- Lawyer says the CLARITY Act could expand the CFTC’s prediction market oversight.
- Kennedy said the CFTC needs more staff and funding to oversee crypto and prediction markets.
- Federal and state regulators remain divided over prediction market authority.
A legal expert told US lawmakers that the Digital Asset Market CLARITY Act could give the Commodity Futures Trading Commission (CFTC) broader authority and resources to oversee the fast-growing prediction market industry.
The comments came during a House Agriculture Subcommittee hearing focused on customer protection and market integrity in sports event prediction markets, where lawmakers examined whether the CFTC is equipped to regulate platforms such as Kalshi and Polymarket.
Lawyer Says CFTC Needs More Resources
Carl Kennedy, a partner at law firm Katten Muchin Rosenman, told lawmakers the CFTC is likely “short-staffed” to properly supervise prediction market platforms as the sector expands.
Kennedy said the CLARITY Act, currently being negotiated in the Senate, could extend the agency’s responsibilities beyond digital assets and provide additional authority over prediction markets. However, he added that any expansion of authority should be matched with increased staffing and funding.
He argued that the regulator would need greater capacity to oversee cash markets, crypto markets, and the rapid growth of event contract platforms at the same time.
Jurisdiction Battle Continues
CFTC Chair Michael Selig has maintained that the agency has exclusive jurisdiction over event contracts offered by platforms such as Kalshi and Polymarket. His position is based on the argument that these contracts qualify as “swaps” under US commodities law.
However, Selig’s interpretation has been challenged by several states, with Democratic lawmakers arguing it weakens state regulatory authority. Multiple states have filed lawsuits against prediction market operators over products they believe resemble sports betting.
Last week, the conflict intensified after Selig instructed Kalshi to disregard a Michigan court ruling. Kalshi said the order placed the company in an impossible position between complying with federal regulators and state courts.
Legal experts believe the growing conflict between federal and state authority could eventually reach the US Supreme Court.
CLARITY Act Still Being Negotiated
Although the CLARITY Act was introduced as a crypto market structure bill, lawmakers are increasingly discussing whether it should also address prediction markets.
Republican senators are pushing to release the bill’s text and bring it to a vote before Congress begins its August recess. August 7 is widely viewed as the key deadline for Senate action.
As of now, it remains unclear whether the legislation will include provisions covering prediction markets or define the CFTC’s authority over event contracts.
Meanwhile, Senate negotiators are still working through ethics provisions for government officials, including disagreements over whether enforcement should fall to state attorneys general or the U.S. Attorney General. The issue has become one of the biggest hurdles to advancing the legislation.
Meanwhile, gambling industry groups have urged lawmakers to include language that would explicitly prohibit event contracts tied to sports and casino-style gaming.
Reports have also suggested some Democrats have discussed adding prediction market language to the bill, though doing so could complicate negotiations.
Related: Will the CLARITY Act Protect Your Crypto When a Platform Collapses?
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