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

Two jurisdictions regulate crypto service providers differently. Jurisdiction X imposes licensing, capital, custody and conduct requirements. Jurisdiction Y has no requirements. A global exchange moves its headquarters from X to Y but continues to serve customers in X online. Which approach best addresses this risk in line with the reading's recommendations?

Authorities should apply rules by activity and by where customers are served, backed by cross-border information sharing. This lets Jurisdiction X reach the relocated exchange and prevents arbitrage. Self-regulation or exemption would reward relocation, and a blanket ban is not a coordinated regulatory approach.

  1. ARely on Jurisdiction Y's voluntary self-regulation
  2. BApply rules based on the activity and where customers are served, supported by information sharing among authoritiesCorrect
  3. CBan all residents of X from crypto trading regardless of provider
  4. DExempt the exchange because it is no longer domestic

Explanation

Activity-based, same-risk-same-rule treatment, together with cross-border information sharing, lets authorities reach providers serving local customers regardless of domicile. Relying on self-regulation leaves the gap open, and exemption would reward arbitrage. A blanket ban is a blunt option rather than a coordinated framework.

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