Reference re Securities Act: what are the remaining options for a national securities regime?
In Reference re Securities Act, the Supreme Court of Canada ruled that the Federal government's proposed national security regulator was unconstitutional. Nevertheless, the Court did not conclusively rule out the possibility of a national securities regulator being constitutional under a different structure. The purpose of this case note is to examine what options remain available for the Federal government to create a national securities regulator.
Dans le Renvoi relatif a la Loi sur les valeurs mobilieres, la Cour supreme du Canada a statue que le projet du gouvernement federal visant a creer un organisme canadien unique de reglementation des valeurs mobilieres etait inconstitutionnel. La Cour n'a cependant pas definitivement exclu la possibilite qu'un organisme national de reglementation des valeurs mobilieres soit constitutionnel selon une structure differente. Le but vise par ce commentaire d'arret est d'examiner quelles sont les options dont dispose encore le gouvernement federal pour pouvoir creer un organisme national de reglementation des valeurs mobilieres.
Table of Contents I. INTRODUCTION A. The Supreme Court of Canada's Decision II. REMAINING OPTIONS FOR A NATIONAL SECURITIES REGIME A. Administrative Delegation & Referential Incorporation B. European Union Model III. CONCLUSION I. INTRODUCTION
In Reference re Securities Act, (1) the Supreme Court of Canada (SCC) ruled on the constitutionality of a proposed national securities regulator. The federal government's proposal was outlined in the Canadian Securities Act. (2) The idea of a national securities regulator has been around for more than 60 years. (3) The idea has been highly contentious and many notable scholars have argued for (4) and against it. (5) Prior to the SCC decision, the provincial governments of Alberta (6) and Quebec (7) brought their own references in their respective courts of appeal. The Alberta Court of Appeal ruled in a unanimous decision that the Securities Act was ultra vires the federal government, while the Quebec Court of Appeal came to the same conclusion in a majority decision. Similarly, the SCC ultimately ruled in a unanimous decision that the Securities Act was ultra vires the federal government. Nevertheless, many have commented that the SCC decision did not conclusively close the door to a national securities regime. (8) The purpose of this case note is to analyze the SCC decision and determine what options remain available for a national securities regime.
The Supreme Court of Canada's Decision
In defending the constitutionality of the Securities Act, the federal government relied primarily on the general branch of the trade and commerce power under section 91(2) of the Constitution Act, 1867. (9) Except for some uncontested criminal offences, the federal government did not try to defend the constitutionality of the Securities Act under any other federal head of power, such as its powers over interprovincial and international trade or federal corporations. (10) The likely reason is that these other heads of power could justify only parts of the Act rather than the whole regulatory regime. The federal government conceded that the provinces have the power to regulate securities within their territories, but argued that the securities market has evolved over the years from a local market to a national and international market. As a result of this evolution, the federal government argued that the entire securities market now falls under its general trade and commerce power. (11)
Since the federal government relied primarily on its general trade and commerce power, the SCC focused all of its analysis on this head of power. The Court applied the two-part test that it uses in division of power cases. (12) First, it determines the pith and substance of the proposed act. Second, it determines whether the pith and substance of the proposed act falls under a federal head of power.
With regard to the pith and substance of the Securities Act, the SCC analyzed "the purpose and effects of the Act, viewed as a single, comprehensive scheme." (13) The Court examined the provisions of the Act and their effect, and determined that the main purpose of the Securities Act was "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." (14) Nevertheless, it also noted that the effect of the Act was to "duplicate legislative schemes enacted by provincial legislators exercising their jurisdiction over property and civil rights under s. 92(13) of the Constitution Act, 1867" (15) The Court held, however, that the fact that the Act was a duplication of provincial legislation was not determinative of its constitutionality since it could still be directed at a federal concern, such as ensuring competitive markets and a stable financial system throughout Canada. (16)
Having determined the pith and substance of the Securities Act, the SCC then went on to determine whether it fell under the federal government's general trade and commerce power. The Court applied the test established in City National Leasing Ltd v General Motors of Canada Ltd: (17)
(1) Is the law part of a general regulatory scheme?; (2) Is the scheme under the oversight of a regulatory agency?; (3) Is the...
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