The European Securities and Markets Authority (ESMA) has recently brought attention to Maximum Extractable Value (MEV) as a form of illegal market abuse within the context of the proposed Markets in Crypto-Assets (MiCA) regulation. This development, highlighted by crypto regulation commentator Patrick Hansen, has significant implications for the crypto industry as a whole.
ESMA’s draft explicitly defines MEV as a practice where a miner or validator can manipulate transaction order to profit from specific transactions. This definition suggests the existence of market abuse, prompting concerns about the regulation and detection of MEV within the crypto market. The proposed standards require regulated crypto businesses in the EU to report instances of MEV through suspicious transaction or order reports (STORs), with a detailed reporting template spanning six pages.
Hansen has raised concerns about the practicality of extensive reporting requirements for MEV detection, considering the complexity and frequency of such occurrences in the crypto market. The challenges of managing and reporting every single instance of MEV raise doubts about the effectiveness of the proposed regulatory procedures.
ESMA’s draft standards also emphasize a collaborative enforcement approach, calling for cooperation between authorities within and outside the EU to sanction market abuse. This means that actors involved in MEV could potentially face investigations and enforcement actions from international regulators in addition to EU authorities, reflecting a global effort to combat market manipulation in the crypto sector.
Hansen highlights the importance of stakeholder participation in the consultation process for refining MiCA’s implementation. Feedback from industry professionals directly involved in MEV and other crypto activities is crucial for developing practical and effective regulatory measures. ESMA has set a deadline for stakeholders to submit feedback on the draft standards, underscoring the need for industry input in shaping the regulatory environment for crypto in the EU.
As ESMA continues its efforts to enhance market integrity and investor protection through technical standards like MiCA, the focus on addressing MEV demonstrates the EU’s commitment to combating sophisticated forms of market manipulation in the evolving crypto landscape. Stakeholder engagement and feedback are essential components of this regulatory process, with the finalized standards expected to set a precedent for crypto regulations not only in the EU but potentially in other jurisdictions as well.
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