2018 SCC decision, Reference re Pan-Canadian Securities Regulation, gives green light to unified approach to securities regulation
In a recent paper published in the Banking and Finance Law Review, a journal that provides insight into issues confronting the Canadian legal and financial community, EKB discussed the development of a national securities regime in light of the 2018 Supreme Court of Canada (“SCC”) decision Reference re Pan-Canadian Securities Regulation.
In this article, we provide a brief summary of the Banking and Finance Law Review paper. You can download EKB’s full paper here: “SCC Paves the Way for National Securities Regulator, but What Will It Look Like?”
Patchwork regulatory schemes create inefficiencies
Canada’s economy has become increasingly globalized and technology-driven. Despite this dynamism, Canada lags behind the rest of the G20 as the only member that does not nationally regulate the trading of securities.
As a result of the constitutional division of powers in Canada between federal and provincial government, Canada is a “veritable patchwork of regulatory schemes” with each province and territory having its own securities laws and maintaining its own regulatory agency. This fragmentation makes compliance an expensive, duplicative, and time-consuming process.
To their credit, regulators have long recognized these inefficiencies and sought to develop a more integrated, national approach. While previous attempts at creating a national regulator have not succeeded in realizing this goal, a recent decision from Canada’s highest court paves the way towards a more unified approach to securities regulation.
Decision of the Supreme Court of Canada
On November 9, 2018, the SCC unanimously upheld the constitutionality of a proposed cooperative capital markets regulatory system (“Cooperative System”) .
The decision overturned a Quebec Court of Appeal decision which had previously considered the constitutionality of a “Memorandum of Agreement regarding the Cooperative Capital Markets Regulatory System” (“MOA”) and concluded that the MOA was unconstitutional for two reasons: 1) the MOA entrenched on parliamentary sovereignty by prohibiting participating provinces from amending their securities legislation without the consent of the Council of Ministers and by requiring the implementation of any amendments made by the Council of Ministers; and 2) the Draft Federal Act permitted provinces to exercise veto power over the federal government.
The SCC addressed both questions in their decision, concluding that the MOA was neither capable of, nor purported to, bind any province. The SCC stated: ‘‘as is clear from the foregoing, legislatures in Canada are constrained only by the Constitution — and are otherwise free to enact laws that they consider desirable and politically appropriate.” On the second point, the SCC concluded that the intention of the Draft Federal Act was to complement, not displace, provincial and territorial securities legislation. In the paper, EKB explores the SCC’s reasoning at greater length.
This decision removes a cloud of legal uncertainty that has been hanging over the initiative to develop a national regulator and cooperative system. However, the extent to which such a system will be successfully implemented remains uncertain and largely depends on political, not legal, manoeuvring. Legislative approval must still be obtained, and there is the possibility that the draft Acts will see changes. As the authors note in the paper:
“It will thus be up to provincial and federal legislatures to put forth their best efforts in ensuring that the Acts, and the Cooperative System as a whole, do not stray too far from the path that has been laid out.”
Practical benefits of a cooperative system
Regardless of its final form, the Cooperative System must generate net benefits. Ultimately, the authors note this “will depend on the decision of the non-participating jurisdictions to join or at least work with the Cooperative System.”
Market efficiency is the benefit most strongly put forward as justification for the overarching goal of unification. The paper explores how this could benefit various parties including issuers, who “should experience a reduction in the cost to qualify their securities for sale in multiple provinces and to go public”. Other beneficiaries of a more efficient system are likely to include retail investors. The Cooperative System’s website states that this initiative will also increase protection for investors ‘‘through a combination of more consistent and active compliance activities, more effective enforcement against misconduct and improved coordination with police and prosecution authorities both within and outside Canada.”
Success of the Cooperative System depends, fittingly, on cooperation
The extent to which the Cooperative System succeeds in its ambitious goals will hinge on active participation and cooperation among federal, provincial and territorial jurisdictions.
For more in-depth insight into the SCC’s decision, the scope and limitations of the Cooperative System, and the implications for capital markets, read EKB’s full article by Alan Monk, Jake Schroeder, and Katie Gordon here.
 SCC Paves the Way for National Securities Regulator, but What Will It Look Like?”, Banking & Finance Law Review, Vol. 34, No.2, 2019
 2018 Reference, supra note 13 at para. 71.