Towards a National Security Regulator

• Author: Omar Ha-Redeye
• Date: November 18, 2018

I had always presumed, erroneously, that all those entering the legal field would have some modicum of interest in public policy, equity issues, and promoting the rule of law. A significant chunk of the profession certainly do share those concerns, even while differing in the positions they may take.

But I was bewildered by those I encountered early in my legal education who simply were indifferent towards politics or any legal topic that did not directly impact their professional pursuits. I could only assume that such an existence was a by-product of a lifestyle and existence that was not threatened or challenged in any way.

For these few specimens with singular pursuits there was one topic that did appear to peak their interest – the possibility of a national securities regulator. The creation of a single securities regulator would presumably create efficiency, expediency, and simplicity, and would likely make the jobs of any lawyers working in this area much easier. It was only in this context that the normally tepid and tedious would come to life over something so inane as the Margarine Reference.

Proposals for a national security exchange are not new in Canada. The Royal Commission on Price Spreads proposed the creation of an investment securities board in 1935, and several proposals were considered throughout the 1960s. The Department of Consumer and Corporate Affairs released a study in 1979, the Proposals for a Securities Market Law for Canada, that provided several mechanisms through which this could e achieved.

However, a 1985 Royal Commission on the Economic Union and Development Prospects for Canada resisted any changes to the regulation of stock markets by the provinces, even while the premiers in Atlantic provinces called for a federal regulator in 1994. Further proposals in 2003 and 2006 culminated in a 2009 report that led the federal government to introduce a proposed regime through the Budget Implementation Act, 2009, S.C. 2009, c. 2 that would implement a national securities regulator.

The Alberta Court of Appeal thoroughly rejected the proposal as unconstitutional in 2011, stating at para 48 that it was an intrusion of the federal government into an area long occupied by the provincial governments. The appropriate approach towards doing so according to the court would be through negotiations with the provinces.

A similar decision by the Quebec Court of Appeal also found the proposal to be unconstitutional, while making exceptions for the criminal offences elements and interprovincial regulation of securities.

Ultimately the matter was referred to the Supreme Court of Canada in 2011 in the Reference re Securities Act, where the Court held that the draft Act was not valid under the general branch of federal powers to regulate trade and commerce. However, the federal government had only invoked the general trade and commerce power under s. 91(2) of the Constitution Act, 1867, and not the interprovincial commerce branch of this power.

Citing General Motors of Canada Ltd. v. City National Leasing, the Court held that the general branch of this power must sufficiently engage the national interest in a manner that is distinct and different from the provincial concerns. The area of securities law, despite becoming increasingly important over the years, has not changed so much as to be completely transformed, even when considering the preservation of capital markets for the Canadian economy.

The Court did not however shut the door completely on this idea, stating,

[130] While the proposed Act must be found ultra vires Parliament’s general trade and commerce power, a cooperative approach that permits a scheme that recognizes the essentially provincial nature of securities regulation while allowing Parliament to deal with genuinely national concerns remains available.

[131] The various proposals advanced over the years to develop a new model for regulating securities in Canada suggest that this matter possesses both central and local aspects. The same insight can be gleaned from the experience of other federations, even if each country has its own constitutional history and imperatives. The common ground that emerges is that each level of government has jurisdiction over some aspects of the regulation of securities and each can work in collaboration with the other to carry out its responsibilities.

[132] It is not for the Court to suggest to the governments of Canada and the provinces the way forward by, in effect, conferring in advance an opinion on the constitutionality on this or that alternative scheme. Yet we may appropriately note the growing practice of resolving the complex governance problems that arise in federations, not by the bare logic of either/or, but by seeking cooperative solutions that meet the needs of the country as a whole as well as its constituent parts.

[133] Such an approach is supported by the Canadian constitutional principles and by the practice adopted by the federal and provincial governments in other fields of activities. The backbone of these schemes is the respect that each level of government has for each other’s own sphere of...