A national securities regulator is intended to consolidate the provincial and territorial securities regulators to better assess and minimize systemic risk in capital markets and to improve regulatory enforcement.
The effort to establish such a regulator — which has been ongoing since at least the 1970s — has suffered a series of delays and roadblocks. In May, the Court of Appeal of Quebec ruled that the proposal for a Cooperative Capital Markets Regulatory System, which is to date supported by six jurisdictions — Ontario, British Columbia, Saskatchewan, Prince Edward Island, New Brunswick and the Yukon — but opposed by Quebec and Alberta, is unconstitutional.
In its May 10th decision, Quebec’s appellate court answered “no" to the question of whether “the Constitution of Canada authorize the implementation of pan-Canadian securities regulation under the authority of a single regulator, according to the model established by the most recent publication of the ‘Memorandum of Agreement regarding the Cooperative Capital Markets Regulatory System.’"
As to the second question put before it — whether the most recent version of the draft of the federal Capital Markets Stability Act exceeded the authority of the Parliament of Canada over the general branch of the trade and commerce power under s. 91(2) of the Constitution Act, 1867 — the Court of Appeal answered “no" to it as well. It found that the most recent version of the draft of the legislation was not beyond the jurisdiction of Parliament, except with respect to its ss. 76 to 79 concerning the role and powers of the Council of Ministers, which, if not removed, would render the act unconstitutional as a whole.
Before the Supreme Court today, Francis Demers, representing the respondent Attorney General of Quebec, told the justices that the authority of the Council of Ministers, who would be drawn from each participating jurisdiction, “violates parliamentary policy" and would constitute “an abandonment of sovereignty."
“This entity, Council of Ministers, … could initiate legislative amendments for us; this is unprecedented," Demers said.
He argued that a division of powers between federal and provincial governments had already been established and that, in essence, the Council of Ministers would have authority over matters of provincial jurisdiction.
Michael Conner, representing the intervener Attorney General of Manitoba, argued that federal or pan-Canadian power over capital markets should be restricted to dealing with financial crises.
A bid to establish a national securities regulator has been on the table for a long time, says Bruce Ryder, an associate professor at Osgoode Hall Law School, who studies public law and contemporary constitutional issues.
“There’s been a long history to the debate," Ryder told Legal Feeds. “We’ve been discussing since the 1970s how to have a national securities regulator to replace the 13 systems that exist now or at least to make [regulation] consistent."
The Harper government drafted legislation that was pushed to the Supreme Court of Canada for reference, resulting in its 2011 opinion, says Ryder. The SCC found that securities regulation was an area of divided jurisdiction and noted that systemic risk in capital markets can affect trade. In most jurisdictions that trade, securities regulation falls within provincial jurisdiction, and it has done so for a century.
“So, they said a uniform national securities act was unconstitutional because it went too far" and that a national securities regulator should involve a co-operative scheme between the provinces and federal government.
In its 2011 opinion, the SCC said that “it shouldn’t be either federal or provincial, but you need co-operative solutions that meet needs of country as a whole. They noted they had typically been supportive of co-operative schemes that involve both federal and provincial legislation," Ryder says, the marketing of agricultural products in Canada, which — in the case of eggs and chickens, for example — is done through national boards, and the regulation of inter-provincial trucking are two examples of this.
“I think the Supreme Court will be enthusiastic . . . and take a friendlier perspective than Quebec did" to implementing a co-operative regulatory system, Ryder says.
Andrew Bernstein, a litigator with Torys LLP in Toronto whose practice includes public law, says that “there’s some fundamental assumptions and conclusions drawn by the Quebec Court of Appeal that appear to be inconsistent with the structure of the Cooperative Capital Markets Regulatory System."
The Quebec Court of Appeal concluded that, if they were to uphold the memorandum of understanding for the national securities regulator, they would be permitting the executives of the provinces, through the Council of Ministers, to fetter the abilities of those provinces.
However, says Bernstein, “a general principle of federal law is that Parliament has the last say on what the law is. … It’s always open to parliamentary change. … The executives who have signed these memorandums aren’t allowed to bind themselves as to what provinces will or won’t do." The Quebec Court of Appeal found the agreement to be invalid “because it binds the legislature to cooperative capital markets"; but, “you can’t by agreement bind the legislature," he says.
Bernstein predicts the SCC will “set out some limits of what the memorandum of understanding can and can’t accomplish, and then uphold it." The memorandum of understanding is the agreement that will be signed between the cooperating provincial and federal governments, which sets out some crucial features of this system and how it will operate.
A “worst-case scenario" is that the Supreme Court will suggest some modest tweaks to the proposed scheme going forward, meaning the path to a national securities regulator will be clear, says Ryder. “Quebec and Alberta don’t have to be on side; there’s nothing that compels them to agree to this regime. The political question will be, can we persuade them [to] join? Or, if we can’t, should we go ahead with national scheme that can operate in most of provinces?"
Ryder predicts the government will go ahead with the new regime regardless, and create other agreements for jurisdictions that choose not to join.