In a highly anticipated decision released today, the Supreme Court of Canada has ruled that a proposed co-operative pan-Canadian securities regulator is constitutional, thereby overturning a finding of the Quebec appellate court.
Canada is one of the only developed countries in the world that does not have a national regulator to oversee securities trading, and the effort to establish a national securities regulator — which has been ongoing since at least the 1970s — has suffered a series of delays and roadblocks.
In 2011, the federal government asked the Supreme Court whether Parliament could pass a federal law creating a single regulator and was told it could not, as under the Constitution the provinces and territories hold power over most aspects of securities regulation. However, the court said, a co-operative approach among the provinces and territories would be constitutional, and a Cooperative Capital Markets Regulatory System was then developed by Ontario, British Columbia, Saskatchewan, Prince Edward Island, New Brunswick, the Yukon, and Canada.
In May 2017, the Court of Appeal of Quebec — which with Alberta opposed the CCMR — ruled that the proposal for the CCMR was unconstitutional.
The decision in Reference re Pan‑Canadian Securities Regulation makes clear that the Constitution allows the federal, provincial and territorial governments to work together to regulate securities trading under a single, unified system in Canada. A pan-Canadian regulator will get its authority from a Council of Ministers formed from the federal government and the provinces and territories participating. Provincial and territorial legislatures are not required to join a common regulatory system.
“Today’s opinion is an unqualified endorsement of the federal government’s co-operative approach to the establishment of a national securities regulator,” Bruce Ryder, associate professor at Osgoode Hall Law School with an expertise in Constitutional and public law, told Legal Feeds.
“The Court noted throughout its opinion that the federal government’s draft Capital Markets Stability Act, and the cooperative system it is building in negotiations with the provinces and territories, adheres very closely to the Court’s reasoning in the 2011 Securities Act Reference.”
Under an Order in Council dated July 15, 2015, the government of Quebec referred the following two questions to the Quebec Court of Appeal:
1. Does 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”?
2. Does the most recent version of the draft of the federal “Capital Markets Stability Act” exceed the authority of the Parliament of Canada over the general branch of the trade and commerce power under subsection 91(2) of the Constitution Act, 1867?
The majority of the Quebec Court of Appeal answered “no” to the first question, finding that the Constitution of Canada does not authorize the implementation of the regulation at issue under the proposed model. It also answered “no” to the second question, finding that the most recent version of the draft of the legislation was not beyond the jurisdiction of Parliament except with respect to its sections concerning the role and powers of the Council of Ministers, which, if not removed, it viewed as rendering the act unconstitutional as a whole.
The Attorney General of Canada appealed the Quebec Court of Appeal’s opinion on both questions, the Attorney General of British Columbia appealed on the first question and the Attorney General of Quebec appealed on the second question.
In today’s decision, a unanimous Supreme Court allowed the appeals brought by the Attorney General of Canada and the Attorney General of British Columbia, and dismissed the appeal brought by the Attorney General of Quebec.
“With respect to the first question posed by the reference, we find that the Cooperative System does not improperly fetter the legislatures’ sovereignty, nor does it entail an impermissible delegation of law-making authority,” the Court wrote.
“We therefore answer that question in the affirmative. As to the second question, we answer it in the negative: our view is that the subject matter of the Draft Federal Act falls within the general branch of Parliament’s trade and commerce power pursuant to s. 91(2) of the Constitution Act, 1867.”
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.
“Canada's stable and resilient financial sector contributes to a strong and growing economy,” Pierre-Olivier Herbert, press secretary in the federal Office of the Minister of Finance, wrote in a statement sent to Legal Feeds today. “Our Government has taken important steps to reinforce its soundness and better serve the needs of Canadians.
“… Our Government will continue to work with participating provinces and territories to develop a Cooperative System that will better protect investors, encourage efficiency and innovation, and make the system better able to address systemic risk in capital markets. In the spirit of collaboration, the federal government as well as participating provinces will also pursue an ongoing dialogue with non-participating provinces and territories to ensure that views and concerns continue to be shared and addressed.
“A constructive dialogue is key as participation in the Cooperative System is voluntary and we will continue to respect the authority of existing provincial and territorial regulatory bodies where the Cooperative System does not apply.”
“The path forward was clear in 2011; it is even clearer today,” says Ryder. “Now that their legal objections have been dismissed, it will be up to the holdout provinces, most notably Alberta and Quebec, to decide whether they want to join the national scheme.”
Today’s decision will allow a Cooperative Capital Markets Regulatory System to be formed, and, potentially, other pan-Canadian regulatory systems.
[Read more: SCC hears Canada and Quebec AGs arguments on national securities regulator]
Editor's note: Story updated Nov. 13, 2018 to include comments from Bruce Ryder.