FRM Part II · FRM Exam Part II · Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets
A regulator observes that retail participation in unbacked crypto has grown, with many investors buying after sharp price rises and suffering heavy losses in later crashes. Which policy objective is most directly engaged by this pattern?
Retail investors chasing rallies and then suffering losses in crashes points to an investor and consumer protection objective. Regulators respond with disclosure, marketing and conduct requirements, rather than measures aimed at central bank revenue, bank capital weights or settlement speed.
- AProtecting consumers and investors through disclosure, conduct and suitability rulesCorrect
- BRaising the seigniorage revenue of the central bank
- CLowering the risk weights on banks' sovereign bond holdings
- DIncreasing the speed of interbank settlement in domestic currency
Explanation
Procyclical retail buying followed by losses is a classic investor protection issue. Tools include disclosure, marketing restrictions and conduct rules. The other options address unrelated objectives such as revenue, bank capital or payment speed.
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