Reference re Pan-Canadian Securities Regulation: A Unified Approach to Securities Regulation
The Supreme Court of Canada (“SCC”) released a decision this week that paves the way for a pan-Canadian national securities regulation scheme. The decision in Reference re Pan-Canadian Securities Regulation, 2018 SCC 48 [Securities Reference] overturns an earlier ruling, Renvoi relative à la réglementation pancanadienne des valeurs mobilières, 2017 QCCA 756 by the Court of Appeal of Quebec (“QAC”) that declared a co-operative system among the federal government, the provinces, and the territories to regulate securities trading as unconstitutional under subsection 91(2) of the Constitution Act, 1867 (UK), 30 & 31 Vict, c 3 [Constitution Act]. The recent decision by the SCC rules that the suggested Canada-wide securities commission would respect provincial autonomy and not violate the division of powers as dictated by the Constitution Act.
Canada’s efforts to establish a national securities regulation body has been ongoing since the 1930s. The Constitution Act gives the federal government the power to legislate in matters of trade and commerce, but regulation over securities matters has traditionally been in the hands of individual provinces.
The current saga began in 2009, with the previous federal government drafting legislation that sought to establish a unified federal national securities regulator that would govern all provinces. Among other things, this body would regulate day-to-day aspects of trade regulation like registration requirements, prospectus filings, and disclosure obligations—all of which traditionally fall within the hands of the provinces (Securities Reference, para 11). Due to this conflict, the SCC was asked at the time to rule on the constitutional validity of such a plan. They determined in the Reference re Securities Act, 2011 SCC 66 [Reference 2011] decision that such a unilateral approach would ignore the role that provinces are entitled to in regulating securities trade. Although the federal government is entitled to preserve capital markets and maintain Canada’s financial stability,
[this] does not alter the basic nature of securities regulation which, as shown, remains primarily focused on local concerns of protecting investors and ensuring the fairness of the markets through regulation of participants. Viewing the Act as a whole, as we must, these local concerns remain the main thrust of the legislation—its pith and substance (Reference 2011, para 128).
The SCC instead suggested that the federal and provincial governments take a more co-operative approach, explaining that each level of government has limited jurisdiction and that a collaborative approach on the matter is best suited to fulfill the respective responsibilities within the bounds of the Constitution Act (Reference 2011, para 131).
In response to this decision, the federal government, along with Ontario, British Columbia, Saskatchewan, Prince Edward Island, New Brunswick, and the Yukon, created a Cooperative Capital Markets Regulatory System (“CCMRS”), which was “designed to streamline the capital markets regulatory framework to protect investors, foster efficient capital markets and manage systemic risk while preserving strengths of the current system” (About Page, CCMRS). The model consists of a provincial and territorial statute, called the Capital Markets Act, which addressed the local aspects of securities trade, and a federal statute, called the Capital Markets Stability Act, which addresses broader systemic risks to the nation’s economic stability. It also created a national regulatory body that was responsible for administering the regime. This regulatory body would operate under the supervision of a Council of Ministers, comprised of the federal Minister of Finance and provincial counterparts who are responsible for capital markets regulation in their respective jurisdictions.
In 2015, the Quebec government referred the matter to the CAQ to determine two questions: firstly, whether the proposed regulatory model infringed on their sovereignty by compelling the province to enact the provincial Capital Markets Act statute and make the province’s ability to amend the statue contingent upon approval by the Council of Ministers; and secondly, whether the proposed federal statute went beyond the trade and commerce powers conferred under section 91(2) of the Constitution Act and was thus ultra vires. The CAQ answered the first question in the affirmative and in response to the second question, stated that provisions of the federal statute that set out the role of the Council of Ministers in making federal regulations was ultra vires Parliament. The Attorney General of Canada then appealed the CAQ decision to the SCC.
The Supreme Court Decision
The SCC had two questions to answer:
- 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”?
- 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? (Securities Reference, para 132)
As for the first question, the SCC decided that the CCMRS does not improperly limit the provincial and territorial legislatures’ parliamentary sovereignty. The court determined that the Council of Ministers’ role is not to compel the provincial legislatures to enact the Capital Markets Act as the Council deems fit, but instead is limited to simply propose amendments to the said statute. The SCC explains that the CAQ’s position on this issue rests on two erroneous premises: firstly, that the regulatory model intends to bind the legislatures of the participating provinces; and secondly the regime is capable of doing so (Securities Reference, para 48). The SCC clearly states that both of these premises are incorrect. The Capital Markets Act will always be subject to legislative approval, and the principle of parliamentary sovereignty does not allow the executive branch of government to interfere with the legislative branch’s power to enact or amend legislation. Thus, “[a]n executive agreement that purports to bind the parties’ respective legislatures cannot, therefore, have any such effect” (Securities Reference, para 53).
In addressing the second question, the SCC ruled that the federal Parliament “has the power to delegate authority to make rules and regulations ‘in the manner it chooses, to whom it chooses’” (Securities Reference, para 84). As such, the Court found no issue with the fact that the federal Capital Markets Stability Act included provisions that allowed the Council of Ministers to create federal regulations. Again, the court resorts to the principle of parliamentary sovereignty and outlines the legislatures’ authority to delegate legislative power. The SCC states,
In exercising its sovereign legislative powers, Parliament has the authority to confer on a statutory body—in this case, the Council of Ministers—the power to approve or reject proposed subordinate regulations, even if some members of that body are representatives of certain provinces. The delegation of administrative powers in a manner solicitous of (or even dependent upon) provincial input is in no way incompatible with the principle of federalism (Securities Reference, para 126).
It is important to note that the SCC has not opened the door to take ultra vires jurisdiction and make it intra vires. Instead, the court has suggested that there is a path of co-operative federalism available for the federal, provincial, and territorial governments to work together and yet remain within the bounds of the constitution.
By answering these questions, the SCC opens the door for a pan-Canadian national regulator that would work in conjunction with the federal government, the provinces, and the territories and impose a unified approach to the regulation of capital markets.
The constitutional principle of federalism is still an important factor in assessing government actions. Although the constitutional division of powers doctrine does not get as much attention as the Canadian Charter of Rights and Freedoms, this decision demonstrates its fundamental importance today.
The SCC has walked a tight line to ensure that the principles of federalism are upheld. The 2011 proposal to create a national securities regulator would have allowed the federal government to create a body that infringed upon provincial sovereignty. The latest proposal of a co-operative arrangement between the federal government and the provinces and territories has found favour with the court. The efficacy of such a regime remains to be seen as there may be new problems that arise with this approach. Only five provinces and one territory have signed on to the CCMRS thus far and it is conceivable that a jurisdiction may find it advantageous to remain outside of the national regulations to avoid red tape. The willingness of other provinces and territories to join the regime will be indicative of its overall success.