The prediction market industry is rapidly strengthening its surveillance and compliance systems as regulatory scrutiny intensifies across the United States. In just over a year, major platforms have introduced sophisticated monitoring tools designed to detect insider trading, market manipulation, and prohibited trading activity.
Leading exchanges such as Kalshi and Polymarket are investing heavily in technologies that resemble those used by traditional financial markets. Their goal is to improve market integrity, build trust with regulators, and support the long-term growth of prediction markets as a legitimate financial product.
Kalshi expands its surveillance capabilities
Kalshi has developed a multi-layered monitoring system that combines proprietary technology with third-party compliance solutions.
At the center of its surveillance program is Poirot, the company’s in-house detection engine, which continuously monitors trading activity for unusual behavior, suspicious patterns, and potential market manipulation.
The platform also works with several external partners, including:
- Solidus Labs, which provides AI-powered market surveillance through its HALO platform.
- IC360, a sports integrity company that helps identify prohibited participants.
- Wharton Forensic Analytics Lab, which contributes statistical methods for detecting suspicious trading behavior.
Together, these systems help monitor markets while supporting investigations into potential misconduct.
Industry shifts from detection to prevention
One of the biggest changes introduced this year is the move toward preventing suspicious trades before they occur.
Rather than investigating violations after transactions are completed, prediction market platforms are increasingly screening users before they are allowed to trade.
Individuals who may be restricted include:
- Professional athletes
- Coaches
- Referees
- League officials
- Political candidates trading on their own elections
These restrictions rely on identity verification and encrypted prohibited-person databases, allowing platforms to block certain users before orders reach the market.
Polymarket adopts a different approach
Polymarket has built a different surveillance model that reflects its hybrid structure.
The company operates both:
- An offshore blockchain-based platform.
- A regulated U.S. exchange.
To strengthen sports market monitoring, Polymarket recently partnered with Palantir and TWG AI, aiming to improve market integrity through advanced data analysis and pattern recognition.
Because blockchain transactions identify wallet addresses rather than verified identities, Polymarket faces different compliance challenges than fully regulated exchanges that require customer identification.
Specialized compliance firms shape the industry
A growing number of third-party providers are becoming essential to prediction market compliance.
Companies such as IC360 and Eventus now offer integrated surveillance solutions that combine:
- Trade monitoring
- Insider-risk detection
- Market surveillance
- Case management
As more exchanges adopt similar systems, these vendors are gradually establishing common industry standards for monitoring trading activity.
Increased scrutiny drives investment
The rapid expansion of surveillance programs follows growing attention from lawmakers and regulators.
Recent developments include:
- Congressional reviews of insider trading risks.
- Greater oversight from the Commodity Futures Trading Commission (CFTC).
- Ongoing legal challenges involving sports event contracts.
- Increased public discussion surrounding market integrity.
These developments have encouraged prediction market operators to strengthen compliance programs while demonstrating their commitment to responsible market operations.
Balancing market integrity and participation
While stronger surveillance improves confidence in regulated platforms, it may also create new challenges.
Modern prediction markets now require many participants to provide:
- Government-issued identification
- Personal information
- Employer details for certain markets
In addition, prohibited-person screening prevents individuals with direct knowledge of specific events from participating.
Although these measures help reduce conflicts of interest and insider trading risks, they also increase barriers to entry compared with less regulated platforms.
Some market observers believe stricter compliance could encourage certain traders to migrate toward offshore or decentralized platforms that require fewer identity checks.
Traditional finance offers a model
Prediction markets are following a path already established by traditional financial exchanges.
Stock markets spent decades developing systems capable of detecting insider trading, spoofing, wash trading, and other forms of market abuse.
By adopting similar surveillance technologies early in their development, prediction market operators hope to establish stronger credibility with regulators and institutional participants before major enforcement problems emerge.
Outlook
Prediction markets are evolving beyond simple forecasting platforms into increasingly regulated financial marketplaces supported by advanced surveillance and compliance systems.
As exchanges continue expanding identity verification, prohibited-person screening, and AI-driven monitoring, the industry is working to balance two competing priorities: maintaining open participation while protecting market integrity.
Whether these efforts satisfy regulators without discouraging legitimate market activity will likely play a major role in shaping the future growth of the prediction market industry.
