Self-custodial wallet / non-custodial software in Micronesia
Publisher of software where users hold their own private keys. The publisher never holds, controls, or has access to user funds.
Self-custodial wallet is conditionally permitted in Micronesia without local incorporation, subject to AML obligations and none licensing burden.
Verdict Details
- Permitted
- conditional
- Local entity required
- No
- Licensing burden
- None
- Last updated
- 2026-07-13
AML Obligations
- No AML/CFT obligations attach to a self-custodial wallet software publisher because the publisher never holds, controls, or has access to user funds or private keys, and therefore does not meet the definition of a 'financial institution' or 'VASP' under FSM law.
- The AML/CFT obligations under the Anti-Money Laundering and Terrorist Financing Act 2017 (Title 27) apply to financial institutions and DNFBPs — a non-custodial software publisher does not qualify as either.
- The 2020 amendments to the AML/CFT Act requiring VASP registration, licensing, and Travel Rule compliance (thresholds: USD 1,000 for cross-border, USD 3,000 for domestic transfers) apply only to entities that exchange VAs and fiat, exchange between VAs, or provide custody/control over VAs — none of which describes a self-custodial wallet publisher.
Key Restrictions
- The publisher must not accept custody, control, or access to user private keys, funds, or virtual assets — any custodial element would trigger VASP classification under the 2020 AML/CFT amendments.
- The software must not offer exchange services between VAs and fiat or between different VAs, or provide transfer/remittance services, or engage in staking/DeFi intermediation that involves taking custody.
- No specific consumer-protection or disclosure rules exist for self-custodial wallet software in the FSM; however, general consumer protection and liability principles under FSM common law (derived from U.S. common law) would apply to software distribution (e.g., disclaimers, software licensing terms).
Key Risks
- Regulatory ambiguity: the FSM has no comprehensive framework for VAs or VASPs, so a future regulatory change could retroactively impose obligations on software publishers.
- Enforcement risk is low currently (no registered VASPs, no enforcement examples), but the APG has recommended that FSM develop a full regulatory framework for VAs/VASPs, which could bring non-custodial publishers into scope.
- Risk of misclassification: if FSM authorities adopt a broad FATF-style 'VASP' definition in the future that covers software facilitating VA transfers (even non-custodially), the publisher could be deemed a VASP.
- No dedicated supervisory guidance exists; the FSM FIU has limited capacity and awareness of virtual assets, creating uncertainty about how self-custodial software would be treated.
Evidence
This verdict synthesizes the following facts. Each fact links to its primary source(s).
No Explicit Test: The FSM does not have an explicit "Howey Test equivalent" for cryptocurrency tokens.
No Specific Crypto Requirements: There are no specific registration or exemption requirements published by the FSM for token issuers.
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).
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.
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.
Exchange between virtual assets and fiat currencies.
Exchange between one or more forms of virtual assets.
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.
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.
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.
Verdict Attribution
- Source:
- AI-Generated · Unreviewed
- AI synthesized:
- 2026-07-13 (deepseek-chat)
- Last updated:
- 2026-07-13
- Confidence:
- medium
This verdict was produced by an AI model from the underlying facts. Confirm with counsel before relying on it for material decisions.
Conditional — A self-custodial wallet software publisher can operate in the FSM without licensing or AML obligations, as long as it never takes custody, control, or access to user funds or private keys and does not offer exchange/transfer services, but the regulatory framework is undefined and subject to future change.
Questions this verdict aims to answer
- Does software publishing trigger VASP / MSB classification?
- Do AML obligations attach when no custody exists?
- What disclosure or consumer-protection rules apply?