The Canadian Securities Commission?

This Supreme Court decision puts an end to nearly 10 years of proceedings and various initiatives attempted by the Harper government in the wake of the 2008 financial crisis.

A Long-term Federal Project

In its initial form, the project was in fact found unconstitutional by the Supreme Court in December 2011, the Court characterising the federal project as a “comprehensive foray” into the realm of securities regulation, which is under provincial authority. 

So, what has transpired since December 2011 and what is it that explains that the Supreme Court would now authorise the federal government to move forward with its project? In one word: cooperation.

Indeed, unlike the federal government’s first attempt submitted to the Supreme Court in June 2010, wherein the Harper government proposed unilaterally moving to create a pan-Canadian securities regulator, the current scheme is completely cooperative, which means that each province or territory can choose to opt in or out.

Moreover, in its December 2011 decision, the Court had suggested that avenue by mentioning a “cooperative approach that permits a scheme recognizing the essentially provincial nature of securities regulation while allowing Parliament to deal with genuinely national concerns.”

To date, the following six jurisdictions have already officially chosen to opt in to the cooperative system: British Columbia, Saskatchewan, Ontario, Prince Edward Island, New Brunswick, and Yukon. In addition, Nova Scotia recently announced that it intends to opt in. However, it is hard to imagine a scenario where Quebec and Alberta would decide to join those jurisdictions in developing such a cooperative system. Indeed, the governments of those two provinces have consistently resisted the federal government’s attempts to create a national securities regulator. At this stage, it is important to bear in mind that the idea to create a national securities regulator is not new, and that discussions in that respect have been held at various levels for decades.

In Canada, the existing system consists of 13 different jurisdictions, with each province and territory having its own regulations and its own securities regulator. Proponents of the cooperative system delight in reiterating that Canada is currently the only G20 country without a national securities regulator like in the U.S. for example, where the Securities and Exchange Commission has jurisdiction over the entire country. However, these critics forget to mention that Canada’s current system has achieved a level of standardisation and efficiency that is unrivalled in our history. Let us simply mention the development of the passport system, for instance, which allows an issuer that files a prospectus in each province of the country to be able to proceed with that distribution while dealing only with the securities regulator in its own jurisdiction.

Be that as it may, the objectives sought by proponents of the cooperative system relate primarily to questions of harmonisation and efficiency, the cooperative system allowing the implementation of a single national securities scheme overseen by a council of the federal and provincial finance ministers.

A Look at the Supreme Court of Canada Decision

In the reference of November 9, 2018, the Supreme Court of Canada had to answer two very specific questions:

1- Does the Constitution of Canada authorize the implementation of pan-Canadian securities regulation under the authority of a single regulator? 

2- Does 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 under the Constitution Act, 1867?

Answering the first question in the affirmative, the Court commented that since the system in question is a cooperative one, with each province and territory retaining the right to opt in to the system or not, “[W]e find that the Cooperative System does not improperly fetter the legislatures’ sovereignty, nor does it entail an impermissible delegation of law-making authority.” 

As for the second question, the Court answered it in the negative, initially stating that, “[O]ur 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.” Later on, the Court added the following: “When the Draft Federal Act is viewed as a whole, its pith and substance clearly does not relate, as Quebec suggests, to regulation of the trade in securities generally.  Rather, its subject matter accords with its stated purposes: ‘to promote and protect the stability of Canada’s financial system through the management of systemic risk related to capital markets’, and “to protect capital markets, investors and others from financial crimes’.”

What Can We Expect Next?

In closing, what developments can we expect in the coming months? Obviously, this is a question that is more political than legal. In view of the many new governments (both federal and provincial) that have been elected since the current memorandum of agreement was formulated, it is not easy to determine exactly where this question will fit into the governmental priorities of these multiple legislatures, not to mention that there will be a federal election before the end of 2019. To be continued… 

To learn more about securities regulation, sign up for our Strategic Forum on Corporate Financing, which will be held on Tuesday, February 19, 2019 in Montreal and Quebec City.