Outgoing Commissioner Johnson, “Deeply Disappointed” by Prediction Markets

Kristin N. Johnson, who is stepping down from her role as Commissioner at the Commodity Futures Trading Commission (CFTC) after completing her full term, used her final public remarks to issue a stark warning about the rise of prediction markets. 

“We Have Too Few Guardrails”

Speaking Wednesday at the Brookings Institution, Johnson explained that she fears retail investors are being exposed to growing risks in a space lacking clear regulatory boundaries. 

“As of today, we have too few guardrails and too little visibility into the prediction market landscape,” Johnson said. “There is an urgent need for the commission to express in a clear voice our expectations related to these contracts.”

Appointed as a commissioner on March 30, 2022, following President Joseph Biden’s nomination in September 2021, Johnson called her decision to step down “difficult” in a statement issued in May.

“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.”, she said.

Earlier this week, Johnson said she was “deeply disappointed” that the agency has yet to finalize rules on political event contracts, products that let traders wager on outcomes ranging from elections to major sporting events. 

She noted that the popularity and trading volume of these contracts have ballooned in recent years, outpacing the regulatory framework.

Rent or Buy My License, Another 

Beyond prediction markets, Johnson also criticized what she described as “rent or buy my license” schemes in the derivatives industry. 

Some firms, she argued, apply for licenses under traditional business models, only to shift later toward self-certifying prediction contracts or even auctioning off licenses. “In other contexts, firms that have received a license quickly auction their newly minted license to others,” she explained.

Her comments underscored broader concerns about consumer protection and market stability. Drawing parallels to crises in the past, Johnson issued a clear warning regarding the predictable consequences triggered by the lack of robust governance and proper oversight. 

“If we fail to rightly prioritize consumer protection or market stability on the road to capturing the benefits of innovation or growth, the results can be devastating,” she said, invoking both the 2008 financial crash and the collapse of crypto firms such as FTX.

Johnson added that weak internal controls remain a chronic issue among newer players in financial markets, especially in the crypto and prediction market sectors. “Innovation and market stability should work together, enabling one to foster the other,” she said.

Her caution comes as the CFTC granted regulatory relief to QCX LLC and QC Clearing LLC, entities tied to Polymarket. The no-action letter allows Polymarket to continue operating in the U.S., even after its $112 million acquisition of QCEX in July, though future compliance obligations still apply.

At the end of May, we reported on the leaked emails connected to President Donald Trump’s CFTC chairman nominee Brian Quintenz, and their potential influence on a last-minute vote delay.
Quintenez, who describes himself as a “financial freedom advocate”, has served as commissioner of the CFCT between 2017 and 2021. If elected, he will replace Christy Goldsmith Romero until April 13, 2029.