Reference re Securities Act

Reference re Securities Act
Collection
Supreme Court Judgments
Date
2011-12-22
Neutral citation
2011 SCC 66
Report
[2011] 3 SCR 837
Case number
33718
Judges
McLachlin, Beverley; Binnie, William Ian Corneil; LeBel, Louis; Deschamps, Marie; Fish, Morris J.; Abella, Rosalie Silberman; Charron, Louise; Rothstein, Marshall; Cromwell, Thomas Albert
On appeal from
Canada
Subjects
Constitutional law
Notes
SCC Case Information: 33718
Decision Content
SUPREME COURT OF CANADA
Citation: Reference re Securities Act, 2011 SCC 66, [2011] 3 S.C.R. 837
Date: 20111222
Docket: 33718
IN THE MATTER OF a Reference by the Governor in Council
concerning the proposed Canadian Securities Act, as set out in
Order in Council P.C. 2010-667, dated May 26, 2010
Coram: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ.
Reasons:
(paras. 1 to 134)
The Court
Reference re Securities Act, 2011 SCC 66, [2011] 3 S.C.R. 837
IN THE MATTER OF a Reference by the Governor in Council pursuant to section 53 of the Supreme Court Act, R.S.C. 1985, c. S-26 , as set out in Order in Council P.C. 2010‑667, dated May 26, 2010, concerning the Proposed Canadian Securities Act
Indexed as: Reference re Securities Act
2011 SCC 66
File No.: 33718.
2011: April 13, 14; 2011: December 22.
Present: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ.
reference by governor in council
Constitutional law — Division of powers — Trade and commerce — Securities — Whether proposed legislation valid under general branch of federal power to regulate trade and commerce — Constitution Act, 1867, s. 91(2) .
Pursuant to s. 53 of the Supreme Court Act , the Governor in Council has sought an advisory opinion from the Court as to whether the proposed Securities Act set out in Order in Council P.C. 2010‑667 falls within the legislative authority of the Parliament of Canada.
The preamble of the proposed Act states that its purpose is to create a single Canadian securities regulator. More broadly, s. 9 states that the purposes of the Act are to provide investor protection, to foster fair, efficient and competitive capital markets and to contribute to the integrity and stability of Canada’s financial system. The Act includes registration requirements for securities dealers, prospectus filing requirements, disclosure requirements, specific duties for market participants, a framework for the regulation of derivatives, civil remedies and regulatory and criminal offences pertaining to securities. The Act does not unilaterally impose a unified system, but permits provinces and territories to opt in, with the hope of creating an effective unified national securities regulation system.
Canada, joined by Ontario and several interveners, argues that the Act, viewed in its entirety, falls within the general branch of Parliament’s power to regulate trade and commerce under s. 91(2) of the Constitution Act, 1867 . Alberta, Quebec, Manitoba, New Brunswick and other interveners argue that the scheme falls under the provincial power over property and civil rights under s. 92(13) of the Constitution Act, 1867 and trenches on provincial legislative jurisdiction over matters of a merely local or private nature (s. 92(16) ), namely the regulation of contracts, property and professions.
Held: The Securities Act as presently drafted is not valid under the general branch of the federal power to regulate trade and commerce under s. 91(2) of the Constitution Act, 1867 .
To determine the constitutional validity of legislation from a division of powers perspective, the pith and substance analysis requires the courts to look at the purpose and effects of the law. The inquiry then turns to whether the legislation falls under the head of power said to support it. If the pith and substance of the legislation is classified as falling under a head of power assigned to the adopting level of government, the legislation is valid. When a matter possesses both federal and provincial aspects, the double aspect doctrine may allow for the concurrent application of both federal and provincial legislation.
Parliament’s power over the regulation of trade and commerce under s. 91(2) of the Constitution Act, 1867 has two branches — the power over interprovincial commerce and the general trade and commerce power. Only the general trade and commerce power is invoked by Canada in this reference. This power, while on its face broad, is necessarily circumscribed. It cannot be used in a way that denies the provincial legislatures the power to regulate local matters and industries within their boundaries. Nor can the power of the provinces to regulate property and civil rights within the provinces deprive the federal Parliament of its powers under s. 91(2) to legislate on matters of genuine national importance and scope — matters that transcend the local and concern Canada as a whole.
As held in General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641, to fall under the general branch of s. 91(2) , legislation must engage the national interest in a manner that is qualitatively different from provincial concerns. Whether a law is validly adopted under the general trade and commerce power may be ascertained by asking (1) whether the law is part of a general regulatory scheme; (2) whether the scheme is under the oversight of a regulatory agency; (3) whether the legislation is concerned with trade as a whole rather than with a particular industry; (4) whether it is of such a nature that provinces, acting alone or in concert, would be constitutionally incapable of enacting it; and (5) whether the legislative scheme is such that the failure to include one or more provinces or localities in the scheme would jeopardize its successful operation in other parts of the country. These indicia of validity are not exhaustive, nor is it necessary that they be present in every case.
Here, the main thrust of the Act is to regulate, on an exclusive basis, all aspects of securities trading in Canada, including the trades and occupations related to securities in each of the provinces. The purpose of the Act is to implement a comprehensive Canadian regime to regulate securities with a view to protect investors, to promote fair, efficient and competitive capital markets and to ensure the integrity and stability of the financial system. Its effects would be to duplicate and displace the existing provincial and territorial securities regimes.
Applying the settled case law, the Act, viewed in its entirety, cannot be classified as falling within the general trade and commerce power. Its main thrust does not address a matter of genuine national importance and scope going to trade as a whole in a way that is distinct and different from provincial concerns. Canada has not established that the area of securities has been so transformed that it now falls to be regulated under the federal head of power. The preservation of capital markets to fuel Canada’s economy and maintain Canada’s financial stability is a matter that goes beyond a specific industry and engages trade as a whole. However, the Act is chiefly concerned with the day‑to‑day regulation of all aspects of contracts for securities within the provinces, including all aspects of public protection and professional competences. These matters remain essentially provincial concerns falling within property and civil rights in the provinces and are not related to trade as a whole. Specific aspects of the Act aimed at addressing matters of genuine national importance and scope going to trade as a whole in a way that is distinct from provincial concerns, including management of systemic risk and national data collection, appear to be related to the general trade and commerce power. With respect to these aspects of the Act, the provinces, acting alone or in concert, lack the constitutional capacity to sustain a viable national scheme. Viewed as a whole, however, the Act is not chiefly aimed at genuine federal concerns. It is principally directed at the day‑to‑day regulation of all aspects of securities and, in this respect, it would not founder if a particular province failed to participate in the federal scheme.
In sum, the proposed Act overreaches genuine national concerns. While the economic importance and pervasive character of the securities market may, in principle, support federal intervention that is qualitatively different from what the provinces can do, they do not justify a wholesale takeover of the regulation of the securities industry which is the ultimate consequence of the proposed federal legislation. A cooperative approach that permits a scheme recognizing the essentially provincial nature of securities regulation while allowing Parliament to deal with genuinely national concerns remains available and is supported by Canadian constitutional principles and by the practice adopted by the federal and provincial governments in other fields of activities.
Cases Cited
Applied: General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641; referred to: Reference re Securities Act (Canada), 2011 ABCA 77, 41 Alta. L.R. (5th) 145; Québec (Procureure générale) v. Canada (Procureure générale), 2011 QCCA 591 (CanLII); Lymburn v. Mayland, [1932] A.C. 318; Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161; Global Securities Corp. v. British Columbia (Securities Commission), 2000 SCC 21, [2000] 1 S.C.R. 494; R. v. W. McKenzie Securities Ltd. (1966), 56 D.L.R. (2d) 56, leave to appeal refused, [1966] S.C.R. ix (sub nom. West & Dubros v. The Queen); Gregory & Co. v. Quebec Securities Commission, [1961] S.C.R. 584; Québec (Sa Majesté du Chef) v. Ontario Securities Commission (1992), 10 O.R. (3d) 577, leave to appeal refused, [1993] 2 S.C.R. x (sub nom. R. du chef du Québec v. Ontario Securities Commission); Bennett v. British Columbia (Securities Commission) (1992), 94 D.L.R. (4th) 339; Bell Canada v. Quebec (Commission de la santé et de la sécurité du travail), [1988] 1 S.C.R. 749; Smith v. The Queen, [1960] S.C.R. 776; Citizens Insurance Co. of Canada v. Parsons (1881), 7 App. Cas. 96; Re Wakim; Ex parte McNally, [1999] HCA 27, 198 C.L.R. 511; R. v. Hughes, [2000] HCA 22, 202 C.L.R. 535; Reference re Secession of Quebec, [1998] 2 S.C.R. 217; Reference re Remuneration of Judges of the Provincial Court of Prince Edward Island, [1997] 3 S.C.R. 3; Northern Telecom Canada Ltd. v. Communication Workers of Canada, [1983] 1 S.C.R. 733; Attorney‑General for Canada v. Attorney‑General for Ontario, [1937] A.C. 326; Hodge v. The Queen (1883), 9 App. Cas. 117; Edwards v. Attorney‑General for Canada, [1930] A.C. 124; Reference re Employment Insurance Act (Can.), ss. 22 and 23, 2005 SCC 56, [2005] 2 S.C.R. 669; OPSEU v. Ontario (Attorney General), [1987] 2 S.C.R. 2; P.E.I. Potato Marketing Board v. H. B. Willis Inc., [1952] 2 S.C.R. 392; Lord’s Day Alliance of Canada v. Attorney General of British Columbia, [1959] S.C.R. 497; Coughlin v. Ontario Highway Transport Board, [1968] S.C.R. 569; Fédération des producteurs de volailles du Québec v. Pelland, 2005 SCC 20, [2005] 1 S.C.R. 292; Canadian Western Bank v. Alberta, 2007 SCC 22, [2007] 2 S.C.R. 3; RJR‑MacDonald Inc. v. Canada (Attorney General), [1995] 3 S.C.R. 199; Quebec (Attorney General) v. Lacombe, 2010 SCC 38, [2010] 2 S.C.R. 453; Kitkatla Band v. British Columbia (Minister of Small Business, Tourism and Culture), 2002 SCC 31, [2002] 2 S.C.R. 146; Reference re Firearms Act (Can.), 2000 SCC 31, [2000] 1 S.C.R. 783; Re the Initiative and Referendum Act, [1919] A.C. 935; Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, [1931] S.C.R. 357; Attorney General of Canada v. Canadian National Transportation, Ltd., [1983] 2 S.C.R. 206; MacDonald v. Vapor Canada Ltd., [1977] 2 S.C.R. 134; John Deere Plow Co. v. Wharton, [1915] A.C. 330; Kirkbi AG v. Ritvik Holdings Inc., 2005 SCC 65, [2005] 3 S.C.R. 302; Ontario Hydro v. Ontario (Labour Relations Board), [1993] 3 S.C.R. 327; Duplain v. Cameron, [1961] S.C.R. 693.
Statutes and Regulations Cited
Bank Act, S.C. 1991, c. 46 .
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3 , Part XII.
Basic Law (F.R.G.), art. 72(1), (2).
Budget Implementation Act, 2009, S.C. 2009, c. 2 .
Canada Business Corporations Act, R.S.C. 1985, c. C‑44 .
Constitution Act, 1867, ss. 91 , 91(2) , (15) , (17) , (18) , (21) , (27) , 92 , 92(10) (a), (13) , (16) , 95 .
Criminal Code, R.S.C. 1985, c. C‑46, ss. 380(2) , 382 , 382.1 , 383 , 384 , 400 .
Investment Canada Act, R.S.C. 1985, c. 28 (1st Supp .).
National Securities Markets Improvement Act of 1996, Pub. L. 104‑290, § 102, 110 Stat. 3416, 3417 [amending Securities Act of 1933, s. 18 (now 15 U.S.C. § 77r)].
Payment Clearing and Settlement Act, S.C. 1996, c. 6, Sch .
Proposed Canadian Securities Act, Order in Council P.C. 2010‑667, preamble, ss. 9, Parts 1 to 3, 64, 66, Part 4, 73, 74, Part 5, 76, Parts 6 and 7, 89, 90, Parts 8 to 10, 109 to 113, 114, 116, 117(1), (2), 126(1), Part 11, 224, 228(4)(c).
Securities Act of 1933, s. 18 [now 15 U.S.C. § 77r].
Supreme Court Act, R.S.C. 1985, c. S‑26, s. 53 .
Telecommunications Act, S.C. 1993, c. 38 .
United States Constitution, arts. I, § 8, cl. 3, VI, cl. 2.
Authors Cited
Canada. Consumer and Corporate Affairs. Proposals for a Securities Market Law for Canada, vol. 2 — Commentary. Ottawa: Minister of Supply and Services Canada, 1979.
Canada. Memorandum of Understanding Regarding the Regulation of Securities in Canada (draft), reproduced at (1994), 17 OSCB 4401.
Canada. Royal Commission on Banking and Finance. Report of the Royal Commission on Banking and Finance. Ottawa: Queen’s Printer, 1964.
Canada. Royal Commission on Price Spreads. Report of the Royal Commission on Price Spreads. Ottawa: King’s Printer, 1935.
Canada. Royal Commission on the Economic Union and Development Prospects for Canada. Report, vol. 3. Ottawa: Minister of Supply and Services Canada, 1985.
Crawford Panel on a Single Canadian Securities Regulator. Blueprint For A Canadian Securities Commission — Final Paper. Ottawa: Government of Ontario, 2006.
Expert Panel on Securities Regulation. Creating an Advantage in Global Capital Markets — Final Report and Recommendations. Ottawa: Department of Finance, 2009.
Gillen, Mark R. Securities Regulation in Canada, 3rd ed. Toronto: Thomson/Carswell, 2007.
Hogg, Peter W. Constitutional Law of Canada, 5th ed. Supp., vol. 1. Scarborough, Ont.: Thomson/Carswell, 2007 (updated 2010, release 1).
Howard, John L. “Securities Regulation: Structure and Process”, in Proposals for a Securities Market Law for Canada, vol. 3 — Background Papers. Ottawa: Minister of Supply and Services Canada, 1979, 1607.
Ontario Securities Commission. “CANSEC: Legal and Administrative Concepts” (November 1967), OSCB 61.
Wise Persons’ Committee — Committee to Review the Structure of Securities Regulation in Canada. It’s Time. Ottawa: Department of Finance, 2003.
REFERENCE by the Governor in Council, pursuant to s. 53 of the Supreme Court Act , concerning the constitutional validity of the proposed Securities Act. The question referred to was answered as follows: The Securities Act as presently drafted is not valid under the general branch of the federal power to regulate trade and commerce under s. 91(2) of the Constitution Act, 1867 .
Robert J. Frater, Peter W. Hogg, Q.C., Claude Joyal and Alexander Pless, for the Attorney General of Canada.
Janet E. Minor, Jennifer A. August and S. Zachary Green, for the intervener the Attorney General of Ontario.
Jean‑Yves Bernard, France Bonsaint and Hugo Jean, for the intervener the Attorney General of Quebec.
Gaétan Migneault, for the intervener the Attorney General of New Brunswick.
Eugene B. Szach and Nathaniel Carnegie, for the intervener the Attorney General of Manitoba.
George H. Copley, Q.C., Nancy E. Brown and Donald Sutherland, for the intervener the Attorney General of British Columbia.
Graeme G. Mitchell, Q.C., for the intervener the Attorney General for Saskatchewan.
E. David D. Tavender, Q.C., D. Brian Foster, Q.C., L. Christine Enns and Jordan C. Milne, for the intervener the Attorney General of Alberta.
Andrew K. Lokan, Massimo C. Starnino and Michael Fenrick, for the intervener the Canadian Foundation for Advancement of Investor Rights.
Luis Sarabia, Matthew Milne-Smith and David Stolow, for the intervener the Canadian Coalition for Good Governance.
John B. Laskin and Darryl C. Patterson, for the intervener the Investment Industry Association of Canada.
Mahmud Jamal, Éric Préfontaine and Raphael T. Eghan, for the intervener the Canadian Bankers Association.
Kelley M. McKinnon and Brent J. Arnold, for the intervener the Ontario Teachers’ Pension Plan Board.
Guy Paquette and Vanessa O’Connell-Chrétien, for the intervener Mouvement d’éducation et de défense des actionnaires.
Raymond Doray and Mathieu Quenneville, for the intervener Barreau du Québec.
Sébastien Grammond and Luc Giroux, for the intervener the Institute for Governance of Private and Public Organizations.
The following is the opinion delivered by
The Court —
I. Overview of the Court’s Opinion
[1] This reference under s. 53 of the Supreme Court Act, R.S.C. 1985, c. S‑26 , requires the Court to determine whether the proposed Securities Act set out in Order in Council P.C. 2010-667 falls within the legislative authority of the Parliament of Canada.
[2] The proposed Securities Act represents a comprehensive foray by Parliament into the realm of securities regulation. If validly adopted, it will create a single scheme governing the trade of securities throughout Canada subject to the oversight of a single national securities regulator.
[3] The government of Canada (“Canada”), supported by the Attorney General of Ontario (“Ontario”) and other interveners, argues that the entirety of the Act can be sustained as a proper exercise of the general branch of Parliament’s legislative power to regulate trade and commerce, grounded in s. 91(2) of the Constitution Act, 1867 . The Attorney General of Alberta, the Attorney General of Quebec and other provincial attorneys general and interveners oppose the Act, arguing that securities regulation is a matter falling within s. 92(13) of the Constitution Act, 1867 , which gives the provinces legislative jurisdiction over property and civil rights within their borders. Certain opponents of the Act also submit that securities regulation relates to provincial jurisdiction over matters of a merely local or private nature, under s. 92(16) of the Constitution Act, 1867 .
[4] Canada does not challenge the proposition that certain aspects of securities regulation fall within provincial authority in relation to property and civil rights in the provinces. Nor does Canada argue that any provisions of the Act fall within federal legislative authority because they are necessarily incidental to the exercise of federal powers. Canada’s contention is simply that the securities market has evolved from a provincial matter to a national matter affecting the country as a whole and that, as a consequence, the federal general trade and commerce power gives Parliament legislative authority over all aspects of securities regulation. This authority, Canada argues, is concurrent with that of the provincial legislatures over all aspects of securities presently regulated by the provinces.
[5] The propriety of such a constitutional realignment cannot simply be assumed. The shift in regulatory authority that the proposed Act seeks to achieve requires justification. Canada asserts that this justification is found under the “general” branch of the trade and commerce power. However, it has failed to show that this power, interpreted as required by the case law, supports the proposed Act.
[6] 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. 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) . Applying the settled test, we conclude that the proposed Act does not fall within the general trade and commerce power.
[7] It is a fundamental principle of federalism that both federal and provincial powers must be respected, and one power may not be used in a manner that effectively eviscerates another. Rather, federalism demands that a balance be struck, a balance that allows both the federal Parliament and the provincial legislatures to act effectively in their respective spheres. Accepting Canada’s interpretation of the general trade and commerce power would disrupt rather than maintain that balance. Parliament cannot regulate the whole of the securities system simply because aspects of it have a national dimension.
[8] We therefore answer the reference question in the negative.
[9] It is open to the federal government and the provinces to exercise their respective powers over securities harmoniously, in the spirit of cooperative federalism. The experience of other federations in the field of securities regulation, while a function of their own constitutional requirements, suggests that a cooperative approach might usefully be explored, should our legislators so choose, to ensure that each level of government properly discharges its responsibility to the public in a coordinated fashion.
[10] At this juncture, it is important to stress that this advisory opinion does not address the question of what constitutes the optimal model for regulating the securities market. While the parties presented evidence and arguments on the relative merits of federal and provincial regulation of securities, the policy question of whether a single national securities scheme is preferable to multiple provincial regimes is not one for the courts to decide. Accordingly, our answer to the reference question is dictated solely by the text of the Constitution, fundamental constitutional principles and the relevant case law.
II. The Proposed Act and the Parties’ Positions
A. National Securities Proposals in Canada
[11] Recommendations for national securities regulation in Canada are not new. Over the years, many proposals have been put forward, but none implemented. The various proposals, in different ways, attempted to come to grips with the problem underlying this reference — how to achieve national securities regulation within the constitutional division of powers between Parliament and the provincial legislatures. Not surprisingly, the proposals generally envisaged cooperation between the provinces and the federal government as the route to achieving national standards and regulation.
[12] The first proposal dates to 1935, when the Royal Commission on Price Spreads recommended the formation of an investment securities board to oversee the issuance of securities by companies incorporated under federal legislation (Report of the Royal Commission on Price Spreads, at pp. 41-42).
[13] In the 1960s, various recommendations and proposals were mooted. The 1964 Royal Commission on Banking and Finance (the “Porter Commission”) accepted the desirability of uniform legislation and administration of the Canadian securities industry and recommended the creation of an additional regulatory body, based on cooperation between the federal and provincial governments (Report of the Royal Commission on Banking and Finance). The body, to be headed by a federal regulator, would have set uniform standards for securities distributed interprovincially and internationally, while permitting existing provincial regulators to continue to govern “local matters such as the licensing of security dealers and their salesmen and the registration of issues to be offered only within their own province” (p. 348).
[14] The Porter Commission hoped that the establishment of a federal agency would lead to greater agreement and cooperation, eliminating the duplication that the Commission saw as hampering effective securities regulation. In particular, the Commission hoped that the introduction of uniform federal standards would foster the adoption of similar standards in the provinces and free the provinces to focus on purely local matters by automatically clearing federally regulated issues. In its view, a single federal agency would improve cooperation with the United States Securities and Exchange Commission and “would be responsible for and interested in the growth, development and efficiency of the whole Canadian securities industry” (p. 348).
[15] In 1967, just three years after the release of the Porter Commission’s report, the Ontario Securities Commission (“OSC”) circulated a very different proposal for a single, highly decentralized, national securities regulator. CANSEC — the “Canada Securities Commission” — was to be a three-tiered structure (a council of ministers, CANSEC and administrative staff) designed to achieve uniformity in Canadian securities regulation through cooperation by the federal and provincial governments, rather than by forcing each province to surrender its regulatory activity in the field to a federal body. CANSEC would operate on an opt-in basis: no province would be required to join or remain in CANSEC. Moreover, participation by provinces would not involve a permanent surrender of power: “A government which has passed an amendment in order to bring themselves into the scheme can repeal that amendment” (“CANSEC: Legal and Administrative Concepts” (November 1967), OSCB 61, at p. 66). Provinces would have been able to join CANSEC, then withdraw and regulate independently as before.
[16] The OSC anticipated that CANSEC would be brought into existence through the passage of an organizational statute by the federal government and the subsequent commitment by participating jurisdictions to have the new commission administer their own securities acts. In bringing CANSEC into existence, the OSC did not consider it necessary that the provincial laws themselves be substantively uniform; rather, similar schemes of administration and “some modest degree of uniformity” in securities legislation would suffice (p. 66). The provinces would retain jurisdiction over “nearly all substantive issues”, delegating to the commission authority only to deal with federal corporate, international and criminal matters not clearly within provincial jurisdiction (J. L. Howard, “Securities Regulation: Structure and Process”, in Proposals for a Securities Market Law for Canada (1979), vol. 3, 1607, at p. 1693).
[17] The discussion over securities regulation continued in the 1970s and 1980s. In 1979, the federal Department of Consumer and Corporate Affairs produced a three-volume study entitled Proposals for a Securities Market Law for Canada, which contemplated a national securities commission working in cooperation with the provinces. The study recommended the creation of a federal securities commission and the enactment of federal securities legislation and envisioned a “nationally coordinated system of regulation that involves cooperation between a federal commission with federal jurisdiction and provincial and foreign commissions” (vol. 2, at p. 5). It contemplated administration either by a federal commission, by a cooperative body developed through negotiations among the federal and provincial governments, or a body lying on the spectrum between that and a single federal agency.
[18] In 1985, the Royal Commission on the Economic Union and Development Prospects for Canada concluded that there was no reason to tamper with the existing system of provincial regulation of stock markets, but noted that “[t]echnological change, the increasing international integration of capital markets, and the desire of provinces, especially Quebec, to regulate markets in pursuit of provincial development goals are all likely to place greater strains on the existing system in the near future” (Report, vol. 3, at p. 167).
[19] In 1994, the premiers of the Atlantic provinces asked the federal government to establish a national securities regulator. The proposal ultimately took the form of a draft memorandum of understanding (“MOU”) between the federal government and participating provinces, which was circulated among the provinces ((1994), 17 OSCB 4401). The MOU proposed the creation of a “Canadian Securities Commission” and envisioned a “uniform securities regulatory structure which [would] apply comprehensively within and across all participating provinces” (preamble).
[20] Like the proposal to establish CANSEC, the MOU was premised on opting in by the provinces and explicitly stated that no government would give up any jurisdiction by joining. Participating provinces were to have the ability to adopt regulations exempting certain securities from provisions of the federal legislation. The jurisdiction of provincial securities regulatory authorities in provinces which elected not to participate in the uniform securities regulatory structure would not be affected. Canada, however, committed to “developing consultation and coordination mechanisms between the Canadian Securities Commission and the securities commission or equivalent office of any province which is not a Party to [the] agreement to maintain the benefits of harmonization of securities regulation in Canada and to promote further such harmonization in the future” (MOU, at cl. 29).
[21] In the past decade, calls for a national securities regulator have intensified.
[22] The Wise Persons’ Committee (“WPC”) of 2003 recommended the adoption of a comprehensive scheme of capital markets regulation for Canada, to be accomplished by the passage of comprehensive federal securities legislation, followed by provincial legislation incorporating the federal law by reference and delegating administrative powers to a newly established “Canadian Securities Commission”.
[23] The WPC rejected the “dual structure” of securities market regulation recommended by the OSC proposal to establish CANSEC, the 1979 study by the Department of Consumer and Corporate Affairs and the 1994 MOU. In its view, “a dual structure, in which securities matters limited to a single province would be regulated provincially, while interprovincial and international matters would be regulated by a national body”, was not appropriate “[g]iven the nationally integrated nature of Canada’s capital markets and the history of provincial regulation of securities matters with incidental effect on matters outside the regulating province” (It’s Time (2003), at p. 59). In the WPC’s view, “efficient capital markets require that the federal legislation extend to all matters related to securities regulation” (p. 60).
[24] The WPC therefore recommended the enactment of a single, comprehensive code for the regulation of Canadian capital markets by the federal government. The single set of rules would cover “all securities regulatory matters in Canada” (p. 59). Provincial participation would be achieved through an obligation on the federal government to consult with the provinces before amending the legislation.
[25] The 2006 Crawford Panel on a Single Canadian Securities Regulator, established by the government of Ontario, endorsed the adoption of Canadian securities legislation (Blueprint For A Canadian Securities Commission — Final Paper). The Panel proposed that uniform regulation would be achieved by all jurisdictions incorporating, by reference, legislation enacted by one province as the Canadian Securities Act and establishing a “Canadian Securities Commission”. A common body of securities law would then apply across the country. However, like the WPC, the Crawford Panel viewed the participation of all provinces and territories and the federal government as “ideal” but not necessary for the Commission to be established. The key was “that there be an initial core group of Participating Jurisdictions that agrees to enact, or to enact through incorporation by reference, common legislation that establishes the [Commission] and delegates to it authority over capital markets regulation” (p. 16).
[26] Three years after the Crawford Panel presented its “blueprint”, the Expert Panel on Securities Regulation (the “Hockin Panel”) released a report that informed the Securities Act proposed by Canada in this reference (Creating an Advantage in Global Capital Markets — Final Report and Recommendations (2009) (the “Hockin Report”)). Like the Crawford Panel, the Hockin Panel recommended the establishment of a “Canadian Securities Commission” to oversee a single “Securities Act” for Canada.
[27] The Hockin Panel envisioned the establishment of a “comprehensive national regime” of securities regulation (p. 60), to be brought into force in participating jurisdictions through the repeal of local legislation. However, the Panel acknowledged that not all provinces (at least initially) might be willing to participate. It therefore recommended that in the absence of unanimity on the part of the provinces, the Act should provide for voluntary provincial participation, limiting its application to participating jurisdictions during the transition to a comprehensive national regime (p. 60). The Panel foresaw that, faced with such circumstances, the federal government might consider a “market participant opt-in feature” (p. 61), and proposed that the Commission consider negotiating memoranda of understanding with non-participating jurisdictions to coordinate securities regulation.
[28] In response to the Hockin Report, the federal government established the Canadian Securities Regulation Regime Transition Office in the Budget Implementation Act, 2009, S.C. 2009, c. 2 , and prepared a draft Act implementing the Report’s proposals. On May 26, 2010, the Governor General in Council referred this draft legislation to the Court for an advisory opinion as to its constitutional validity.
B. The Proposed Act
[29] The preamble of the proposed Act states that its immediate purpose is to create a single Canadian securities regulator. More broadly, s. 9 states that the underlying purposes of the Act are to provide investor protection, to foster fair, efficient and competitive capital markets and to contribute to the integrity and stability of Canada’s financial system.
[30] The Act includes registration requirements for securities dealers, prospectus filing requirements, disclosure requirements, specific duties for market participants, a framework for the regulation of derivatives, civil remedies and regulatory and criminal offences pertaining to securities. It provides for the comprehensive regulation of securities in Canada, under the oversight of a single national regulator. It also provides for a single set of laws and rules designed to permit uniform regulation and enforcement on a national basis, thus fostering the integrity and stability of Canada’s capital markets at a national level. While various parties emphasize different facets of the scheme, advancing interesting arguments on the implication of words such as “national”, “capital markets”, “securities industry” and “securities trading”, it seems uncontrovertible that what the Act seeks is comprehensive national securities regulation, with the aim of fostering fair and efficient capital markets and contributing to the stability of Canada’s financial system.
[31] The Act, as proposed, does not seek to unilaterally impose a unified system of securities regulation for the whole of Canada. Rather, it permits provinces to opt in, if and when they choose to do so. The hope is that, eventually, all or most provinces will opt in, creating an effective unified national securities regulation system for Canada. If this were to occur, it would represent a dramatic realignment in the manner in which securities have been regulated in this country.
C. The Parties’ Positions
[32] Canada, joined by Ontario and several interveners, argues that the proposed Act, viewed in its entirety, is a constitutional exercise of Parliament’s general power to regulate trade and commerce under s. 91(2) of the Constitution Act, 1867 . It does not invoke other federal heads of power, such as legislative authority in relation to interprovincial and international trade and commerce (a separate branch of Parliament’s s. 91(2) authority), the incorporation of federal companies or the criminal law power (s. 91(27) — except with respect to some offence provisions the constitutionality of which is not contested). Nor does Canada contend that provisions of the Act that might be viewed as falling within provincial legislative powers are valid because they are ancillary to the exercise of federal powers.
[33] Canada and those who support its position acknowledge the oft-affirmed power of the provinces to regulate securities within their borders. However, they argue that securities markets have undergone significant transformation in recent decades, evolving from local markets to markets that are increasingly national, indeed international. This has given rise to systemic risks and other concerns that can only be dealt with on the national level. The evolving national character of securities markets, Canada says, brings those markets within the general trade and commerce power, as defined by existing jurisprudence. In short, Canada contends that securities have evolved in a way that now brings all aspects of securities regulation under the general branch of the trade and commerce power, including those aspects which would also fall under provincial competence in relation to property and civil rights within the province.
[34] The attorneys general of Alberta, Quebec, Manitoba and New Brunswick and other interveners oppose the Act. They argue that the scheme the Act sets up falls under the provincial power over property and civil rights under s. 92(13) of the Constitution Act, 1867 and trenches on provincial legislative jurisdiction over matters of a merely local or private nature (s. 92(16) ), namely the regulation of contracts, property and professions. They reject the contention that securities markets have evolved to become a matter of genuine national concern under the general federal trade and commerce power. Rather, they contend, the Act is a thinly disguised attempt to regulate a particular industry — the securities industry.
[35] The Attorney General of British Columbia and the Attorney General for Saskatchewan oppose the Act, but adopt a more nuanced approach to Parliament’s ability to regulate securities. Neither province opposes the idea of a national securities regulator, so long as it is achieved in a manner that respects the division of powers. However, these provinces contend that Parliament’s participation in securities regulation is best achieved through an exercise in federal-provincial cooperation, similar to the cooperation existing in the agricultural products marketing context.
III. The Provincial References
[36] In provincial references, both the Alberta Court of Appeal (2011 ABCA 77, 41 Alta. L.R. (5th) 145) and the Quebec Court of Appeal (2011 QCCA 591 (CanLII)) concluded that the proposed Act is unconstitutional.
[37] The Alberta Court of Appeal (per Slatter J.A., Côté, Conrad, Ritter and O’Brien JJ.A., concurring) emphasized at para. 6 that the proposed Act “mirrors” provincial securities regimes by licensing and regulating the conduct of participants in the same fashion as the existing provincial legislation. While recognizing that securities pr