IIA seeks tougher US rules on prediction markets

The Institute of Internal Auditors (IIA) has called on US authorities to tighten control of prediction markets by embedding governance, internal controls and independent audit requirements into new rules and legislation.

In letters sent to the US Commodity Futures Trading Commission (CFTC) and Congressional leaders, the organisation set out a range of risks it sees around prediction market platforms.

The IIA warned of possible misuse of material non-public information, weaknesses in how outcomes are determined and verified, and shortcomings in monitoring and accountability.

IIA president and CEO Anthony Pugliese said: “Prediction markets present novel opportunities, but they also introduce familiar risks seen across financial systems.

“Without strong governance and independent oversight, these platforms risk undermining public trust in markets and institutions more broadly.”

However, the professional association added that rules alone are not enough for effective oversight. It called for controls that are implemented, consistently followed, tested and enforced through independent assurance.

It proposed requiring prediction market operators to implement formal internal control frameworks to tackle insider trading, market manipulation and conflicts of interest.

It also called for independent internal audit functions in designated contract markets (DCMs) and other regulated exchanges, with a direct reporting line to boards or equivalent governing bodies.

The IIA further recommended that supervisory expectations for prediction markets be brought into line with standards that already apply across more traditional financial markets.

The organisation has also asked Congress to mandate a Government Accountability Office (GAO) review to examine current control practices at prediction market platforms and identify any deficiencies.

The institute’s proposals are grounded in its International Professional Practices Framework, which it described as a globally recognised benchmark for internal audit, widely used in regulated financial companies and referenced by US regulators.

Pugliese added: “Markets that handle individual’s money require independent oversight, and prediction markets are no exception.

“The IIA welcomes the opportunity to collaborate with regulators and lawmakers to help inform policy frameworks as they evolve.”