The Supreme Court of Canada has blocked the federal government’s attempt to create a national securities regulator, and its ruling is lengthy. Rather than read the entire thing yourself, we thought you might want to know the key points, quick and dirty.
As the Court pointed out, this wasn’t a ruling on public policy. It was based on constitutional law. Within that framework, the Supreme Court ruled based on five criteria. Two of them were easily met, which left key main points:
1) Is the law concerned with trade as a whole rather than with a particular industry?
2) Is the scheme of such a nature that provinces, acting alone or in concert, would be constitutionally incapable of enacting it?
3) Would failure to include one or more provinces or localities in the scheme jeopardize its successful operation in other parts of the country?
These three get to what the Court deemed to be the “heart of the case:” whether Canada has shown that the proposed act for a national regulator addresses a matter of national importance and scope, distinct from provincial concerns.
Regarding trade as a whole, the Court said it needed proof that regulating every aspect of securities trading isn’t simply an industry-specific matter. It also needed proof that securities regulation had changed so much that a new federal act was required.
On these fronts, the Supreme Court ruled that “individuals engaged in the securities business are still, for the most part, exercising a trade or occupation within the province,” making it “unable to accept Canada’s assertion that the securities market has been so transformed as to make the day-to-day regulation of all aspects of trading in securities a matter of national concern.”
Plus, “the fact that the structure and terms of the proposed Act largely replicate the existing provincial schemes belies the suggestion that the securities market has been wholly transformed over the years.”
As for the constitutional conundrum, which is rooted in the belief that different provinces should adopt their own unique approaches when addressing social or economic issues, the Court actually admitted that by simply acting in concert (and not under a federal Securities Act), the provinces wouldn’t be able achieve the goals of national scheme.
But, “the proposed Act reflects an attempt that goes well beyond these matters of undoubted national interest and concern and reaches down into the detailed regulation of all aspects of securities.” So while, say, federal competition legislation regulates only anti-competitive contracts and conduct, the national securities regulator “would regulate all aspects of contracts for securities within the provinces, including all aspects of public protection and professional competence.”
The fifth criterion was easy to sort out. “Because the main thrust of the proposed Act is concerned with the day-to-day regulation of securities, the proposed Act would not founder if a particular province declined to participate in the federal scheme.”
Weighing all of that, the Supreme Court ultimately ruled that all aspects of trading and securities “cannot be described as a matter that is truly national in importance and scope making it qualitatively different from provincial concerns.”
“The conclusion that the Act’s attempt to take over regulation of the entirety of the securities trade in Canada exceeds the general branch of the trade and commerce power is also supported by the tenor of the case law.”
To make its point really clear, the Court drove the point home. “...As important as the preservation of capital markets and the maintenance of Canada’s financial stability are, they do not justify a wholesale takeover of the regulation of the securities industry which is the ultimate consequence of the proposed federal legislation.”