CCE Regulatory and Legal Frameworks 3 — Questions and Answers
Question 1: FATF stands for which international organization that sets AML standards for crypto?
- Financial Action Task Force (Correct answer)
- Federal Asset Trading Framework
- Foreign Asset Transfer Facility
- Financial Audit and Taxation Forum
Correct answer: Financial Action Task Force
FATF (Financial Action Task Force) is the intergovernmental body that sets international standards for combating money laundering and terrorist financing, including for virtual assets.
Question 2: What does 'KYC' require cryptocurrency exchanges to verify?
- The technical security of user wallets
- The identity of customers before providing services (Correct answer)
- The tax status of cryptocurrency transactions
- The geographic location of blockchain nodes
Correct answer: The identity of customers before providing services
KYC (Know Your Customer) requires exchanges to verify customer identity through documents like government IDs to prevent fraud and money laundering.
Question 3: Under US tax law, how does the IRS classify Bitcoin and other cryptocurrencies?
- As foreign currency
- As commodities
- As property (Correct answer)
- As securities
Correct answer: As property
The IRS treats cryptocurrency as property for federal tax purposes, meaning capital gains rules apply to crypto transactions.
Question 4: Which scenario would most likely trigger a Suspicious Activity Report (SAR) filing obligation for a US crypto exchange?
- A customer buying $500 of Bitcoin monthly
- A customer conducting multiple transactions just below $10,000 to avoid reporting (Correct answer)
- A customer asking about staking rewards
- A customer trading between different cryptocurrencies
Correct answer: A customer conducting multiple transactions just below $10,000 to avoid reporting
Structuring transactions to stay below reporting thresholds (called 'structuring' or 'smurfing') is a classic red flag requiring SAR filing.
Question 5: What is the key distinction between a 'custodial' and 'non-custodial' crypto wallet from a regulatory perspective?
- Custodial wallets support more cryptocurrencies
- Custodial wallet providers hold private keys and face more regulatory obligations (Correct answer)
- Non-custodial wallets require government licensing
- Custodial wallets cannot be used for DeFi
Correct answer: Custodial wallet providers hold private keys and face more regulatory obligations
Custodial wallet providers hold customer private keys and are typically classified as money services businesses subject to KYC/AML regulations, while non-custodial wallet providers generally face fewer direct obligations.
Question 6: Which of the following best describes a 'stablecoin' issuer's primary regulatory concern in the US?
- Mining licensing requirements
- Whether the stablecoin constitutes a money market fund or deposit-like instrument (Correct answer)
- Export control compliance
- Environmental impact reporting
Correct answer: Whether the stablecoin constitutes a money market fund or deposit-like instrument
US regulators have focused on whether stablecoins backed by fiat or assets resemble money market funds or bank deposits, triggering banking or securities regulation.
Question 7: The concept of 'regulatory arbitrage' in cryptocurrency refers to:
- Using crypto to profit from price differences across exchanges
- Businesses relocating to jurisdictions with more favorable crypto regulations (Correct answer)
- Arbitration of disputes between regulators
- Using blockchain to automate regulatory compliance
Correct answer: Businesses relocating to jurisdictions with more favorable crypto regulations
Regulatory arbitrage occurs when crypto businesses choose to operate from jurisdictions with lighter-touch regulation to avoid stricter rules in other countries.
CCE Regulatory and Legal Frameworks 3
FATF stands for which international organization that sets AML standards for crypto?