Skip to content

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

A policymaker is comparing three options for unbacked crypto: (1) a full ban, (2) a licensing and conduct regime for intermediaries with disclosure rules, and (3) no action. She wants to curb illicit finance and consumer harm while limiting enforcement challenges in a borderless, pseudonymous market. Which assessment is most consistent with a coherent regulatory approach?

A comprehensive regime covering intermediaries and on/off-ramps, coordinated across jurisdictions, best fits the objectives. Crypto's borderless, pseudonymous nature means unilateral bans or narrow domestic licensing leave arbitrage and enforcement gaps, while inaction ignores consumer, illicit finance and stability risks.

  1. AA ban is fully effective because crypto activity cannot move across borders
  2. BDoing nothing is optimal because crypto cannot pose financial stability risks
  3. CA comprehensive approach covering intermediaries and on/off-ramps, coordinated internationally, addresses gaps better than unilateral action aloneCorrect
  4. DLicensing only domestic exchanges fully removes cross-border arbitrage

Explanation

Crypto is global and pseudonymous, so unilateral bans or narrow rules leave arbitrage and enforcement gaps. Regulating intermediaries and the points where crypto meets the traditional system, with international coordination, is more coherent. Options claiming bans are fully effective, no risk, or complete closure of arbitrage are wrong.

Did you get it right without looking?

One question tells you little. A timed set on Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets shows your real accuracy, how long you take and where you lose marks.

Practise Regulating the Crypto Ecosystem: The Case of Unbacked Crypto AssetsFree diagnostic mock

More Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets questions