FRM Part II · FRM Exam Part II · Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets
A regulator proposes to address risks from unbacked crypto assets by applying the principle of 'same activity, same risk, same regulation'. Which action best reflects this principle?
Applying comparable standards to a crypto exchange that provides custody and trading, as is done for traditional firms doing the same functions, reflects 'same activity, same risk, same regulation'. The principle is technology-neutral and keys regulation to the function and risk rather than the label of the asset.
- ABanning all crypto intermediaries regardless of their activities
- BRequiring a crypto exchange that offers custody and trading to meet standards comparable to those for traditional firms performing similar functionsCorrect
- CExempting crypto firms from rules because the underlying asset has no issuer
- DRegulating only the crypto asset itself while leaving intermediaries unsupervised
Explanation
The principle ties regulation to the function performed and the risk it creates, not to the technology used. A crypto exchange that performs trading and custody should face comparable requirements to traditional firms. Bans or exemptions do not apply the principle.
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