Stablecoin issuer / redeemer in Micronesia

No specific classification: Stablecoins are not explicitly classified as e-money, payment tokens, or securities under any specific FSM legislation.

Potential for classification by analogy:

E-money/Payment Tokens: If a stablecoin were to function purely as a digital representation of fiat currency for payment purposes, it might, in theory, be viewed through the lens of general payment services or e-money regulations, if such specific regulations existed outside of traditional banking. However, FSM's framework primarily focuses on licensed deposit-taking institutions.

Securities: If a stablecoin were structured to represent an investment, a share in profits, or carried specific rights that qualify it as an investment contract, it could potentially fall under broader securities principles, although FSM's securities laws are less developed compared to major economies.

Commodity/Property: In the absence of specific financial instrument definitions, stablecoins could potentially be treated as digital property or commodities, subject to general contract and property law.

No specific reserve requirements: Given the absence of specific stablecoin regulation, there are no statutory reserve requirements for stablecoin issuers in the FSM.

General principles: If an entity were to issue a stablecoin that in any way resembled a deposit-taking activity, it would likely fall under the FSM Banking Act and be subject to the reserve requirements for licensed financial institutions. However, this would entail meeting the full requirements of a traditional bank.

No specific stablecoin issuer license: There is no distinct licensing regime for stablecoin issuers in the FSM.

Existing financial institution licensing: Any entity wishing to operate in a manner that resembles banking, money transmission, or other regulated financial services (e.g., taking deposits, transmitting funds on behalf of others) would be subject to the existing licensing requirements under the FSM Banking Act (Title 30 of the FSM National Code). Obtaining a banking license is a complex and capital-intensive process designed for traditional financial institutions.

FSM National Code, Title 30: Banking. This title sets out the regulatory framework for banks and other financial institutions.

While not specific to stablecoins, any activity that falls within the scope of "banking business" or "financial institution" as defined in this Act would require a license from the FSM Banking Board.

No specific statutory redemption rights: Since there are no specific stablecoin laws, there are no explicit statutory provisions governing redemption rights for stablecoin holders in the FSM.

Contractual basis: Redemption rights would primarily be governed by the terms and conditions agreed upon between the stablecoin issuer and the holder (i.e., the stablecoin's whitepaper, user agreement, or other contractual documents). Enforcement would rely on general contract law.

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.

Identification and Verification:

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.

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).

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

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).

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.

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).

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.