EU draft standards deem MEV as ‘clear example of market abuse’ under upcoming MiCA rules

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

Patrick Hansen, a prominent commentator on crypto regulations, recently highlighted this development on Twitter, noting the significant implications for the crypto industry.

MEV monitoring

According to a social media post by Patrick Hansen, a well-known commentator on crypto regulations, the ESMA draft explicitly 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 highlighted that almost all regulated crypto businesses in the EU, including exchanges and brokers, would need to detect and report instances of MEV through comprehensive “suspicious transaction or order reports” (STORs), with the ESMA STOR template alone spanning six pages.

The proposed standards mandate detailed reporting procedures for MEV detection, raising significant concerns about the manageability of reporting every single instance. Hansen questioned the feasibility of such extensive reporting requirements, considering the complexity and frequency of MEV occurrences in the crypto market.

Additionally, ESMA’s draft standards suggest a collaborative approach to enforcement, urging authorities both within and outside the EU to cooperate on sanctioning market abuse. This means that actors involved in MEV could face investigations and enforcement actions not only from EU regulators but also from international authorities.

Consultation deadline

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

Hansen emphasized 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 regulatory measures.

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 critical role in shaping the regulatory environment for crypto in the EU, potentially setting a precedent for other jurisdictions.