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

Which of the following is a reason why unbacked crypto assets can pose risks to consumers and investors that markets alone are unlikely to correct?

Retail investors face information asymmetries, aggressive marketing and limited disclosure, with weak investor protection and recourse. Unbacked crypto assets generally lack audited statements, deposit insurance or regulated central counterparties, so these consumer risks persist without regulatory intervention.

  1. ARetail investors face information asymmetries and aggressive marketing, with limited disclosure and weak investor protectionCorrect
  2. BPrices are set by a single regulated central counterparty
  3. CIssuers are legally required to publish audited financial statements
  4. DHolders are protected by deposit insurance schemes

Explanation

Retail investors often lack reliable information on risks, face heavy promotion and fraud, and have little disclosure or legal recourse, a market failure justifying regulation. Audited disclosure, deposit insurance and a regulated central counterparty are generally absent for unbacked crypto assets.

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