The federal government continues to push ahead on its plan for a national securities regulator in the face of persistent and growing provincial opposition. In 2010, the Canadian Securities Transition Office reached several key milestones with the release of its draft Canadian Securities Act and the delivery of the Transition Plan for the Canadian Securities Regulatory Authority, which establishes a roadmap for transitioning the provincial regulators into a new agency with a common organizational structure.
Miller Thomson Analysis
Despite the federal government’s progress in the last year, the federal initiative has recently suffered a public blow, as both the Québec Court of Appeal and Alberta Court of Appeal ruled in March, on substantially the same grounds, that the proposed Act represents an unconstitutional exercise of federal legislative powers.
At the Court of Appeal level, the Attorney General of Canada argued vigorously that the Parliament of Canada has concurrent jurisdiction with the provinces and territories to enact comprehensive legislation regulating the securities industry under its trade and commerce power. The Attorney General argued, amongst other things, that the regulation of capital markets raises an economic concern of genuine national interest, and that the proposed national securities regime is superior to the existing patchwork system.
The Courts, however, did not entertain the federal government’s position, stating that it is not appropriate nor necessary to assess the merits of a national system of securities regulation. Rather, the central issue is whether the proposed Act can be constitutionally enacted by the Parliament of Canada. On that issue, the Courts held that the proposed Act does not meet the test set out by the Supreme Court of Canada in General Motors of Canada Ltd. v. City National Leasing, which endorsed the following five factors as hallmarks of legislation validly enacted under the federal trade and commerce power:
- The impugned legislation must be part of a regulatory scheme.
- The scheme must be monitored by the continuing oversight of a regulatory body.
- The legislation must be concerned with trade as a whole rather than with a particular industry.
- The legislation should be of a nature that provinces jointly or severally would be constitutionally incapable of enacting.
- The failure to include one or more provinces in a legislative scheme would jeopardize the successful operation of the scheme in other parts of the country.
Specifically, the Courts found that the proposed Act fails to meet the final three factors because: (1) the proposed Act regulates the trading of securities and not trade and commerce in general; (2) the provinces have shown over the decades that it can successfully regulate the securities industry under its property and civil rights jurisdiction; and (3) the unanimous participation of the provinces and territories is not necessary to attain the objectives of the proposed Act.
In spite of the adverse court decisions to date, the final decision rests with the Supreme Court of Canada as it prepares to weigh in on the constitutional question. Oral arguments were heard in April, and all interested parties are eagerly awaiting the Court’s decision, which should be determinative of the two-year debate over the federal government’s plan to install a national securities regulator.