Assuring Independence and Expertise in Financial Services Law: Regulatory Oversight in Light of the Supreme Court of Canada Securities Reference Judgment

• Author: Janis Sarra
• Pages: 111-143

• 111

 

Assuring Independence and

Expertise in Financial Services Law:

Regulatory Oversight in Light of

the Supreme Court of Canada

Securities Reference Judgment

Janis Sarra

A. Introduction

Any legal system is only as good as the mechanisms available

to resolve disputes between stakeholders working within the

system, and the capacity and willingness to effectively enforce

regulatory requirements in a manner that fosters compliance.

Equally important, the system must allow individuals harmed by

illegal acts to seek effective redress. In the wake of the Supreme

Court of Canada’s decision in Reference Re Securities Act,1 one

under-appreciated issue is the need for a system for enforcing and

     -

mediate and long term needs of investors, issuers, and the public.

The Canadian government could move now to establish such a

        -

preme Cou rt’s judgment .

The Supreme Court held that the proposed C anadian Secur-

ities Act, as drafted, was not valid under the general branch of

the federal power to regulate trade and commerce.2 The Court

1 Reference Re Securities Act, 2011 SCC 66 [Securities R eference].

2 Ibid at para 134 (not valid under the federal government’s power to

regulate trade and commerce under s 91(2) of the Constitution Act, 1867).

Pursuant to s 53 of the Supreme Court Act, the Governor in Council

sought an advisory opinion from the Court as to whether its proposed

Securities Act, set out in Order in Council PC 2010-667, fell within the

legislative authority of the Parliament of Canada. The proposed Act

 •  

held that the effect of the proposed Act was “in essence to dupli-

cate legislative schemes enacted by provincial legislators exercis-

ing their jurisdiction over property and civil rights under section

92(13) of the Constitution Act, 1867.”3 The judgment, rather than

offering clarity, may have unwittingly exacerbated the already

fractious process of securities law regulation in Canada, given

a failure to be more precise about the scope of federal regula-

  -

  

albeit underdeveloped, which may create a way forward in the

seemingly endless discussion about a national securities regulator.

This chapter suggests the immediate creation of a national

regulatory authority, the Canadian Financial Services Regula-

tory Authority, with legislative responsibility for the regulation of

-

tional borders. The regulatory authority would be granted strong

investigation and enforcement powers, and the legislative scheme

would create a separate independent adjudicative tribunal, the

Canadian Financial Services Tribunal, to hear and determine

-

sions. The national authority and tribunal would offer a system

of national oversight and enforcement that would allow issuers

distributing securities in more than one jurisdiction to choose

to be covered under the authority. Equally, if not more, import-

ant, it would recognize that problems of systemic risk require

global collaboration and regulatory oversight, as well as much

deeper thinking in Canada than is allowed either by interprovin-

cial negotiations or by wholesale adoption of the limited regula-

tory framework of the United States. Canada requires a national

regulator on the international policy stage, one that can be a lead-

er in fashioning the framework going forward, not a fragmented

follower of narrow conceptual changes.



 -

tional securities regulation system. The Court held that the question was

whether the sum of its particular provisions, read together, falls within

the general trade and commerce power, ibid at para 91.

3 Ibid at para 101.

Assuring Indepe ndence and Expertise in Financial Se rvices Law • 113

1) Some Key Elements of the Supreme Court of Canada

Judgment

The Supreme Court of Canada’s judgment in the Securities Ref-

erence has been analyzed in depth elsewhere in this volume.4

However, several aspects of the judgment are relevant to the dis-

cussion here. Pursuant to its “pith and substance” analysis, the

Court examined the purpose and effect of the legislation, which

was to establish a single comprehensive scheme.5 It found that the

goal of investor protection, without more, has historically been a

provincial responsibility under section 92(13), but that two other

  

-

6

While acknowledging that the securities market is of great

importance to modern economic activity, the Court wrote that

it could not ignore that the provinces have been deeply engaged

in its regulation for many years.7 The Court observed that the

federal government must establish that the Act, read as a whole,

addresses concerns that transcend local, provincial interests, and

concluded that “[t]he legislative facts adduced by Canada in this

Reference do not establish the asserted transformation. On the

contrary, the fact that the structure and terms of the proposed Act

largely replicate the existing provincial schemes belies the sug-

gestion that the securities market has been wholly transformed

over the yea rs.” According to the Court, the day-to-day regula-

tion of securities within the provinces, the main thrust of the Act,

remains essentially a matter of property and civil rights within

the provinces, and the effect of the proposed legislation would be

to duplicate and displace the existing provincial and territorial

securities regimes and replace them with a new federal scheme

4 See Chapters 2 and 13.

5 Securities Reference, above note 1 at para 93. The two-step approach to

determining the validity of the Act under the division of powers involves



the legislation, as characterized, falls under a head of constitutional

power that can support it.

6 Ibid at para 97.

7 Ibid at para 115.

 Ibid at para 116.