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I can only speak from a UK perspective, but many financial instruments can be used in a gambling sense by retail "investors". In 2019, our regulator banned binary options, saying this:

"Binary options are gambling products dressed up as financial instruments. By confirming our ban today we are ensuring that investors don’t lose money from an inherently flawed product."

https://www.fca.org.uk/news/statements/fca-confirms-permanen....

Sound familiar?

They also highly regulate CFDs and other financial instruments that are marketed to retail.

Futures markets serve an important role outside of speculation, i.e. producers managing their future price risk. Betting markets do not.

Everything in finance is isomorphic to some combination of borrow-lend agreements. Betting markets and futures markets are functionally one in the same. The only difference is the oracles and the series of bets required to construct your position.

Agreed but can entities also use the prediction markets to hedge against events that affect them directly or indirectly?

Yes.