FRM Part II · FRM Exam Part II · Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets
A global standard-setter is asked to evaluate which of four approaches would most effectively reduce both regulatory arbitrage and uneven supervisory capacity in emerging markets with respect to unbacked crypto assets. Which is best?
Common minimum standards combined with technical assistance and supervisory information sharing work best. Standards limit arbitrage, while capacity support and data sharing help weaker supervisors enforce them. Bespoke national rules fragment the system, a single global regulator is unrealistic, and market discipline alone ignores spillover costs.
- AEach jurisdiction adopts bespoke rules with no common reference, to maximise flexibility
- BCommon minimum standards, together with technical assistance and supervisory information-sharing arrangementsCorrect
- CA single global regulator replaces all national authorities immediately
- DReliance solely on market discipline from crypto exchanges' own risk controls
Explanation
Common minimum standards reduce arbitrage, while technical assistance and information sharing address gaps in capacity and enforcement. A single global regulator is not realistic given national sovereignty. Bespoke rules worsen fragmentation and market discipline alone does not address externalities.
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