Compliance, Regulatory Standards, and Legal Challenges BFC Practice Questions (Page 5)

Questions 21–25

1. 21application · medium

   A blockchain-based lending platform is subject to a new regulation that requires enhanced due diligence for high-risk customers. The platform's compliance team must implement the new requirement. What is the most effective way to manage the associated regulatory risk?

   • ADevelop a risk-based framework that identifies high-risk customers and applies enhanced due diligence only to them.
   • BWait for the regulator to provide a list of high-risk customers.
   • CApply enhanced due diligence to all customers to ensure full compliance.
   • DOutsource all due diligence to a third-party provider to avoid liability.
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2. 22expert · hard

   A cross-border consortium blockchain is used by banks in multiple countries to settle interbank transfers. The smart contract code contains a bug that causes a transaction to be executed incorrectly, resulting in a financial loss to one bank. The consortium's governing documents are silent on liability. Which legal issue is most likely to arise?

   • AThe smart contract is not legally enforceable because it is code, not a written contract.
   • BThe loss will be borne by the bank that initiated the transaction because it agreed to the code's terms.
   • CThe bank that deployed the code is automatically liable for all losses.
   • DThe consortium members will need to rely on the applicable law of the jurisdiction where the node that processed the transaction is located.
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4. 23application · medium

   A blockchain fintech company is preparing for a regulatory examination. The board of directors wants to ensure that compliance is effectively overseen. Which governance structure is most appropriate?

   • ADelegate all compliance oversight to the chief technology officer, since blockchain is a technical domain.
   • BEstablish a board-level compliance committee that reviews compliance reports quarterly and approves the annual compliance risk assessment.
   • COutsource compliance monitoring to an external auditor and only review their findings annually.
   • DCreate a compliance committee composed entirely of external blockchain experts who are not employees.
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5. 24foundation · easy

   Which legal challenge is most directly associated with determining which country's laws apply to a blockchain transaction that involves parties in multiple jurisdictions?

   • AData privacy compliance
   • BLiability for decentralized systems
   • CSmart contract enforceability
   • DJurisdictional issues
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6. 25application · medium

   A cryptocurrency exchange is considering entering a new market in a country that has not yet issued clear regulations for digital assets. The exchange already complies with regulations in its home country. What is the most prudent approach?

   • AEnter the market immediately and apply the exchange's home-country compliance standards, since they are likely sufficient.
   • BLimit operations to institutional clients only, since they are exempt from most financial regulations.
   • CConduct a legal assessment of the new market's existing financial laws and engage with local regulators to clarify the expected compliance posture.
   • DWait until the country issues clear regulations before making any plans, to avoid uncertainty.
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