Europe’s main securities watchdog is sounding the alarm over how closely crypto markets have begun to intertwine with the traditional financial system. In a risk-monitoring report released Sept. 10, the European Securities and Markets Authority (ESMA) called for heightened scrutiny of connections it described as a growing vulnerability.
The regulator singled out tokenized equities and recent exploits in decentralized finance (DeFi) protocols as two developments with the potential to create financial spillovers between crypto and conventional markets. ESMA said these trends were deepening the ties between the two systems in ways that warrant close regulatory attention.
Tokenized Assets and Manipulation Concerns
On tokenized equities, ESMA acknowledged that current volumes remain small relative to global stock markets. Even so, the regulator said rising adoption could bring in new participants and reshape the infrastructure underlying market structure over time.
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Prediction markets drew a separate warning in the report. ESMA said crypto’s role in these platforms complicates efforts to detect insider trading, wash trading, and coordinated manipulation, raising concerns about market integrity that regulators are not yet fully equipped to address.
US Jurisdictional Fight Over Prediction Markets
ESMA’s findings land against the backdrop of a parallel dispute in the United States, where the CFTC has spent much of 2026 issuing guidance on prediction markets and defending its claim to exclusive federal jurisdiction over event contracts. The agency has taken legal action against multiple states, including Kentucky, Minnesota, New Mexico, New York, Illinois, and Connecticut, after each moved to apply state gambling laws to prediction market operators.
The conflict has spread across at least 20 states, according to a Sept. 2 petition filed by New Jersey officials asking the US Supreme Court to weigh in. The petition centers on whether states may enforce sports gambling laws against prediction market operators registered with the CFTC.
The Supreme Court has not yet indicated whether it will take up the case. A ruling in either direction would carry significant consequences for how prediction markets are regulated across the country.
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