We should think critically about the benefits and consequences of allowing Canadians to participate in prediction markets.Jesse Johnston/The Canadian Press
Rachel Wasserman is the founder of Wasserman Business Law and is a fellow at Social Capital Partners and the Canadian Anti-Monopoly Project.
This week, The Globe and Mail reported that Wealthsimple has received approval from the Canadian Investment Regulatory Organization to offer prediction trading in Canada.
Unlike the American platforms Polymarket and Kalshi, Wealthsimple will only be permitted to offer “contracts” tied to economic indicators, financial markets and climate trends, not sports or elections.
This may help Wealthsimple placate provincial securities regulators, who have not looked favourably on prediction markets in the past.
But while the enhanced restrictions on prediction markets are helpful, they don’t alleviate the problem at hand.
What’s in store for Canada as financial firms bet on prediction markets
Today Wealthsimple is allowed to offer a limited form of betting. Who knows what it will be allowed to do tomorrow? Hot on the heels of Wealthsimple, Questrade has said it wants to enter the market as well.
Across the United States., lawsuits are piling up to challenge whether these prediction markets should be treated as federally regulated financial exchanges or state-licenced sportsbooks. Two U.S. senators have also introduced legislation called the Prediction Markets Are Gambling Act.
If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.
Prediction markets use the language of finance but rely on the economics of gambling. You can bet on sports games just as with traditional online bookmakers. You can also bet on more serious matters such as how many X posts Tesla’s Elon Musk will send on a particular day. While the regulator and subject matter may be different, the risks and rewards are the same.
We should think critically about the benefits and consequences of allowing Canadians to participate in prediction markets.
The Canadian Centre on Substance Use and Addiction suggests that high levels of stress, including from the high cost of living could lead to more people turning to gambling . The rise in gambling addictions is directly correlated to the availability of gambling opportunities.
Research in the U.S. shows that states that legalized online betting saw an average credit score decrease of 12 points and a 25 per cent increase in bankruptcies and credit card and auto loan delinquencies. In Canada, self-reported bankruptcy statistics show that gambling-related bankruptcies have quadrupled since the opening up of the online betting market.
When gambling is used as a coping mechanism, it can quickly develop into an addiction, which unlike other addictions, has no physical symptoms, making it much harder to identify.
Gambling addicts have the highest suicide rates amongst addicts, with one in every five individuals having attempted suicide. Since privatized gambling was legalized, Ontario’s mental health helpline has seen an over 300 per cent increase in calls from young men for gambling-related issues.
Given rising unemployment rates, which disproportionately affecting young adults, a cost of living crisis that doesn’t appear to be getting any better and a pending recession or depression, are we not opening Pandora’s box by allowing prediction markets, however restricted?
Just because the U.S. is allowing prediction markets does not mean Canadians should follow suit. Our regulators have often given undue deference to their American counterparts. Now times have changed and America is no longer the beacon of hope and prosperity, nor the reliable friend that it once was. It would be foolish of us to think we can follow the U.S. and not suffer a similar fate.
Provincial securities regulators must step up and say no to Wealthsimple’s prediction market. Their mandate is to protect us from systemic harms, which this will undoubtedly become.
Banning prediction markets in Canada does not completely bar Canadians from accessing them. Kalshi and Polymarket are still available to savvy Canadians who know how to use a VPN. Indeed proponents of such markets might argue that, if Canadians are going to bet anyway, it is better to let them use a more restricted platform, with domestic oversight.
This is a weak argument, a half-measure dressed up as a solution. The benefit of domestically regulated platforms is marginal, and having such platforms means much more people would bet than the number currently using VPNs on American ones. The benefit does not outweigh the harm.
There is only one loser in barring prediction markets, and that would be the owners of Wealthsimple, who otherwise stand to gain millions upon millions from such “innovation”. Is this the innovation we want to be promoting in the economy?
Amid global uncertainly, the policy conversation in Canada has understandably been focused on driving growth and competition in our economy. But these efforts should not make us lose sight of what kind of economy we want to be building and what we stand for as Canadians.