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

A supervisor reviews how unbacked crypto assets are traded globally. Trading is largely 24/7, cross-border, and a significant share runs through offshore platforms. Which regulatory challenge follows most directly from these features?

Fragmented jurisdiction and regulatory arbitrage follow most directly. Because trading is cross-border, runs around the clock and uses offshore platforms, activity can migrate to the least regulated venue, leaving gaps in enforcement. This is why consistent, coordinated international regulation is emphasized.

  1. ADomestic authorities can easily enforce rules because all trades settle in local banks
  2. BFragmented jurisdiction and regulatory arbitrage, since activity can move to the least regulated venueCorrect
  3. CMarket hours align with traditional markets, simplifying circuit breakers
  4. DPrice transparency is guaranteed by consolidated tape requirements

Explanation

Cross-border, always-on trading with offshore platforms lets participants shift to lenient jurisdictions, creating arbitrage and enforcement gaps. This is why the IMF stresses coordinated, consistent international rules. The other options describe conditions that do not exist in this market.

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