On December 22, 2011 the Supreme Court of Canada released its
decision regarding the ability of the federal government to
legislate securities trading. The Court unanimously decided that
the proposed federal securities legislation is not constitutional:
the federal government does not have the power to regulate
comprehensively securities under its general trade and commerce
jurisdiction under the Constitution Act, 1867.
The Court noted that parliament's power over the regulation
of trade and commerce as set out in the Constitution Act,
1867, while drafted broadly, cannot be used in a way that
denies the provincial legislature the power to regulate local
matters and industries within their boundaries. The Court did
acknowledge a limited capacity on the part of the federal
government, to regulate securities matters having genuine national
importance and scope, such as the management of systemic risk and
national data collection.
In determining that the proposed Securities Act was not
constitutional, the Court applied the five considerations set out
in General Motors of Canada v. City National Leasing,
 1 S.C.R. 641; the leading decision on the scope of the
federal trade and commerce power under the Constitution Act,
whether the law is part of a general regulatory scheme;
whether the scheme is under the oversight of a regulatory
whether the legislation is concerned with trade as a whole
rather than with a particular industry;
whether it is of such a nature that provinces, acting alone or
in concert, would be constitutionally incapable of enacting it;
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
The Court found that the first two requirements of the
General Motors test were met.
In addressing the third, fourth and fifth parts of the test, the
Court observed that the purpose of the proposed Act was to
establish a comprehensive regime to regulate securities trading
across the country, which would have the effect of duplicating and
displacing the existing provincial and territorial securities
regimes. The Court found that the proposed legislation as a whole
"did 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." The Court did note, that
while the day-to-day regulation of securities trading fell clearly
within provincial jurisdiction, specific parts of the proposed Act
that related to management of systemic risk and national data
collection, did appear to be permitted under the general federal
trade and commerce power.
The Court observed that the federal government and provincial
governments could still work cooperatively to regulate securities
trading in light of the Court's decision: "The federalism
principle upon which Canada's constitutional framework rests
demands nothing less."
McCarthy Tétrault Comments
The decision seems to rule out a comprehensive federal
"opt-in" statute based on the federal trade and commerce
power: for example, matters such as registration are reserved to
the provinces. The Court also observed that a comprehensive regime
would need to be the result of interprovincial cooperation.
The decision comments favourably on the jurisdiction of the
federal government to regulate in areas of systemic risk
threatening the Canadian market viewed as a whole such as
regulation of derivatives, short selling, credit rating and data
collection and sharing and reflects the judiciary's ongoing
encouragement of negotiation and compromise between the federal
government and the provinces.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The British Columbia Court of Appeal has recently considered whether the doctrine of unconscionability can be invoked to set aside a contractual clause providing for the payment by one party to the other...
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).