No Regulation By Enforcement Of Digital Assets In Québec: The U.S. Approach Travels North

A recent decision by Québec's Financial Markets Administrative Tribunal (the "FMAT") in Autorité des marchés financiers v. Gagnon (2025 QCTMF 56) ("Gagnon") adds to calls in Canada to align our regulatory approach with international developments, such as in the U.S.

The FMAT in Gagnon considered whether crypto‑trading schemes run by the defendants constituted investment contracts and therefore securities. The FMAT ultimately upheld most of the stated contraventions—specifically, that the defendants offered securities to the public without a prospectus and acted as advisers without registration.

Of key interest, however, is the FMAT's decision that the digital asset tokens traded by the defendants were not themselves investment contracts and the commentary provided that the FMAT must be cautious not to impede digital asset innovation by allowing regulation by enforcement of digital assets. The decision also cites the reasoning in the July 2023 U.S. judgment in Securities and Exchange Commission v. Ripple Labs Inc. ("Ripple") and refers to recent U.S. legislative developments, such as the GENIUS Act. In an obiter dictum, the FMAT observed that legislation like the GENIUS Act could materially affect national monetary policy because requiring stablecoin issuers to maintain sizeable reserves of domestic currency—typically through sovereign‑debt holdings—to ensure regulatory equivalence with a fiat reference currency would have broader implications for money supply and government bond markets (on stablecoin issuance and supervision – for more information read our summary and analysis on the GENIUS Act here).

I. Tribunal's Analysis and Key Findings

The decision in Gagnon dealt with a number of interesting issues. However, the focus of this bulletin is on the FMAT's decision with respect to whether certain digital asset tokens constituted securities.

This decision was rendered with respect to the allegation brought by the Autorité des marchés financiers against the defendants that they breached sections 195.2 and 199.1 of the Québec Securities Act (RLRQ, c. V‑1.1) by manipulating or attempting to manipulate the price of at least 30 digital asset tokens, using a tactic commonly known as a "pump‑and‑dump".

The FMAT relied on the U.S. Howey test, which Canadian courts have adopted via the Supreme Court's Pacific Coast decision, and cited Judge Torres's judgment in Ripple. In Ripple, programmatic sales of XRP on exchanges were held not to be investment contracts because purchasers did not reasonably expect profits from Ripple's efforts; only institutional sales directly by Ripple were deemed securities. The court in Ripple stated that "[w]hether a secondary market sale constitutes an offer or sale of an investment contract would depend on the totality of circumstances and the economic reality of that specific contract, transaction or scheme", accordingly finding that sales of XRP in certain circumstances could constitute investment contracts and may not in others.

Applying that distinction, the FMAT concluded that the digital asset tokens traded by the defendants—sold via a pump‑and‑dump group—did not meet the criteria for an investment contract because: (i) the defendants had no ongoing managerial obligations toward the issuers of those tokens and were not promoters of them; and (ii) the investors were buying those tokens speculatively on decentralized exchanges from existing holders who were neither issuers nor promoters.

The FMAT emphasized the need to avoid stifling technological progress. While it sanctioned the defendants for non‑registration and misleading conduct, it declined to stretch securities law to cover the trading of exchange-traded digital asset tokens that lacked the hallmarks of an investment contract.

II. International / U.S. Context and Call for Action

Since 2024, the U.S. Securities and Exchange Commission ("SEC") has signaled a shift away from regulation by enforcement toward market‑structure legislation. The CLARITY Act passed the U.S. House of Representatives (a Senate version, the Responsible Financial Innovation Act, is in the works) and contemplates clear divisions between commodities and securities oversight (on market structure and asset classification, read our summary and analysis on the CLARITY Act here). As noted in the White House's crypto task force report, U.S. policymakers are promoting safe harbours, pilot programs, tax clarity, and a federal Bitcoin reserve (read our summary and analysis on the Policy Report by the Working Group on Digital Asset Markets here).

These developments underscore a coordinated, innovation‑friendly approach that departs from the SEC's earlier litigation‑driven stance. These shifts have been noted in Canada by industry participants and others, with calls for Canada to seek alignment with regulatory developments in both the U.S. and other jurisdictions – notably, the recent warning from the Bank of Canada warning the Canada is falling behind global peers in the regulation of stablecoins, urging regulators to "work quickly and collaboratively to evolve our regulatory frameworks".

The Gagnon decision is a significant marker in this regard and in Québec digital asset jurisprudence. By refusing to treat the exchange-traded digital asset tokens as securities and citing U.S. precedent, the FMAT appears to be acknowledging the limits of existing statutes and welcoming legislative updates. The FMAT's reliance on Ripple demonstrates that courts are willing to look south of the border for guidance, and that a purely enforcement‑based approach is untenable.

With the U.S. and other jurisdictions' legal and regulatory frameworks evolving, Canada has an opportunity to align its approach with these other jurisdictions. The current patchwork of case law and regulatory guidance is insufficient for a rapidly growing sector. Comprehensive legislation—addressing, among other things, stablecoins and market structure—is needed to reduce regulatory inconsistencies and foster innovation. Clear statutory rules would give market participants confidence while preserving investor safeguards.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2025