This morning the Supreme Court released its decision in Reference re Pan-Canadian Securities Regulation, where the Court held that a national securities regulator as proposed in draft federal and model provincial legislation is constitutionally permissible, overturning the Quebec Court of Appeal's decision that held the proposed national regulator was not constitutional. Ontario, British Columbia, Saskatchewan, New Brunswick, Prince Edward Island and Yukon support the new system, whereas Quebec has led the opposition.
However, the Court's decision suggests that the amendment procedure in the scheme – whereby a council of federal and provincial ministers would agree to amendments that would then be implemented by Parliament and the provincial legislatures – could not prevent Parliament and the provincial legislatures from making amendments to their own legislation as they see fit.
The Supreme Court addressed two questions that the Quebec government referred to the Quebec Court of Appeal at first instance, and held as follows in respect of each:
1. The proposed single national securities regulator is authorized by the Canadian constitution. Under the proposal, Parliament will pass a statute that governs the system generally, and each province would pass a statute based on a "model statute", by which the province adopted the system. Each province would also agree to a memorandum that outlined certain procedures related to, among other things, amendments to the structure that would be agreed to by a council of ministers. The Court held that this system did not impermissibly fetter the provincial legislatures' discretion, because the memorandum could not do this, and the provinces would be free to amend the statutes they pass. Similarly, the system did not constitute an impermissible delegation with respect to amendments, because any amendments would need to be approved by the provincial legislatures.
2. The proposed single federal legislation to implement the national securities regulator is within the Federal government's authority to regulate trade and commerce pursuant to section 91(2) of the Constitution Act, 1867. The Court found the pith and substance of the proposed legislation was to detect, prevent and manage systemic risk to the Canadian economy, as well as to protect against financial crimes. This purpose limited the scope of federal powers under the draft legislation, but the Court found the legislation fell within that scope. Finally, the Court found that the manner in which the draft federal act delegated power to make regulations had no impact on its constitutionality, even though it delegated regulation-making power to the council of federal and provincial ministers. The Court held that delegating administrative powers to a body that sought provincial input was not incompatible with the principal of federalism.
While this decision nuances the proposed framework, it will allow Canada to move in the direction of a national securities regulator, which will likely allow for more efficient and effective securities regulation and enforcement. The issue of the implementation of the new regulatory framework is now back in the political forum. With a number of changes in provincial governments since the project was first initiated, the securities industry will be waiting for the relevant governments to confirm their support.