Canadian banks implement prediction market rules for employees as the platforms’ arrival sparks concerns

Canadian financial institutions are implementing prediction market betting rules for their employees, with some barring certain staff from wagering on particular types of events, after the platforms’ arrival in the country.

Royal Bank of Canada RY-T, Bank of Nova Scotia BNS-T, Toronto-Dominion Bank TD-N, National Bank NA-T and Manulife MFC-T have all updated their employee policies in response to the newly launched exchanges, which allow users to wager on events such as Bank of Canada interest rate decisions or corporate earnings metrics.

Personal trading policies dictate how employees at financial institutions can trade securities in their personal investment accounts. They typically apply to employees who have access to material non-public information, such as those working in investment banking, capital markets and wealth management, preventing them from using that information for financial gain.

RBC said employees who are subject to its personal trading policies are barred from placing bets on prediction markets, while Scotiabank said its personal trading policy prohibits employees from speculating on financial markets, indexes or companies.

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National Bank said it has a personal trading restriction covering prediction markets for employees in its capital markets division, and TD Bank said it issued a reminder to employees earlier this year reinforcing how their confidentiality and code of conduct requirements apply to prediction markets.

Manulife’s code of business conduct and ethics has a section titled “Guidance Related to Prediction Market Activity” which states that if the outcome of a prediction market question touches on something that an employee knows because of their relationship with Manulife, they are prohibited from placing a bet.

The new rules and policy clarifications follow similar measures by financial institutions in the U.S., where prediction market platforms such as Polymarket and Kalshi have become increasingly popular.

Wall Street banks and hedge funds have been updating their codes of conduct to restrict the kinds of prediction-market bets that employees can place in an attempt to avoid real or perceived conflicts of ​interest with the firms and their clients.

“If you’ve got some information that allows you to get an informational advantage over other people in the market, that conduct is what these rules and laws are and policies are trying to prohibit,” said Adam Garetson, a partner at Gowling WLG and the leader of the firm’s blockchain and digital assets group.

The Canadian Investment Regulatory Organization has authorized two of its members to provide Canadians with access to event contracts: Wealthsimple Inc., which partnered with Kalshi to offer Wealthsimple Predict, and Interactive Brokers Group Inc. Only three categories of bets are currently permitted: economic forecasts, environment forecasts and financial indicators.

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Patrick Augustin, an associate professor of finance at the Desautels Faculty of Management at McGill University who holds the Canada Research Chair in Macrofinance and Derivatives, praised the banks for taking proactive steps to prevent unethical behaviour such as insider trading.

“They’re financial intermediaries. They channel financial flows from left to right, and that comes with information,” Mr. Augustin said.

He added, “They’re more potentially at risk of having people violating confidentiality or trading on that, and so being ahead of the curve and putting in place rules that prevent this, I think that’s positive.”

South of the border, a number of people have been accused of profiting from confidential information by trading on prediction markets, including a Google software engineer and a U.S. Army soldier.

Bank of Montreal and Canadian Imperial Bank of Commerce said their codes of conduct address the use of non-public information.

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“More broadly, the code requires team members to act honestly, ethically and with integrity. We continually review our Code and related policies to respond to the evolving market landscape,” CIBC spokesperson Mathieu Genest said in an e-mail.

Mr. Garetson, of Gowling WLG, recommended that banks and other financial institutions review their trading policies to consider how their employees might engage with prediction markets.

“All of the financial services entities that have policies around material non-public information should be evaluating them with respect to their employees and prediction markets, but it will be dependent on each institution how it implements these policies and how it level sets and rightsizes the policy for the institution and the covered individuals,” he said.