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FRM Part II · FRM Exam Part II · Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets

A central bank notes that unbacked crypto assets are frequently used for cross-border transfers by anonymous users. Which regulatory objective does this observation most directly motivate?

The observation most directly motivates applying anti-money laundering and counter-terrorist financing standards to crypto service providers, because anonymous cross-border transfers create illicit finance and capital flow evasion risks that supervisors need to monitor and limit.

  1. AApplying anti-money laundering and countering the financing of terrorism standards to crypto service providersCorrect
  2. BSetting a minimum coupon on crypto assets
  3. CRequiring crypto issuers to hold central bank reserves against each coin
  4. DMandating that crypto trade only during exchange hours

Explanation

Pseudonymous cross-border transfers raise illicit finance and capital flow evasion risks, so extending AML/CFT obligations to service providers is the direct response. Coupons, reserves against each coin and trading hours do not address the concern.

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