Micronesia -- Securities Classification Regulatory Overview

The Federated States of Micronesia (FSM), like many smaller island nations, has a relatively undeveloped and largely unarticulated regulatory framework specifically addressing cryptocurrency tokens as securities. There is no publicly available specific legislation or regulatory guidance from the FSM government that explicitly classifies cryptocurrency tokens as securities using a designated legal test (like the U.S. Howey Test or a bespoke equivalent).

In the absence of specific crypto-focused securities legislation, it is generally assumed that if a cryptocurrency token were to be deemed a security, it would fall under the purview of existing general securities laws, which are not designed with digital assets in mind.

Here's a breakdown based on the likely approach, drawing inferences from common law principles and international trends, while emphasizing the lack of explicit FSM-specific rules:

Micronesia's Approach to Cryptocurrency Tokens as Securities

Given the lack of specific guidance, any classification would likely depend on an interpretation of existing general financial and investment laws.

1. Legal Test Used (Howey Test Equivalent)

• 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:
    1. An investment of money (or other assets).
    2. In a common enterprise.
    3. With an expectation of profits.
    4. 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."

2. Which Tokens are Considered Securities

Applying a Howey-like functional test, tokens would likely be categorized as follows, though without specific FSM ruling, this remains speculative:

• 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.

3. Registration/Exemption Requirements for Token Issuers

• 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.

4. Secondary Trading Rules

• 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.

5. Enforcement Examples

• 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.

Specific Legislation and Regulatory Guidance URLs

As of the current date, the Federated States of Micronesia has no dedicated legislation, regulations, or publicly available guidance from its government or financial authorities specifically addressing:

• 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.

The relevant general government bodies and legal resources would include:

• FSM National Government Website: This is the primary portal for government information.
  • URL: https://gov.fm/
• FSM Department of Finance & Administration: This department oversees financial matters but has not published crypto-specific guidance.
  • URL: https://dofa.gov.fm/
• 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.
  • URL: http://fsmlaw.org/fsm/code/

Conclusion:

The regulatory environment for cryptocurrency tokens in the Federated States of Micronesia is best described as largely unregulated and undefined concerning securities classification. While general common law principles (similar to the Howey Test) would likely be applied if a case were to arise, there is no explicit framework, specific guidance, or enforcement history. This creates significant legal uncertainty for anyone wishing to issue or trade crypto tokens that might be considered securities within or from the FSM. Parties involved in such activities should proceed with extreme caution and seek specific legal advice from local counsel familiar with FSM law, acknowledging the inherent ambiguity.