On April 13–14, 2011, the Supreme Court of Canada will hear a reference involving a show down between the federal government and various provincial governments over the question of whether the proposed new national securities regulator is constitutionally valid.
Currently, the securities industry in Canada is primarily regulated through provincial securities commissions and the involvement of the federal government is minimal. However, the federal Conservative government is looking to change this by way of its proposed national securities commission. The federal government argues that the current system is outdated and inadequate to properly regulate what is now a national and international industry.
The federal proposal has been met with mixed views by the provinces. While Ontario is on record as supporting the initiative, a number of provinces have expressed reservations and Alberta and Quebec have actively opposed the concept. Both provinces submitted the issue to their respective Courts of Appeal by way of constitutional references and both the Alberta Court of Appeal (2011 ABCA 77) and the Quebec Court of Appeal (2011 QCCA 591) have recently held that the creation of a national regulator would be unconstitutional. In response in part to provincial concerns, the federal government has referred the question to the Supreme Court of Canada.
The issue turns upon whether the regulation of the domestic securities industry is a matter of “property and civil rights” which is an area of provincial jurisdiction under the Constitution Act, 1867 or whether the modern reality of the securities industry is such that it warrants a national approach that can be justified under the federal “trade and commerce” power in the Constitution.
The Alberta and Quebec Courts of Appeal both held that the regulation of the securities industry falls within provincial jurisdiction. In contrast, leading constitutional scholar, Peter Hogg, has taken the view that the federal government can regulate because of the national importance of the industry. In support of his position, he points to a previous Supreme Court of Canada decision that upheld the constitutionality of the federal competition laws.
The Supreme Court’s decision will have a significant impact on the regulation of the securities industry in Canada. Currently, Canada is the only G7 country without a national securities regulator. However, even if the Supreme Court finds in favour of the federal government, provinces will still have the ability to opt out of the national regulatory system although the utility of one or two provinces going it alone in the face of a national system is questionable.
Regardless, in addition to impacting the regulation of the securities industry in Canada, the Supreme Court decision will cast light on the ever changing balance of federal/provincial powers under the Canadian constitution, a debate that has been ongoing since the time of Confederation.