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

The IMF reading on regulating unbacked crypto assets emphasises a principle that similar activities and risks should face similar rules regardless of the technology or label used. A risk manager at a bank reviewing a new crypto custody product would apply this principle by:

The product should be treated under the same safeguarding and operational standards as comparable traditional custody services. The principle of same activity, same risk, same regulation means the use of new technology is not grounds for exemption or lighter treatment, and a blanket prohibition is not implied.

  1. AExempting the product from custody rules because it uses distributed ledger technology
  2. BTreating the product under the same safeguarding and operational standards as comparable traditional custody servicesCorrect
  3. CApplying a lighter regime because customers are mostly retail
  4. DProhibiting the product irrespective of its risk profile

Explanation

Same activity, same risk, same regulation means technology does not justify exemption. Crypto custody should meet safeguarding and operational standards comparable to traditional custody. Lighter treatment for retail customers would run against consumer protection aims.

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