The European Securities and Markets Authority (ESMA) is examining Maximum Extractable Value (MEV) as an example of illegal market abuse under the proposed technical standards for the Markets in Crypto-Assets (MiCA) regulation.

Patrick Hansen, a notable commentator on crypto regulations, highlighted this on Twitter, emphasizing its significant implications for the crypto industry.

MEV Scrutiny

In a social media post, Hansen pointed out that the ESMA draft clearly states:

“…the well-known Maximum Extractable Value (MEV) whereby a miner/validator can take advantage of its ability to arbitrarily reorder transactions to front-run a specific transaction(s) and therefore make a profit” clearly suggests the existence of market abuse.”

Hansen noted that nearly all regulated crypto businesses in the EU, including exchanges and brokers, would need to detect and report MEV instances through detailed “suspicious transaction or order reports” (STORs), with the ESMA STOR template alone being six pages long.

The proposed standards require comprehensive reporting procedures for MEV detection, raising concerns about the practicality of reporting each instance. Hansen questioned the feasibility of such extensive reporting, given the complexity and frequency of MEV in the crypto market.

Additionally, ESMA’s draft standards advocate for a collaborative enforcement approach, urging authorities within and outside the EU to cooperate on sanctioning market abuse. This implies that those involved in MEV could face investigations and enforcement actions from both EU and international regulators.

Consultation Deadline

Part of ESMA’s efforts to refine MiCA’s implementation, the consultation package includes a range of technical standards aimed at enhancing market integrity and protecting investors. The focus on MEV underscores the EU’s commitment to tackling sophisticated forms of market manipulation in the evolving crypto sector.

Hansen stressed the importance of stakeholder participation in the consultation process, noting that feedback from those directly involved in MEV and other crypto activities is crucial for developing effective and practical regulations.

ESMA has set a June 25 deadline for stakeholders to submit their feedback on the draft standards.

Once finalized, these standards are expected to play a crucial role in shaping the regulatory landscape for crypto in the EU and could set a precedent for other regions.