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

Patrick Hansen, a prominent figure in crypto regulation, recently highlighted this development on social media, underscoring its significant implications for the crypto industry.

MEV scrutiny

According to Hansen's tweet, the ESMA draft explicitly identifies MEV as a practice where a miner/validator can exploit their ability to reorder transactions to profit from front-running specific transactions. This categorization unequivocally identifies MEV as a form of market abuse.

Hansen pointed out that nearly all regulated crypto businesses in the EU, including exchanges and brokers, would be required to detect and report instances of MEV through comprehensive "suspicious transaction or order reports" (STORs). The ESMA STOR template alone spans six pages, outlining detailed reporting procedures for MEV detection.

The proposed standards mandate rigorous reporting, prompting concerns about the practicality of reporting each MEV instance given its complexity and frequency in the crypto market. Hansen questioned the feasibility of such extensive reporting requirements.

Furthermore, ESMA’s draft standards advocate for international cooperation in enforcing regulations against MEV, indicating that entities involved in MEV could face scrutiny and enforcement actions not only from EU regulators but also from global authorities.

Consultation phase

As part of ESMA's ongoing efforts to refine MiCA implementation, the consultation package includes a broad array of technical standards aimed at bolstering market integrity and safeguarding investors. The focus on MEV underscores the EU’s commitment to tackling sophisticated forms of market manipulation in the rapidly evolving crypto landscape.

Hansen stressed the importance of stakeholder engagement in the consultation process, highlighting that feedback from those directly involved in MEV and other crypto activities is crucial for formulating effective and pragmatic regulatory measures.

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

Once finalized, these standards are expected to play a pivotal role in shaping the regulatory landscape for crypto in the EU, potentially serving as a model for other jurisdictions worldwide.