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

A regulator in a small economy bans crypto exchanges from operating domestically, but residents continue to trade through foreign platforms accessed online. Which conclusion about international coordination is most consistent with this outcome?

Residents bypassing a domestic ban via foreign platforms shows that crypto markets are borderless and national rules are easily circumvented. This regulatory arbitrage argues for consistent cross-border standards and cooperation among authorities rather than purely unilateral action.

  1. AUnilateral national measures are easily circumvented because crypto markets are borderless, which makes consistent cross-border standards importantCorrect
  2. BThe ban proves that national regulation alone is sufficient to eliminate crypto risks
  3. CCross-border activity is impossible without a domestic exchange license
  4. DInternational coordination is only needed for assets backed by fiat currency

Explanation

Because crypto activity can be accessed from anywhere, a domestic ban can be sidestepped through foreign providers. This regulatory arbitrage is why consistent global standards and cooperation among authorities are emphasized. The other options contradict the observed leakage.

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