Skip to content

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

A supervisor assesses a jurisdiction that wishes to adopt a 'regulate' strategy for unbacked crypto assets, and has identified that crypto service providers are exposed to conflicts of interest because exchanges act as broker, market maker, custodian and proprietary trader. Which regulatory response is most appropriate within that strategy?

The appropriate response is to require functional separation or strict conflict-of-interest management, plus segregation of client assets, across broker, market-making, custody and proprietary trading roles. This addresses the specific risk of integrated crypto intermediaries through enforceable rules, unlike voluntary codes, taxes or restricting price publication.

  1. ARequire functional separation or strict conflict-of-interest management and segregation of client assets across these activitiesCorrect
  2. BBan crypto exchanges from publishing prices
  3. CRely solely on issuers' voluntary codes of conduct
  4. DImpose a tax on crypto holdings and take no other action

Explanation

Under a regulatory approach, activity-based rules treat like activities alike. Because vertically integrated exchanges create conflicts, separating functions and segregating client assets address the specific risk. Voluntary codes lack enforcement, and a tax or price-publication ban does not address conflicts.

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