UPDATE: Outgoing CFTC Commissioner Kristin N. Johnson has issued an urgent warning about the rapid rise of prediction markets, expressing her deep disappointment during her final public remarks at the Brookings Institution today. Johnson, who is stepping down after her term, emphasized the critical lack of regulatory frameworks that expose retail investors to heightened risks.
In a powerful statement, Johnson declared, “As of today, we have too few guardrails and too little visibility into the prediction market landscape.” Her remarks come amid growing concerns about the safety of consumer investments in these unregulated markets.
Johnson’s tenure as commissioner began on March 30, 2022, after being nominated by President Joseph Biden in September 2021. Reflecting on her departure, she stated, “I am proud of the work that I have accomplished and am deeply grateful for the chance to develop meaningful relationships with staff and current and former Commissioners during my tenure at the CFTC.”
Earlier this week, Johnson voiced her frustration that the agency has not yet finalized regulations on political event contracts—products allowing traders to speculate on outcomes from elections to major sporting events. The surge in popularity and trading volumes of these contracts has outpaced existing regulatory measures, raising alarms among industry experts.
Beyond prediction markets, Johnson criticized so-called “rent or buy my license” schemes prevalent in the derivatives industry. She explained that some firms apply for licenses under traditional models only to pivot towards self-certifying prediction contracts or auctioning licenses afterward. “In other contexts, firms that have received a license quickly auction their newly minted license to others,” she stated, highlighting ongoing issues regarding consumer protection and market stability.
Johnson drew parallels to past financial crises, warning of the dire consequences of insufficient governance. She cautioned, “If we fail to rightly prioritize consumer protection or market stability…the results can be devastating,” referencing both the 2008 financial crash and the collapse of crypto firms like FTX.
The urgency of her message is underscored by the CFTC’s recent decision to grant regulatory relief to QCX LLC and QC Clearing LLC, which are associated with Polymarket. This no-action letter enables Polymarket to continue its operations in the U.S., following its $112 million acquisition of QCEX in July, though future compliance obligations remain.
As Johnson’s term comes to a close, the industry watches closely for her successor. The nomination of Brian Quintenz, a former CFTC commissioner, remains under scrutiny as he is positioned to replace current commissioner Christy Goldsmith Romero until April 13, 2029.
The implications of Johnson’s warnings are profound, urging immediate action from regulators and stakeholders alike. With the landscape of prediction markets evolving rapidly, the call for robust oversight has never been more pressing. As this story develops, the focus will be on whether the CFTC will heed her warnings and implement necessary regulations to protect investors.
