FRM Part II · FRM Exam Part II · Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets
A regulator is designing a framework for unbacked crypto assets and must choose between a full ban and a comprehensive regulatory regime. Which statement best captures a key trade-off a ban faces relative to a comprehensive regime?
A ban is hard to enforce for borderless, pseudonymous, decentralised assets and can push activity beyond supervisory view, while regulation brings activity within the perimeter but may be seen as legitimising it. Neither option is costless or absolute.
- AA ban may be hard to enforce given the borderless, pseudonymous and decentralised nature of crypto, pushing activity underground and out of supervisory sight, whereas regulation brings activity into the perimeter but risks legitimising itCorrect
- BA ban always eliminates all illicit finance risk because crypto cannot be accessed from abroad
- CRegulation is always cheaper to enforce than a ban and carries no legitimisation concern
- DA ban increases transparency since all transactions move onto supervised platforms
Explanation
Enforcement of bans is difficult because crypto is borderless and peer-to-peer, so activity may migrate to unsupervised channels. Regulation provides visibility and controls but may signal legitimacy. The other options assert absolutes that are false.
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