The European Securities and Markets Authority (ESMA) has identified Maximum Extractable Value (MEV) as a form of illegal market abuse under the proposed technical standards for the Markets in Crypto-Assets (MiCA) regulation. This development has raised concerns within the crypto industry, as highlighted by Patrick Hansen, a well-known commentator on crypto regulations, on Twitter. According to Hansen, the ESMA draft explicitly mentions MEV as a practice that allows miners/validators to profit by reordering transactions to front-run specific transactions.
Hansen also noted that regulated crypto businesses in the EU, such as exchanges and brokers, would be required to detect and report instances of MEV through suspicious transaction or order reports (STORs). The ESMA STOR template alone spans six pages, outlining detailed reporting procedures for MEV detection. The sheer complexity and frequency of MEV occurrences in the crypto market raise concerns about the feasibility of complying with such extensive reporting requirements.
In addition to detailed reporting procedures, ESMA’s draft standards call for a collaborative approach to enforcement, urging authorities within and outside the EU to cooperate on sanctioning market abuse related to MEV. This means that actors engaging in MEV could potentially face investigations and enforcement actions from international authorities, in addition to EU regulators.
Hansen emphasized the importance of stakeholder participation in the consultation process for refining MiCA’s implementation. Feedback from those directly involved in MEV and other crypto activities is crucial for developing effective regulatory measures. ESMA has set a deadline of June 25 for stakeholders to submit their feedback on the draft standards, indicating the significance of industry input in shaping the regulatory environment for crypto in the EU.
The focus on MEV in ESMA’s proposed technical standards highlights the EU’s commitment to addressing complex forms of market manipulation in the rapidly evolving crypto sector. Once finalized, these standards are expected to have a significant impact on the regulatory landscape for crypto in the EU and potentially set a precedent for other jurisdictions. The need for stakeholder engagement and the challenges posed by extensive reporting requirements underscore the importance of effectively managing and regulating MEV to ensure market integrity and investor protection.