Compliance, Regulatory Standards, and Legal Challenges BFC Practice Questions (Page 4)

Questions 16–20

1. 16application · medium

   A smart contract is used to automate the transfer of ownership of a digital asset. A dispute arises because one party claims the contract was executed based on incorrect input data. Which legal principle is most relevant to determining the outcome?

   • AThe doctrine of mistake, which allows a contract to be voided if both parties were mistaken about a fundamental fact.
   • BThe parol evidence rule, which limits the use of external evidence to contradict a written contract.
   • CThe statute of frauds, which requires certain contracts to be in writing.
   • DThe doctrine of consideration, which requires a benefit to both parties.
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2. 17expert · hard

   A global cryptocurrency exchange operates in the EU, the US, and Japan. The exchange must comply with the EU's 5th Anti-Money Laundering Directive (5AMLD), the US Bank Secrecy Act (BSA), and Japan's Payment Services Act. The exchange wants to implement a single global AML program. Which approach best balances compliance with all three regimes while minimizing operational friction?

   • AAdopt the most stringent requirements from each regime and apply them globally, regardless of local law.
   • BUse a single global standard based on the Financial Action Task Force (FATF) recommendations, and then add jurisdiction-specific overlays where required.
   • CImplement a tiered system: apply local rules to local customers and a baseline global standard to all others.
   • DRely on the exchange's home country regulator to supervise all global operations, as long as it is a FATF member.
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4. 18expert · hard

   A blockchain fintech company operates in the EU and the US. The EU arm is subject to GDPR and the upcoming MiCA regulation, while the US arm must comply with state-level money transmitter laws and federal securities regulations. The company's compliance budget is limited, and the board wants to prioritize the highest regulatory risks. The compliance team has identified four potential initiatives. Which initiative should receive the highest priority?

   • AImplement a transaction monitoring system that can apply different AML thresholds for EU and US customers and flag cross-border transactions that involve high-risk jurisdictions.
   • BObtain a legal opinion on whether the company's token qualifies as a security under US federal law.
   • CEstablish a board-level compliance committee to review regulatory changes quarterly.
   • DDevelop a comprehensive data protection impact assessment (DPIA) for all blockchain-based processing activities to ensure GDPR compliance.
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5. 19expert · hard

   A decentralized exchange (DEX) is operated by a foundation in Switzerland and has users worldwide. The DEX's smart contracts are immutable, and a governance vote is required to make any changes. A regulatory authority in a country where the DEX has many users issues a notice that certain tokens traded on the DEX are unregistered securities. The foundation's legal counsel must recommend a response. Which response best balances legal risk and the DEX's decentralized nature?

   • AImmediately initiate a governance vote to remove the flagged tokens from the DEX, regardless of the impact on users.
   • BShut down the DEX entirely to avoid any further regulatory action.
   • CIgnore the notice because the DEX is decentralized and the foundation has no control over the tokens traded.
   • DEngage with the regulator to understand the scope of the notice, and consider whether the foundation can take voluntary measures, such as geo-blocking users from that jurisdiction, without compromising the protocol's decentralization.
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6. 20expert · hard

   A blockchain remittance company is considering using a new privacy-preserving technology that obscures transaction amounts and addresses. The company operates in jurisdictions with strong AML/CFT requirements. The compliance team must evaluate the regulatory risk. Which approach is most appropriate?

   • AImplement the technology only for transactions below a certain threshold, assuming small transactions are not subject to AML rules.
   • BReject the technology outright because privacy-preserving features are incompatible with AML/CFT compliance.
   • CConduct a risk assessment that considers the technology's impact on the company's ability to meet AML/CFT obligations, and implement compensating controls such as enhanced monitoring and reporting.
   • DAdopt the technology without changes because it is technically superior and will attract more customers.
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