The Supreme Court of Canada has unanimously rejected the federal government's proposed Canadian Securities Act, which would have created a national securities regulator, as unconstitutional.
Background
On May 26, 2010, the federal government released the proposed Canadian Securities Act, which is intended to harmonize the existing provincial and territorial securities legislation into a single, federal statute. At the same time, the government referred the draft legislation to the Supreme Court of Canada for an opinion as to its constitutionality.
The opponents of the legislation, led by the governments of Alberta, Quebec, Manitoba and New Brunswick, argued that the proposed statute is outside the legislative authority of the federal government because the regulation of the sale and trade in securities is a matter of "property and civil rights" and therefore is the exclusive jurisdiction of the provinces. The federal and Ontario governments argued that the statute falls within its exclusive jurisdiction over general trade and commerce.
Prior to the Supreme Court hearing in April 2011, appellate courts in both Quebec and Alberta ruled, almost unanimously, that the proposed statute was unconstitutional.
The Supreme Court's Reasons
For legislation to be a matter of general trade and commerce, it must engage the national interest in a manner qualitatively different from provincial concerns. The Court considered five issues: (a) whether the law is part of a general regulatory scheme; (b) whether the scheme is under the oversight of a regulatory agency; (c) whether the legislation is concerned with trade as a whole rather than with a particular industry; (d) whether it is of such a nature that provinces, acting alone or in concert, would be constitutionally incapable of enacting it; and (e) 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.
In this case, the main thrust of the proposed 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. The Court held that the effects of the Act would be "to duplicate and displace the existing provincial and territorial securities regimes." The Court said that the Act's 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." In the Court's view, the federal government failed to establish that the area of securities has been so transformed that it now falls to be regulated under the federal head of power. The Court did acknowledge that some aspects of the proposed Act, such as control of systemic risk and data collection on a nationwide basis, are properly federal powers.
The Court concluded that the proposed Act "overreaches genuine national concerns". Though 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", those factors do not, in the Court's view, justify "a wholesale takeover of the regulation of the securities industry".
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