The Supreme Court of Canada has rejected the federal government’s bid to create a national securities regulator.
The top court ruled that the government’s proposed securities act is unconstitutional under s. 91(2) of the Constitution Act.
“Canada has shown that aspects of the securities market are national in scope and affect the country as a whole. However, considered in its entirety, the proposed act is chiefly directed at protecting investors and ensuring the fairness of capital markets through the day-to-day regulation of issuers and other participants in the securities market,” the court stated in its ruling.
“These matters have long been considered local concerns subject to provincial legislative competence over property and civil rights within the province. Canada has not shown that the securities market has so changed that the regulation of all aspects of securities now falls within the general branch of Parliament’s power over trade and commerce under s. 91(2).”
But Jeremy Fraiberg, a partner at Osler Hoskin & Harcourt LLP, says the ruling wasn’t a total blow to the federal government as the court made it clear that a co-operative approach between the federal government and the provinces can still be achieved.
“This decision isn’t necessarily a huge setback because if provinces were going to co-operate under the old scheme, they could co-operate under a new scheme that would pass constitutional muster,” Fraiberg tells Legal Feeds. “I think the difference is that under what was proposed, the federal government would’ve had the endorsement of the Supreme Court that it alone had the power to do this. But now it’s clear that to do something along these lines, you actually need the collaboration.”
But collaboration from all provinces and territories could be tricky as the appeal courts in Alberta and Quebec previously rejected the idea of a national securities regulator.
However, without the top court’s support, the federal government can’t impose a national regulator on the rest of Canada. “The original scheme, basically — had it been blessed — would have said, ‘Look, the feds have the power to do this. Who wants to come on board?’ Now what the Supreme Court is saying is, well, the feds actually don’t have the power to do this as currently drafted,” says Fraiberg.
The ruling stated: “The provisions of the proposed act, viewed as a whole, compel a negative response. The act chiefly regulates contracts and property matters within each of the provinces and territories, overlain by some measures directed at the control of the Canadian securities market as a whole that may transcend intraprovincial regulation of property and civil rights. A federal scheme adopted from the latter, distinctly federal, perspective would fall within the circumscribed scope of the general trade and commerce power. But the provisions of the act that relate to these concerns, although perhaps valid on their own, cannot lend constitutional validity to the full extent of the proposed act. Based on the record before us, the day-to-day regulation of all aspects of trading in securities and the conduct of those engaged in this field of activity that the act would sweep into the federal sphere simply cannot be described as a matter that is truly national in importance and scope making it qualitatively different from provincial concerns.”
The court added: “The need to prevent and respond to systemic risk may support federal legislation pertaining to the national problem raised by this phenomenon, but it 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.”
The top court ruled that the government’s proposed securities act is unconstitutional under s. 91(2) of the Constitution Act.
“Canada has shown that aspects of the securities market are national in scope and affect the country as a whole. However, considered in its entirety, the proposed act is chiefly directed at protecting investors and ensuring the fairness of capital markets through the day-to-day regulation of issuers and other participants in the securities market,” the court stated in its ruling.
“These matters have long been considered local concerns subject to provincial legislative competence over property and civil rights within the province. Canada has not shown that the securities market has so changed that the regulation of all aspects of securities now falls within the general branch of Parliament’s power over trade and commerce under s. 91(2).”
But Jeremy Fraiberg, a partner at Osler Hoskin & Harcourt LLP, says the ruling wasn’t a total blow to the federal government as the court made it clear that a co-operative approach between the federal government and the provinces can still be achieved.
“This decision isn’t necessarily a huge setback because if provinces were going to co-operate under the old scheme, they could co-operate under a new scheme that would pass constitutional muster,” Fraiberg tells Legal Feeds. “I think the difference is that under what was proposed, the federal government would’ve had the endorsement of the Supreme Court that it alone had the power to do this. But now it’s clear that to do something along these lines, you actually need the collaboration.”
But collaboration from all provinces and territories could be tricky as the appeal courts in Alberta and Quebec previously rejected the idea of a national securities regulator.
However, without the top court’s support, the federal government can’t impose a national regulator on the rest of Canada. “The original scheme, basically — had it been blessed — would have said, ‘Look, the feds have the power to do this. Who wants to come on board?’ Now what the Supreme Court is saying is, well, the feds actually don’t have the power to do this as currently drafted,” says Fraiberg.
The ruling stated: “The provisions of the proposed act, viewed as a whole, compel a negative response. The act chiefly regulates contracts and property matters within each of the provinces and territories, overlain by some measures directed at the control of the Canadian securities market as a whole that may transcend intraprovincial regulation of property and civil rights. A federal scheme adopted from the latter, distinctly federal, perspective would fall within the circumscribed scope of the general trade and commerce power. But the provisions of the act that relate to these concerns, although perhaps valid on their own, cannot lend constitutional validity to the full extent of the proposed act. Based on the record before us, the day-to-day regulation of all aspects of trading in securities and the conduct of those engaged in this field of activity that the act would sweep into the federal sphere simply cannot be described as a matter that is truly national in importance and scope making it qualitatively different from provincial concerns.”
The court added: “The need to prevent and respond to systemic risk may support federal legislation pertaining to the national problem raised by this phenomenon, but it 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.”
