cases are unfolding in the Second and Sixth Circuits as well after District Judges in New York and Michigan denied injunctions to Kalshi and Polymarket, respectively. See KalshiEX LLC v. Williams, No. 25 CIV. 8846 (AT), 2026 WL 2017466 (S.D.N.Y. July 13, 2026); QCX LLC v. Nessel, No. 1:26-CV-710, 2026 WL 1895958 (W.D. Mich. June 17, 2026).

The Model Act exempts (i) a board of trade designated as a contract market under the CEA, or a person providing clearance and settlement services for such a board to the extent of that operation, and (ii) a registered futures commission merchant under federal commodities laws to the extent of its operation as such. The Model Act therefore does not resolve whether a CFTC-regulated prediction market is exempt in any particular jurisdiction. It is also possible that other exemptions could be asserted where the CFTC exemption is not express and some states may not want to regulate, for purposes of public interest, entities already subject to regulation by a federal agency.

See e.g., Letter from Marcus D. Fruchter, Administrator, Ill. Gaming Bd., to QCX LLC d/b/a Polymarket US (Jan. 27, 2026), ; Letter from Marcus D. Fruchter, Administrator, Ill. Gaming Bd., to Crypt.com (Apr. 1, 2025), ; Letter from Marcus D. Fruchter, Administrator, Ill. Gaming Bd., to KalshiEX LLC d/b/a Kalshi (Apr. 1, 2025), ; Letter from Marcus D. Fruchter, Administrator, Ill. Gaming Bd., to Robinhood (Apr. 1, 2025), .

Press Release, Commodity Futures Trading Comm’n, CFTC Reaffirms Exclusive Jurisdiction Over Prediction Markets in Massachusetts Supreme Judicial Court Filing, Release No. 9219-26 (Apr. 24, 2026) .

Violations carry up to five years’ imprisonment for operating an unlicensed money transmitting business, although regulators may consider the reasonableness of relying on federal preemption when setting penalties. 18 U.S.C. § 1960.