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Supreme Court of Canada Says No to National Securities Regulator
Posted in Commercial

On December 22, 2011, the Supreme Court of Canada released its decision in Reference Re: Securities Act, 2011 SCC 66.  As noted in a previous post, the Reference involved a show down between the federal government and various provincial governments over the question of whether the legislation creating a proposed new national securities regulator is constitutionally valid.

According to the Supreme Court, the answer to that question is no.  The federal government sought to justify the creation of a national regulator pursuant to Parliament’s power over trade and commerce as set out in s. 91(2) of the Constitution Act, 1867.  It argued that the reality of the modern securities industry is such that a coordinated national approach to regulation is required in order to adequately protect investors and to ensure the integrity and stability of the financial system.  While the Supreme Court recognized these important objectives, it held that the federal government had not established that securities law had so transformed as to now fall within federal jurisdiction.  The Court further held that the principal components of the legislation are concerned with the day-to-day regulation of securities contracts and, as such, deal with matters of provincial concern that fall under the heading of property and civil rights in the provinces.

In recent years, the Supreme Court has expressed reluctance to draw clear lines around heads of provincial and federal power under the Constitution Act, 1867 so as to create exclusive areas of jurisdiction.  Rather, the court has developed the “double aspect’ doctrine to permit the concurrent application of both federal and provincial legislation to subject matters that have both federal and provincial aspects.  As the Court noted in its recent decision concerning the Insite safe injection site this approach is more in keeping with modern Canadian constitutional interpretation which favours cooperative federalism.

However, the Court concluded in this case that the federal and provincial securities regulatory schemes could not co-exist because the proposed federal scheme was in fact intended to supplant the provincial schemes.  In its view, the federal legislation went beyond what could be justified under the federal trade and commerce power and constituted an impermissible intrusion into provincial jurisdiction.

The Court did suggest in closing that a cooperative approach remains available that would maintain provincial authority over securities regulation while at the same time permitting the federal government to deal with genuine national concerns.  However it remains to be seen whether there is an appetite amongst the provinces to work with the federal government in such a cooperative fashion given the apparent reluctance on the part of many of the provinces to cede any authority in the area of securities regulation.

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