Clarity Act May Enable CFTC Oversight of Prediction Markets, Lawyer Says

A U.S. House hearing this week zeroed in on who should regulate sports-event prediction markets and what kind of customer protections regulators can realistically enforce as these platforms expand. Lawmakers and legal specialists discussed the Commodity Futures Trading Commission’s (CFTC) role, the agency’s resourcing constraints, and the impact that pending U.S. crypto market-structure legislation—especially the Digital Asset Market Clarity (CLARITY) Act—could have on oversight of prediction market companies.

During a Tuesday session titled “Examining Customer Protections and Market Integrity in Sports Event Prediction Markets,” Carl Kennedy, a partner at Katten Muchin Rosenman, said the CFTC may be “short-staffed” for both regulatory supervision and enforcement of prediction market platforms such as Kalshi and Polymarket. Kennedy argued that the CLARITY Act could help by expanding the regulator’s authority to cover not only digital assets but also the “explosive growth of prediction markets.”

Key takeaways

• A House Agriculture subcommittee hearing highlighted a perceived mismatch between the CFTC’s capacity and the rapid growth of sports prediction markets.
• Experts pointed to the CLARITY Act as a potential vehicle to expand the CFTC’s jurisdiction over prediction markets alongside crypto assets.
• The CFTC chair’s “exclusive jurisdiction” stance has intensified federal-versus-state regulatory conflict involving Kalshi and Polymarket.
• Legislators expect the CLARITY Act’s bill text to be released soon, though details on prediction-market treatment have not yet been made public.

Why lawmakers are pushing on prediction market oversight

The hearing focused on how customer protections and market integrity should work in the specific context of sports event prediction markets. Kennedy’s intervention put a practical lens on the debate: even if the legal framework is clarified, enforcement still depends on agency resources.

He told the committee that the CFTC likely lacks enough staffing to fully address both regulation and enforcement for prediction market platforms. Kennedy’s argument linked this operational challenge to legislative timing—suggesting that any additional authorities from the CLARITY Act would need to come with the capacity to carry them out.

That point matters for market participants because prediction markets often rely on clear rules about how customer funds are handled, how conflicts are addressed, and how platforms maintain orderly trading. In a fast-moving sector, regulators typically face pressure to move quickly while also building the infrastructure to supervise new product types.

The CFTC’s jurisdiction claim and the state-federal clash

Part of the hearing’s urgency comes from ongoing legal and regulatory conflict. The CFTC chair, Michael Selig, has taken the position that the agency has “exclusive jurisdiction” over prediction market companies. Selig’s reasoning is that event contracts traded on these platforms are classified as “swaps,” placing them within the CFTC’s remit.

As Kennedy’s comments and related expert discussion underscored, this approach has fueled disputes with state authorities. Many Democratic senators have characterized the CFTC’s stance as an “assault” on states trying to regulate prediction markets. Several states have pursued legal action against Kalshi and Polymarket over sports-betting-like activity.

One flashpoint involved a Michigan court ruling that Kalshi said put it in an untenable position between state and federal directives. Earlier, reporting noted that Selig ordered Kalshi to ignore the Michigan court ruling—something the company described as creating a difficult compliance bind.

Legal experts quoted in earlier coverage have also suggested that these disputes could ultimately reach the U.S. Supreme Court. The underlying issue is structural: whether states can regulate prediction markets in parallel with the CFTC’s federal authority when the regulator views the contracts as swaps.

What the CLARITY Act could change—and what’s still unknown

In the hearing, attention turned to the CLARITY Act as the most immediate legislative lever on the horizon. Kennedy said the bill could grant the CFTC additional authority to address the “explosive growth” of prediction markets, implying that Congress may be willing to clarify—at least procedurally and jurisdictionally—how these products fit within the commodities regulatory framework.

However, the specific mechanics of how the CLARITY Act would treat prediction markets were not publicly detailed as of Tuesday. In reporting from the hearing session, Republican senators pushing for a vote before August state work periods said they expect to release the bill’s text soon, but no public details were provided on how the legislation would address prediction markets, ethics, or other concerns raised by legal experts.

One signal of the policy pressure surrounding the bill comes from earlier activity in Congress. In June, gambling industry groups petitioned the U.S. Senate to add language to CLARITY that would “explicitly prohibit” event contracts tied to sports and casino-style gaming. The White House has also been linked to ethics-related provisions in the package, with reporting stating the Trump administration “agreed to the most comprehensive and wide-ranging ethics provision in history” and worked to accommodate Democratic concerns.

Taken together, these threads show a tension that markets will watch closely: legislators appear to be trying to expand regulatory clarity for digital assets and related markets, while simultaneously debating whether prediction markets—particularly those resembling sports betting—should face stricter boundaries.

Why the timeline matters for platforms and customers

The sector’s near-term planning depends heavily on what Congress does next. If the CLARITY Act’s language expands the CFTC’s authority, it could potentially reduce some uncertainty for platforms—though it may also intensify legal battles with states if the legislation is interpreted as narrowing state power.

Just as importantly, the hearing made clear that authority alone may not solve the enforcement question. Kennedy’s “short-staffed” framing suggests the market could see continued compliance and supervision gaps even as legal frameworks evolve. For customers, those gaps can translate into uneven protections—especially during periods of rapid growth.

Readers should watch the release of the CLARITY Act text and closely track how it defines prediction markets, customer protection obligations, and the relationship between federal oversight and state regulation. The next legal steps—particularly any moves that could raise questions up the court system—may determine whether the regulatory tug-of-war ends or simply shifts into a new legislative framework.