FRM Part II · FRM Exam Part II · Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets
A supervisor notes that a large crypto platform combines exchange trading, brokerage, custody of client assets, and proprietary trading within one group. Which regulatory response is most consistent with addressing the risks of such a structure?
The most consistent response is to limit or separate conflicting functions and segregate client assets, with clear disclosure. A platform combining exchange, custody and proprietary trading creates conflicts of interest and risk to customers' assets, which these safeguards address, unlike self-attestation or holding volatile crypto as capital.
- AAllow the combination, since conflicts of interest disappear when blockchain is used
- BRequire only a single annual self-attestation by the platform
- CLimit or require separation of conflicting functions, with segregation of client assets and clear disclosureCorrect
- DRequire the platform to hold only unbacked crypto assets as capital
Explanation
Combining functions creates conflicts of interest and risks to client assets. Functional separation or strong safeguards, segregation of client assets and disclosure address these. Self-attestation is weak, and holding crypto as capital adds volatility.
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.
More Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets questions
- A bank risk manager is asked why supervisors worry about interconnections between unbacked crypto markets and the traditional financial syst…
- A risk officer compares two policy approaches to unbacked crypto assets: (A) a comprehensive ban on regulated financial institutions holding…
- A regulator weighs an outright ban on unbacked crypto assets. Which is the most significant practical drawback of a ban, as emphasised in th…
- Which element would an international standard-setter most plausibly prioritize to reduce regulatory arbitrage in crypto markets?
- A supervisor in Country A has banned banks from holding unbacked crypto assets. A risk officer argues this is sufficient to protect financia…
- A regulator observes that retail participation in unbacked crypto has grown, with many investors buying after sharp price rises and sufferin…