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

Which element would an international standard-setter most plausibly prioritize to reduce regulatory arbitrage in crypto markets?

Standard-setters would prioritize consistent minimum standards and information sharing among national authorities, applying the same rules to the same activities and risks. This narrows the gaps between jurisdictions that firms could otherwise exploit through regulatory arbitrage.

  1. AConsistent minimum standards and information sharing among national authorities for the same activities and risksCorrect
  2. BAllowing each jurisdiction to apply entirely different definitions of crypto assets
  3. CRestricting regulation to assets that are fully backed by reserves
  4. DEliminating supervisory cooperation to preserve national autonomy

Explanation

Arbitrage arises when similar activities face different rules across borders. Common minimum standards, a 'same activity, same risk' approach and information sharing reduce the gaps firms can exploit. The other options widen gaps or ignore cross-border activity.

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