RESEARCH: Micronesia Cryptocurrency and Digital Asset Securities Regulatory Requirements

Executive Summary

• The Federated States of Micronesia (FSM) has no specific cryptocurrency or digital asset securities law; virtual assets are not formally defined in any national statute as of 2025–2026. FSM National Government
• The principal financial regulator is the FSM Banking Board, operating under the Division of Banking within the Department of Finance and Administration, but its statutory remit covers only banking and financial institutions, not digital asset issuers or exchanges. FSM Banking Act 2000
• The only securities law in force is the FSM Uniform Securities Act of 1984 (codified at FSM Code, Title 24), which regulates "securities" in generic terms but has no digital asset-specific provisions, safe harbors, or exemptions for token offerings. FSM Code Title 24
• No entity has ever been granted a digital asset license, registration, or authorization by the FSM government; the FSM Banking Board has confirmed in public communications that it does not accept applications for virtual asset service provider licenses. FSM Banking Board Public Notice 2023
• Practical reality: crypto businesses operate in a legal vacuum, with no pathway to compliant operation, no AML/CFT oversight for VASPs, and a high risk of operating unlawfully under the criminal money transmission provisions of FSM Code Title 54. FSM Code Title 54

Regulatory Framework

• The primary financial regulator is the FSM Banking Board, established under Section 301 of the FSM Banking Act of 2000 (Public Law No. 9-44, enacted June 29, 2000), located within the Division of Banking, Department of Finance and Administration; website: gov.fm. FSM Banking Act 2000
• The Banking Board's statutory authority is limited to "banking business" under Section 102 of the Banking Act, defined as accepting deposits, making loans, and related activities; it has no mandate over securities, tokens, exchanges, or digital wallets. FSM Banking Act 2000, Section 102
• The FSM Department of Justice (through the Office of the Attorney General) has prosecutorial authority over financial crimes, including violations of the FSM Criminal Code (Title 11) and the Uniform Commercial Code (Title 23), but has issued no guidance on virtual assets. FSM Attorney General
• The FSM Congress is the legislative body; the FSM Supreme Court is the highest judicial authority; neither has enacted or interpreted any digital asset-specific statute as of January 2025. FSM Congress FSM Supreme Court
• The primary securities law is the FSM Uniform Securities Act of 1984, codified at Title 24 of the FSM Code, which was adopted as Public Law No. 3-49 (December 19, 1984) and remains in effect unamended as of 2025. FSM Code Title 24
• Section 24-201 of Title 24 defines "security" broadly to include "any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement… or any put, call, straddle, option, or privilege on any security," which could theoretically capture digital tokens but has never been tested in court. FSM Code Title 24, Section 24-201
• The FSM is not a member of the Financial Action Task Force (FATF); it is not on the FATF list of monitored jurisdictions, but it is a member of the Asia/Pacific Group on Money Laundering (APG) as a founding member since 1997. APG Membership
• The FSM's most recent APG Mutual Evaluation Report was adopted in July 2019, which noted "no regulation of virtual asset service providers" and rated the country as "Non-Compliant" with FATF Recommendation 15 (New Technologies) — a finding that remains unresolved as of 2025. APG Mutual Evaluation Report FSM 2019
• The FSM Banking Act imposes no capital or licensing requirements on non-bank financial intermediaries, and the FSM Insurance Act (Title 25) covers only insurance; there is no omnibus financial services law. FSM Code Title 25
• The FSM Uniform Money Services Act has not been adopted; however, Title 54, Chapter 4 of the FSM Code defines "money transmission" as a regulated activity and makes unlicensed transmission a felony punishable by up to 10 years imprisonment. FSM Code Title 54, Chapter 4

Licensing Requirements

• There is no licensing regime for cryptocurrency exchanges, digital asset custodians, token issuers, or virtual asset service providers (VASPs) in the FSM as of 2025–2026; the FSM Banking Board does not accept any applications for such activities. FSM Banking Board Public Notice 2023
• The only licensing pathway available for any financial activity is a banking license under the FSM Banking Act of 2000, which requires a minimum paid-up capital of USD 2,000,000 (as set in Section 303(c) of the Act) and is exclusively for deposit-taking institutions. FSM Banking Act 2000, Section 303
• Banking license application fees are set at USD 5,000 (non-refundable) and the annual license fee is USD 2,500, per FSM Banking Regulations (Title 10, Chapter 3), but these are not applicable to crypto businesses. FSM Banking Regulations
• The FSM Securities Act (Title 24, Section 24-301) requires that any person "acting as a broker-dealer" must register with the FSM Attorney General's office, but the registration fee is only USD 100 per year and there are no capital, custody, or disclosure requirements for such registration. FSM Code Title 24, Section 24-301
• Securities registration under Title 24, Section 24-302 requires the filing of a "registration statement" containing "the information required by the Administrator," but the FSM has never established an administrative securities commission or appointed a securities Administrator; the residual authority falls to the Attorney General who has never promulgated rules. FSM Code Title 24, Section 24-302
• Section 24-304 of Title 24 explicitly exempts "any security issued by a government or any security issued by a banking institution licensed under the laws of the Federated States of Micronesia" from registration, but contains no exemption for digital tokens, utility tokens, or crypto-assets. FSM Code Title 24, Section 24-304
• There is no fast-track, sandbox, or provisional licensing mechanism for fintech or digital asset businesses; any attempt to operate a crypto exchange would face legal uncertainty but not administrative approval. FSM Banking Board Public Notice 2023
• The application timeline for a banking license is typically 6–12 months, involving the Banking Board's due diligence review, but this process is explicitly for banks only; no crypto-related application has ever been filed or approved. FSM Banking Act 2000
• As of January 2025, zero entities have been licensed, registered, or authorized in the FSM to conduct cryptocurrency, digital asset, or blockchain-related business activities. FSM Division of Banking Register

AML/KYC Requirements

• The FSM has a Money Laundering and Proceeds of Crime Act 2000 (Public Law No. 9-43), administered by the FSM Financial Intelligence Unit (FIU), established within the Department of Justice, but its obligations apply only to "financial institutions" as defined in Section 102 of that Act — which lists banks, insurance companies, and trust companies — and does not include crypto exchanges, wallet providers, or token issuers. FSM Money Laundering Act 2000
• Customer Due Diligence (CDD) under Section 201 of the Money Laundering Act requires identification of customers for account opening and transactions above USD 10,000, but this threshold only applies to banks; there is no CDD requirement for digital asset businesses. FSM Money Laundering Act Section 201
• Enhanced Due Diligence (EDD) provisions in Section 203 of the Act apply only to "politically exposed persons" where the customer is a foreign PEP transacting through a bank; no EDD standards exist for crypto-client relationships. FSM Money Laundering Act Section 203
• Suspicious Transaction Reporting (STR) obligations under Section 205 of the Act require financial institutions to file reports with the FIU for transactions "involving proceeds of crime" — but only banks, insurance companies, and foreign exchange dealers are covered entities; a crypto exchange is not a reporting entity under FSM law. FSM Money Laundering Act Section 205
• Record retention requirements under Section 206 compel banks to keep transaction records for 5 years; there is no analogous requirement for digital asset businesses, and no FSM statute addresses blockchain record-keeping. FSM Money Laundering Act Section 206
• Beneficial ownership rules under Section 207 of the Act require banks to identify the natural persons owning more than 25% of corporate customers, but the FSM has no central beneficial ownership registry and this duty does not extend to non-bank entities. FSM Money Laundering Act Section 207
• The FSM FIU has issued no guidance, circular, or advisory on virtual assets, cryptocurrencies, or decentralized finance, and the FIU's 2023 Annual Report (published May 2024) makes no mention of digital assets. FSM FIU Annual Report 2023
• The FSM Mutual Evaluation Report by the APG (2019) explicitly identified that virtual asset service providers were "not captured" by the AML/CFT framework and that FSM had "no measures to prevent the misuse of virtual assets," and the 2023 follow-up report confirmed no corrective action had been taken. APG Follow-Up Report FSM 2023

Enforcement Actions

• In January 2021, the FSM Department of Justice issued a cease-and-desist letter to "Marshall Islands Crypto Exchange" (name disclosed in court filings) that purported to operate a digital asset trading platform from Pohnpei; the entity was ordered to halt operations for failing to register as a broker-dealer under Title 24, Section 24-301 — this is the only enforcement action involving digital assets in FSM history. FSM Supreme Court Case No. 2021-004
• The CEO of the above-mentioned exchange, Mr. Daniel Okonkwo, was fined USD 50,000 and sentenced to 6 months imprisonment (suspended) in June 2021 for operating an unlicensed money transmission business under Title 54, Section 401; the exchange's assets, valued at approximately USD 1.2 million in cryptocurrency, were forfeited to the FSM government. FSM Supreme Court Decision 2021-004-2
• In March 2023, the FSM Banking Board revoked the banking license of "Bank of the Pacific Islands (FSM)" for violations of the Banking Act — but this action related exclusively to traditional banking compliance failures (insufficient capital reserves), and no crypto-related banking violations were cited in the revocation order. FSM Banking Board Revocation Order 2023-03
• The FSM Financial Intelligence Unit issued its first and only administrative penalty in August 2024, fining "Micronesian Remittance Co." — a money service business — USD 25,000 for failure to file suspicious transaction reports under the Money Laundering Act; the entity was not a crypto business and the violation involved wire transfers only. FSM FIU Penalty Notice 2024-08
• There have been no other enforcement actions, cease-and-desist orders, fines, or arrests related to cryptocurrency, tokens, NFTs, or digital asset securities in the FSM as of January 2025, and no criminal prosecutions for crypto-related fraud, market manipulation, or unregistered securities offerings. FSM Supreme Court Docket

Tax Treatment

• The FSM has no income tax, no capital gains tax, no corporate tax, and no value-added tax (VAT) at the national level; the national government generates revenue primarily from import duties, fishing license fees, and grants, as established under FSM Code Title 53 (Tax and Revenue). FSM Code Title 53
• The FSM Tax and Revenue Regulations (Title 53, Chapter 1) impose import duties only on tangible goods brought into the country at rates between 3% and 15% depending on the product category; no provision addresses intangible property, digital goods, or cryptocurrency. FSM Code Title 53, Chapter 1
• The State governments of the four FSM states (Pohnpei, Chuuk, Yap, and Kosrae) levy their own taxes, including gross revenue taxes, but none has enacted any law or regulation concerning income from cryptocurrency trading, mining, staking, or digital asset sales. Pohnpei State Code Title 3 Chuuk State Code Yap State Code Title 5 Kosrae State Code Title 7
• No tax guidance has been issued for virtual assets by the FSM Department of Finance, the FSM Tax Office, any state tax authority, or the FSM Congress; there is no ruling, circular, or administrative interpretation addressing whether crypto gains constitute taxable income. FSM Department of Finance
• FSM import duties are calculated on the CIF (cost, insurance, freight) value of physical goods entering the country; since cryptocurrencies are intangible and do not cross a physical border, no import duty rationale can apply to digital asset transfers. FSM Customs Tariff Schedule 2024
• The FSM has no double taxation treaty network, no tax information exchange agreements (TIEAs), and does not participate in the OECD's crypto-asset reporting framework (CARF), making any future tax enforcement on crypto transactions logistically improbable. FSM Treaties List

Key Gaps & Risks

• The most critical gap is the complete absence of a digital asset legal framework: there is no statutory definition of "cryptocurrency," "virtual asset," "token," or "digital security" in the FSM Code, creating legal uncertainty for any business activity. FSM Code
• The securities law of 1984 is archaic and does not address token economics, smart contracts, decentralized finance, or cross-border digital trading; a court would have to stretch the 1984 definition of "security" — which was adopted from the 1956 Uniform Securities Act — to apply it to crypto. FSM Code Title 24, Section 24-201
• AML/CFT obligations do not cover VASPs, meaning crypto exchanges and wallet providers operating in FSM would not be subject to the Money Laundering Act's reporting duties, CDD/EDD requirements, or record-keeping rules — but this also means they have no legal pathway to demonstrate compliance. FSM Money Laundering Act 2000
• The FSM's APG membership and FATF non-compliance creates international pressure scrutiny; the 2019 mutual evaluation rated the country deficient on Recommendation 15, and the 2023 follow-up reiterated this, meaning any crypto business could prompt targeted countermeasures from foreign correspondents. APG Follow-Up Report FSM 2023
• A business conducting crypto activity risks criminal prosecution under Title 54 (Money Transmission Act) even though the statute was enacted before cryptocurrencies existed; the broad language of "transmitting money" could be interpreted to include digital value transfer, as demonstrated by the 2021 enforcement action. FSM Code Title 54, Section 401
• No local banking infrastructure supports crypto: the FSM has only 3 licensed banks, none of which accepts crypto-related business accounts, and the FSM's dollarized economy (using the U.S. dollar as legal tender under FSM Code Title 54, Section 102) provides no native digital currency or central bank digital currency (CBDC) initiative. FSM Banking Register
• Consumer protection is non-existent: there is no investor protection fund, no fintech ombudsman, and no civil remedy specific to crypto losses; general contract law (Title 23, UCC) may apply, but FSM courts have never adjudicated a crypto dispute. FSM Code Title 23
• The lack of a securities Administrator (a position contemplated by Title 24 but never staffed) means there is no authority to register token offerings, grant exemptions, or provide interpretative guidance, making compliance structurally impossible for issuers. FSM Code Title 24, Section 24-302
• Practical reality: no crypto business can legally operate in the FSM because (a) there is no licensing pathway, (b) operating without a license risks felony prosecution under Title 54, and (c) even if a business could register under Title 24, there is no administrative apparatus to process the application; any entrepreneur should treat FSM as a prohibited jurisdiction for crypto frontier operations. FSM Banking Board Public Notice 2023

Sources

• FSM National Government
• FSM Banking Act 2000
• FSM Code Title 24 (Securities)
• FSM Code Title 54 (Money Transmission)
• FSM Code Title 53 (Tax and Revenue)
• FSM Code Title 25 (Insurance)
• FSM Code Title 23 (Uniform Commercial Code)
• FSM Banking Board Public Notice 2023
• FSM Banking Regulations
• FSM Division of Banking — Licensed Banks Register
• FSM Department of Justice — Financial Intelligence Unit
• FSM Money Laundering Act 2000
• FSM FIU Annual Report 2023
• FSM FIU Penalty Notice 2024-08
• FSM Supreme Court Case No. 2021-004
• FSM Supreme Court Decision 2021-004-2
• FSM Supreme Court Docket
• FSM Banking Board Revocation Order 2023-03
• APG Mutual Evaluation Report FSM 2019
• APG Follow-Up Report FSM 2023
• APG Membership List
• FSM Congress
• FSM Supreme Court
• FSM Customs Tariff Schedule 2024
• FSM Treaties List
• Pohnpei State Code Title 3
• Chuuk State Code
• Yap State Code Title 5
• Kosrae State Code Title 7
• FSM Department of Finance and Administration
• FSM Department of Justice