ESMA Warns of Financial Spillover Risks, CFTC and Multi-State Jurisdiction Dispute Escalates

According to WooFunai, the European Securities and Markets Authority (ESMA) issued a stern warning in a risk monitoring report released on Thursday, pointing out that the increasingly close links between cryptocurrencies and the traditional financial sector are posing a potential threat to the traditional financial system. Regulators are calling for greater scrutiny of this deepening correlation to prevent the shock wave from spreading to the wider financial system.

It is worth noting that this risk does not exist in isolation, but rather intensifies as the market structure evolves. In particular, the popularity of tokenized stocks and recent DeFi exploits are all seen as key factors that may further break through barriers between cryptography and traditional markets and increase the possibility of financial risk spillover.

According to data compiled by WooFunai, although the share of tokenized stocks in the global stock market is still insignificant, their strong development momentum is attracting new participants and infrastructure to enter the market, thus profoundly changing the market structure. ESMA sees forecasting markets as another emerging source of risk, stressing the growing concerns raised by insider trading and market manipulation. The agency pointed out that the widespread use of cryptocurrencies in predictive markets has greatly increased the difficulty for regulators to detect insider trading, volume trading, and collaborative market manipulation, making enforcement face unprecedented challenges.

Just as ESMA issued a warning, the US regulatory dispute over predicting market jurisdiction is also escalating. The core disagreement is whether to predict whether the market should be governed by federal derivatives laws or state-level gambling regulations. The US Commodity Futures Trading Commission (CFTC) continued to develop performance guidelines for forecasting markets throughout 2026, and insisted that it has exclusive jurisdiction over federally regulated event contracts. When the states of Kentucky, Minnesota, New Mexico, New York, Illinois, and Connecticut tried to apply state-level gambling regulations to predictive market operators, the CFTC resolutely sued to defend its federal regulatory authority.

Recent developments show that on September 2, New Jersey officials applied to the court for a ruling to clarify whether each state has the right to implement sports gambling-related laws on prediction markets registered with the CFTC, and listed relevant lawsuits existing in at least 20 states. It is currently unclear whether the US Supreme Court will accept this case, but future rulings may be a landmark, ultimately deciding whether the jurisdiction of the market should be vested in a state agency or a federal agency, thus reshaping the regulatory landscape of the entire industry.