Prospects for Cooperation: The Reference Re Securities Act
The Supreme Court recently released its opinion on the federal government’s proposed Securities Act, deciding that the proposal is not a valid exercise of federal power under the general branch of the trade and commerce power (see Reference re Securities Act, 2011 SCC 66). Rather than rejecting the idea of a national securities regulator per se, the Court’s opinion seems to lay the groundwork for a cooperative solution to securities regulation, leaving room for both provincial and federal regulation in this field.
Cooperative Federalism: An Introduction
Cooperative federalism is the Court’s response to the apparent conflict between the federal power over trade and commerce, and the provincial power under property and civil rights. The Court’s analysis would leave the day-to-day regulation of the securities industry in the hands of the provinces (paras 112, 116), while the regulation of matters genuinely national in scope and qualitatively distinct from those falling under property and civil rights fall to the federal government (para 70). Under this distinction, the Court said the regulation of brokers or investment advisors would seem to fall to the provinces (para 112), while the control of systemic risk and nationwide data collection would be candidates for federal jurisdiction (para 102).
This framework is the answer to those who would say that accepting the federal proposal would wholly eviscerate provincial jurisdiction over property and civil rights. The fear, articulated during oral argument by LeBel J, was that the proposal would upset our federalist structure by leading us towards a unitary state in respect of economic matters. Instead of evisceration, the Court’s opinion protects provincial scope for regulation, but does so without invoking the unwieldy interjurisdictional immunity doctrine.
The re-emphasis of the “qualitatively distinct” requirement (see AG (Canada) v Canadian National Transportation,  2 SCR 206, 267) prevents the federal government from invading fields that the provinces have traditionally regulated. Much was said during argument about there being no such thing as “constitutional squatter’s rights” in division of powers cases, but it is hard to escape the conclusion that this requirement creates a sort of presumption in favour of provincial jurisdiction.
The decision sends a message to the federal government that if it wants to create a national securities regulator, it cannot run roughshod over provincial jurisdiction. It is commendable as a means of forcing the parties back to the negotiating table to come up with a new solution to the problem. But for those interested in what a constitutionally valid national securities regulator might look like, the Court’s opinion does not go very far. Outside of the areas of securities law referred to above, the Court was silent on what other aspects of the securities markets would fall to the provinces or federal government. Prospectus requirements, continuous disclosure obligations, and takeover rules are some crucial subsets of securities law that the Court failed to address.
Of course, the Court did explicitly say that it was not going to outline the contours of an alternative scheme for a national securities regulator (para 132). I don’t want to say that we should throw out the Court’s roadmap for cooperative federalism in securities regulation simply because some of the borders between provincial and federal jurisdiction will be hard to draw. I only mean to emphasize that these borders will be difficult to draw. The ease with which the Supreme Court states the distinctions belies the intensity of the prospective disagreements in this regard.
It is difficult to isolate the aspects of securities regulation that engage the kinds of systemic risks that would allow for valid federal regulation. I believe each of these fields may have aspects that engage day-to-day concerns, and others that engage systemic risks, perhaps justifying both federal and provincial regulation over different aspects of securities law.
Thus, what started out as a project to simplify the regulation of securities in Canada would only add one more regulator – a national one – to the mix. This would only serve to complicate securities regulation, and perhaps without adding much benefit in terms of quality of protection for the market and investors. The federal government must seriously question whether adding a national securities regulator, under the new regime of cooperative federalism, will further the interests of investors and the capital markets or simply attach additional burdens of compliance to an already onerous process.