Canada on the Brink of National Securities Regulation

Canada is the only industrialized country without a national securities regulator. Historically, the provinces and territories have developed and implemented their own securities regimes. This may soon change as the new decision from the Supreme Court of Canada in Reference re: Pan-Canadian Securities Regulation lays the foundation for the establishment of Canada’s first national securities regulator.

In 2011, the Federal Government tasked the Supreme Court of Canada with determining whether parliament could pass a federal law relating to securities regulation. In Reference re Securities Act, the Court answered in the negative but left the door open to what it called a “cooperative approach” between federal and provincial governments.

As a result, the “Cooperative System” of securities regulation was proposed, which would include new federal legislation (the Capital Markets Stability Act, “CMSA”) and a model provincial act that could be passed by provinces and territories – all under the authority of a new regulatory body called the Capital Markets Regulatory Authority. Some of the main benefits claimed to flow from the Cooperative System were greater market efficiency via integration of sectors and regions, increased investor protection, and greater ability to manage systemic risk on a national level.

Though the proposed system was supported by the federal government and the governments of Ontario, British Columbia, Saskatchewan, New Brunswick, Prince Edward Island and Yukon, other provinces expressed concerns over its legality. These questions of legality manifested in a provincial reference (a proceeding where the court is asked to opine on a question of law without an actual underlying dispute) from Quebec, which ultimately made its way to the Supreme Court of Canada.

    The questions were as follows:

  1. Whether the Cooperative System is constitutional; and
  2. Whether the CMSA oversteps the Federal Government’s power to regulate trade and commerce under s. 91(2) of the Constitution Act.

The court answered “yes” and “no”, respectively. The Cooperative System was held as being constitutional because it would not interfere with provinces’ parliamentary sovereignty; the model provincial act would need to be passed into law by each province and territory in order to become law in such jurisdictions. Furthermore, the CMSA was considered within the Federal Government’s “trade and commerce” power because it can be classified and characterized as a matter of genuine national importance that is distinct from provincial concerns; namely, “to control systemic risk having the potential to create material adverse effects on the Canadian economy”.

The proposed federal act would regulate the detection, prevention, and management of risk to the stability of the Canadian economy, as well as the protection against financial crimes. The provinces would continue to regulate the day-to-day aspects of securities trading.

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