Micronesia Compliance Report

Regulatory Overview

Regulatory Status

Regulators have not addressed crypto; legal status ambiguous

Key Regulator(s)

FSM Banking Commission

Primary Legislation

Likely Implicit Application of Common Law Principles: Due to historical ties and, Application of General Securities Law (if applicable): If a token were classifie, Cryptocurrency has no legal status. There is no cryptocurrency regulation.

Travel Rule

Adopted — Threshold: Implemented

Key Facts

• aml 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.
• enforcement 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.
• licensing 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). In a common enterprise. 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."
• stablecoin No specific classification: Stablecoins are not explicitly classified as e-money, payment tokens, or securities under any specific FSM legislation. 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.
• status Undecided/None: Cryptocurrencies lack legal status, and no dedicated framework exists for regulation. FSM uses the U.S. dollar as its currency and follows U.S.-influenced financial laws, but this does not include specific crypto rules. None identified for cryptocurrencies. General financial oversight may fall under bodies like the FSM Banking Board, but no crypto-specific authority is mentioned in available sources. No specific laws, bills, or dates for cryptocurrencies. Sources confirm the absence of regulation without referencing any enactments. Crypto trading and exchanges are legal in practice, as no prohibitions exist, but operate without local regulations or government-backed oversight. Exchanges may comply with international standards (e.g., FINTRAC or FSMA registrations), but FSM imposes no local requirements. None. No licensing, registration, or authorization is required for crypto firms, exchanges, or related services within FSM. Undecided/no regulation: Cryptocurrencies lack legal recognition or a regulatory framework, allowing use without prohibition but absent specific rules on licensing, AML/CFT, taxation, or consumer protection for crypto activities.
• travel rule Micronesia (Federated States of Micronesia, FSM) has no specific cryptocurrency or digital asset legislation, and no dedicated regulatory authority for virtual assets has been established as of 2025–2026 FSM Government – FSM Government No licensing or registration regime exists for cryptocurrency businesses, and no entity has been licensed to conduct virtual asset activities in the jurisdiction FSM Government – FSM Government The country's financial regulatory framework is limited to traditional banking oversight under the Department of Finance and Administration, which has issued no guidance on digital assets FSM Government – FSM Government Micronesia's foreign affairs capacity includes banking, commercial, and economic relations conducted in its own name, but no virtual asset treaty or international agreement has been concluded The Compact of Free Association between the United States of America and the Federated States of Micronesia The practical reality is that there is no operational pathway for crypto businesses to achieve regulatory compliance, and no travel-rule implementation exists for virtual asset transfers The Federated States of Micronesia operates under its Constitution with a national government comprising Legislative, Executive, and Judicial branches, but no specific financial regulator for virtual assets has been designated FSM Government – FSM Government The Department of Justice, headed by Secretary Honorable Joses Gallen at PS105, Palikir, Pohnpei State, FM 96941, Phone (691) 320-2644/2608, would handle criminal enforcement but has published no virtual asset regulations FSM Government – FSM Government The FSM National Government has no central bank, and the national currency is the U.S. dollar, with the U.S. Federal Reserve providing monetary services under the Compact of Free Association The Compact of Free Association between the United States of America and the Federated States of Micronesia

Sources

• https://www.fsmfiu.fm/
• https://www.apgml.org/documents/details.aspx?uid=F4F500B4-2280-4D21-82B7-62283A49F356
• https://www.apgml.org/members-and-economies/documents/default.aspx?Country=FSM
• https://gov.fm/
• https://dofa.gov.fm/
• http://fsmlaw.org/fsm/code/
• https://fsmgov.org/fsm-departments/department-of-finance-and-administration/
• https://www.paclii.org/fm/legis/fsm_act/fsmc1980362/
• https://gov.fm/?start=200
• https://jcrp.gov.fm/the-compact-of-free-association-between-the-united-states-of-america-and-the-federated-states-of-micronesia/
• https://gov.fm/vice-president-palik-convenes-national-task-force-on-tax-reform-meeting/
• https://www.cfsm.gov.fm/4th-public-laws/
• https://www.cbp.gov/site-policy-notices/foia