Micronesia

**No Explicit Test:** The FSM does not have an explicit "Howey Test equivalent" for cryptocurrency tokens.

**Likely Implicit Application of Common Law Principles:** Due to historical ties and influence, the FSM's legal system often draws from U.S. common law principles. Therefore, if a court or regulator in the FSM were to assess whether a crypto token constitutes a security, it would most likely **implicitly apply a functional test very similar to the U.S. Howey Test**.

**The Howey Test (U.S. Standard):** An "investment contract" (and thus a security) exists if there is:

An investment of money (or other assets).

With an expectation of profits.

To be derived solely from the efforts of others.

This test is widely adopted or mirrored in various common law jurisdictions globally to determine what constitutes an "investment contract" or "security."

**Investment/Security Tokens:** Tokens that represent ownership in a company, a share of profits, fractional ownership of real assets, or provide rights akin to traditional securities (e.g., dividends, voting rights) would almost certainly be considered securities. This would include most tokens issued through Initial Coin Offerings (ICOs) where the primary purpose is capital raising from investors expecting a return from the issuer's efforts.

**Utility Tokens:** Tokens intended to provide access to a product or service within an ecosystem *might* not be considered securities if they have immediate utility and their primary value is derived from that use, rather than from speculative appreciation based on the efforts of others. However, many "utility tokens" have been found to be securities if they are marketed as investments, lack immediate functionality, or if their value is primarily speculative based on the development team's efforts.

**Payment Tokens (e.g., Bitcoin, stablecoins):** Tokens primarily designed and used as a medium of exchange or store of value, without a "common enterprise" or expectation of profits from the efforts of others (beyond general market forces), are generally less likely to be considered securities.

**No Specific Crypto Requirements:** There are no specific registration or exemption requirements published by the FSM for token issuers.

**Application of General Securities Law (if applicable):** If a token were classified as a security under existing FSM law, then the issuer would theoretically be subject to any existing general securities registration and disclosure requirements. Given the nascent nature of crypto regulation in the FSM, it is highly improbable that existing securities laws would be practically adaptable to digital asset offerings without explicit guidance or amendments. Issuers would likely find themselves in a regulatory vacuum or an unworkable compliance scenario.

**No Specific Crypto Rules:** Similar to issuance, there are no specific rules governing the secondary trading of cryptocurrency tokens in the FSM.

**Application of General Securities Trading Law (if applicable):** If a token were deemed a security, secondary trading would technically be subject to general rules for securities exchanges, broker-dealers, and market conduct. However, these rules are not designed for decentralized or global crypto trading platforms, making practical application extremely difficult without tailored legislation.

**No Publicly Available Examples:** There are no publicly available enforcement examples or legal cases specifically related to cryptocurrency securities violations in the Federated States of Micronesia. This lack of enforcement data underscores the absence of a clear regulatory framework in this area.

The classification of cryptocurrency tokens as securities.

Specific legal tests for determining if a crypto token is a security.

Registration, licensing, or exemption requirements for crypto token issuers or exchanges.

Secondary trading rules for crypto assets.

**FSM National Government Website:** This is the primary portal for government information.

**FSM Department of Finance & Administration:** This department oversees financial matters but has not published crypto-specific guidance.

**FSM National Code:** The compilation of FSM national laws. While it contains general financial and banking laws, it does not specifically address digital assets or their classification as securities.

**Undefined/Indirect:** The FSM currently lacks a comprehensive and explicit regulatory framework specifically for cryptocurrencies and virtual assets. The approach can be characterized as largely undefined or operating in a "grey area."

**Partial/Indirect Application:** While there's no dedicated crypto law, existing anti-money laundering (AML) and combating the financing of terrorism (CFT) legislation and regulatory bodies would likely apply to virtual asset activities, especially for entities operating within the FSM or facilitating transactions involving FSM residents. This aligns with global standards set by the Financial Action Task Force (FATF), which requires countries to regulate Virtual Asset Service Providers (VASPs).

**No Explicit Ban:** There is no public record of a ban on cryptocurrencies or virtual assets in the FSM.

**FSM Banking Board / Division of Banking and Insurance (under the Department of Finance and Administration):**

**Role:** This body is responsible for supervising and regulating traditional financial institutions, including banks, insurance companies, and other financial service providers. While they do not have explicit virtual asset mandates, any entity operating as a financial service provider (even if it deals with virtual assets) might fall under their general oversight.

**URL (Department of Finance & Administration):** https://fsmgov.org/fsm-departments/department-of-finance-and-administration/ (Specific Banking Board page might be within this, but often these small government sites are not granular for sub-divisions).

**FSM Financial Intelligence Unit (FIU):**

**Role:** The FIU is the central national agency responsible for receiving, analyzing, and disseminating financial information concerning suspected proceeds of crime and potential financing of terrorism. They are critical for implementing AML/CFT measures. Even in the absence of specific virtual asset legislation, the FIU would expect reporting on suspicious transactions involving virtual assets if they are deemed "funds" or if entities dealing with them are considered "reporting entities" under existing AML laws.

**FSM Anti-Money Laundering Act, 2018 (Public Law No. 20-149):**

**Relevance:** This is the foundational law for AML/CFT in the FSM. While it might not explicitly mention "virtual assets" in its definitions, its broad scope regarding "funds," "financial institutions," and "reporting entities" could be interpreted to apply to virtual asset service providers (VASPs) or activities involving virtual assets that facilitate illicit finance. The FIU operates under this framework.

**URL:** A direct, publicly accessible URL to the full text of FSM Public Laws can be challenging to find online for smaller nations. However, its existence and date are confirmed by the FSM FIU and international bodies like the Asia/Pacific Group on Money Laundering (APG). The FIU website (https://www.fsmfiu.fm/) references its operation under the AML Act.

**Individual Trading:** There is no explicit ban on individuals trading cryptocurrencies within the FSM. Citizens are generally free to buy, sell, and hold cryptocurrencies using international platforms.

**Operating Exchanges/VASPs:** Operating a virtual asset service provider (VASP), such as a cryptocurrency exchange, within the FSM would likely fall into a regulatory grey area.

**No Specific Licensing:** There is no explicit licensing regime for VASPs.

**General Business Licensing:** Any entity operating a business would need to comply with general business registration and licensing requirements at the state and national level.

**AML/CFT Obligations:** Most importantly, any VASP operating in the FSM or serving FSM residents would be expected to comply with the FSM's AML/CFT laws, which means conducting customer due diligence (KYC), monitoring transactions, and reporting suspicious activities to the FSM FIU. This expectation is driven by international standards from FATF, even if national VASP-specific legislation isn't yet in place. Failure to comply could lead to severe penalties.

**Risk for Operators:** The lack of clear specific regulations creates uncertainty and potential legal risks for any local entity wishing to establish a virtual asset exchange or related service.

**Anti-Money Laundering and Terrorist Financing Act 2017 (Title 27 of the FSM Code):** This act establishes the general framework for combating money laundering and terrorist financing, including obligations for financial institutions and designated non-financial businesses and professions (DNFBPs). While it may not explicitly mention "virtual assets" or "VASPs" as distinct regulated entities, the FSM, as an APG member, is expected to apply these requirements to VASPs in line with FATF Recommendation 15 (now Recommendation 16 in the context of the FATF's June 2019 Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers).

**FSM Banking Act 1980 (Title 29 of the FSM Code):** This act provides the general legal framework for banking and financial services. While it does not specifically regulate VASPs, any VASP that offers services resembling traditional financial services (e.g., custody of fiat currency, remittances) might fall under the purview or interpretation of this act or require specific licensing.

For **natural persons**: Obtaining and verifying identity using reliable, independent source documents, data, or information (e.g., government-issued ID, passport, driver's license).

For **legal entities**: Obtaining and verifying the legal name, form of organization, proof of existence, powers that regulate and bind the entity, and the names of relevant persons holding senior management positions.

**Beneficial Ownership:** Identifying and verifying the identity of the beneficial owner(s) of the customer, and taking reasonable measures to understand the ownership and control structure of legal persons and arrangements.

**Purpose and Intended Nature of Business Relationship:** Understanding the purpose and intended nature of the business relationship or transaction.

**Ongoing Monitoring:** Conducting ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the course of that relationship to ensure that the transactions are consistent with the VASP's knowledge of the customer, their business, and risk profile.

**Risk-Based Approach:** Applying a risk-based approach to CDD, meaning enhanced CDD (EDD) measures must be applied to higher-risk customers (e.g., Politically Exposed Persons - PEPs, customers from high-risk jurisdictions, complex or unusually large transactions, or where the customer's identity verification poses higher risk) and simplified CDD (SCDD) may be applied to lower-risk customers.

Reporting any transaction (or attempted transaction) that gives rise to a reasonable suspicion that it may be related to money laundering, terrorist financing, or other criminal activity.

The obligation to report exists regardless of the amount or type of assets involved (fiat or virtual).

**No Tipping-Off:** Prohibitions against informing the customer or any third party that an STR has been filed or that an investigation is being conducted.

**Customer Identification Records:** All records obtained through CDD measures (e.g., copies of identification documents, verification data).

**Transaction Records:** Records of all transactions, including amounts, types of virtual assets, sending and receiving addresses/accounts, timestamps, and any other relevant transaction data.

**Business Correspondence:** All relevant business correspondence, including records of analysis performed.

**Financial Intelligence Unit (FIU) of the Federated States of Micronesia (FSM FIU)**

**Role:** The FSM FIU is the central national agency responsible for receiving, analyzing, and disseminating suspicious transaction reports and other financial intelligence. It provides guidance and oversight regarding AML/CFT compliance.

**Legal Basis:** The FSM enacted the **Anti-Money Laundering and Counter-Terrorist Financing Act 2011 (as amended 2020)**. The 2020 amendments were specifically introduced to address FATF Recommendations on VAs and VASPs, including the Travel Rule obligations. This amendment requires VASPs to register, be licensed, and comply with AML/CFT obligations.

Asia/Pacific Group on Money Laundering (APG) Enhanced Follow-Up Report & Technical Compliance Re-Rating - Federated States of Micronesia (July 2022). Specifically, pages 21-23 regarding Recommendations 15 (New Technologies) and 16 (Wire Transfers).

Link to APG Report (PDF) (Look for "Enhanced Follow-Up Report & Technical Compliance Re-Rating - Federated States of Micronesia (July 2022)")

**For cross-border transfers:** The Travel Rule information must be collected and transmitted for transactions equivalent to **USD 1,000 or more**.

**For domestic transfers:** The Travel Rule information must be collected and transmitted for transactions equivalent to **USD 3,000 or more**.

**Source:** APG Enhanced Follow-Up Report (July 2022), page 23.

Exchange between virtual assets and fiat currencies.

Exchange between one or more forms of virtual assets.

Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets.

Participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.

**Originator Information:** VASPs must obtain and hold the originator's name, originator's account number (or unique transaction identifier), and the originator's physical address (or national identity number, customer identification number, or date and place of birth).

**Beneficiary Information:** VASPs must obtain and hold the beneficiary's name and the beneficiary's account number (or unique transaction identifier).

**Transmission:** Originating VASPs must transmit this information to the beneficiary VASP. Beneficiary VASPs must receive and hold this information.

**Record Keeping:** VASPs are required to keep records of this information for a specified period (typically 5 years).

**Lack of Specific Technical Mandates (Currently):** The FSM legislation likely mandates the *collection and transmission* of data but doesn't prescribe a specific technical solution (e.g., TRISA, Shyft, OpenVASP, etc.). VASPs are generally expected to use a secure and compliant method.

**Ongoing Development:** The APG report indicates that the FSM Banking Commission was in the process of developing a **VASP Code of Practice** at the time of the report (July 2022), which would further detail practical guidance for compliance.

**Fines:** Significant monetary penalties for institutions and individuals.

**Imprisonment:** For serious breaches or willful negligence/participation in money laundering/terrorist financing.

**License Revocation/Suspension:** VASPs failing to comply may have their registration or license suspended or revoked, effectively preventing them from operating.

**Supervisory Actions:** The FSM Banking Commission can impose various administrative sanctions and remedial actions.

**Lack of a Dedicated Regulatory Framework:** The FSM currently lacks a comprehensive legal and regulatory framework specifically addressing virtual assets (VAs) and virtual asset service providers (VASPs).

**No Registered or Licensed VASPs:** As of the latest assessments, there are no known or registered VASPs operating within the FSM that would fall under a regulatory scope (if one existed).

**Limited Capacity and Awareness:** International assessments indicate that the FSM's financial authorities are still developing their understanding and capacity to monitor and regulate the virtual asset sector.

**Federated States of Micronesia (FSM) Financial Intelligence Unit (FIU):** This is the primary authority responsible for anti-money laundering and combating the financing of terrorism (AML/CFT) in the FSM. While they address financial crimes, specific crypto enforcement requires a clear regulatory basis for virtual assets.

**Asia/Pacific Group on Money Laundering (APG):** As an associate member of the Financial Action Task Force (FATF), the APG conducts mutual evaluations of its members' AML/CFT regimes. Their reports provide the most comprehensive public information on the FSM's status regarding virtual assets.

**No specific legislation:** The FSM had not yet enacted specific legislation or regulations to address virtual assets or virtual asset service providers (VASPs).

**No VASPs identified:** The authorities had not identified any VASPs operating within the jurisdiction.

**Lack of understanding and capacity:** The report highlighted a lack of understanding by supervisory authorities regarding the risks associated with virtual assets and a need to develop supervisory capacity in this area.

**Recommendations:** The APG recommended that FSM develop a comprehensive legal and regulatory framework for VAs and VASPs, including registration, licensing, and AML/CFT obligations, and ensure appropriate supervision and enforcement capabilities.

**Asia/Pacific Group on Money Laundering (APG) - FSM Mutual Evaluation Report (2021):**

You will need to navigate to the specific "Mutual Evaluation Report of FSM (2021)" document on this page. (Direct link to PDF may change, but this is the official APG page for FSM reports).

While the FSM FIU website may not list specific crypto enforcement, it represents the key regulatory body for AML/CFT.

*Note: Finding a stable, official government portal for the FSM FIU that is consistently updated and publicly accessible can be challenging for smaller nations. Many operate with limited public web presence.* A general search might lead to mentions within government documents or international aid reports.