Canada: Round III To The Provinces: Supreme Court Rejects Canadian Securities Act As Unconstitutional

Last Updated: January 12 2012
Article by Alan P. Gardner, Ranjan K. Agarwal and Preet K. Bell

On December 22, 2011, the Supreme Court of Canada released its much anticipated decision on the constitutionality of the proposed Canadian Securities Act (CSA). To the surprise of many, the Supreme Court unanimously found the CSA to be unconstitutional and outside the authority of Parliament, much like the Alberta Court of Appeal and Quebec Court of Appeal did earlier last year. But the Supreme Court did not rule that the concept of a national securities regulator is necessarily unconstitutional. As such, the federal government is forced back to the drawing board.


In May 2010, the federal government released the CSA, which provides for the harmonization of the existing provincial and territorial legislation into a single federal statute and creates a national securities regulator. At the same time as releasing the CSA, the federal government referred the question of its constitutionality to the Supreme Court. Shortly after, both the Alberta and Quebec governments submitted similar reference questions to five-judge panels of their respective appeal courts. Both provincial appeal courts found the CSA to be unconstitutional (with only one Quebec judge dissenting).

The Canadian constitution divides certain powers between the provincial and federal governments. The legal issue before the courts was whether the CSA falls under a provincial or federal head of power.

Canada's Argument

The federal government, supported by the province of Ontario, argued that the CSA falls within the federal government's general trade and commerce power. It conceded that certain aspects of securities regulation fall under provincial power, and acknowledged the oft-affirmed power of the provinces to regulate securities. But the federal government took the position that the securities market has evolved from a provincial matter to a national matter, affecting the country as a whole. This significant transformation, argued the federal government, has given rise to systemic risks and other concerns that can only be dealt with on a national level.

The Provinces' Argument

The provinces of Alberta, Quebec, Manitoba and New Brunswick opposed the constitutionality of the CSA. The provinces argued that the CSA falls under the provincial property and civil rights head of power. They also argued that the CSA trenches on the provincial power over matters of a merely local or private nature, namely the regulation of contracts, property and professions. The provinces heavily relied on the fact that provincial governments have regulated the securities market since Confederation.

The Supreme Court's Decision

To determine the constitutionality of the CSA, the Supreme Court engaged in a two-step analysis. First, what is the "pith and substance" of the legislation? In other words, what is the main thrust of the law based on a review of its purpose and effects? The CSA's stated purpose is to implement a comprehensive Canadian regime for the regulation of securities. The effects of the CSA are to duplicate and displace existing provincial regimes and replace them with a new federal regulatory scheme. Based on the stated purpose of the CSA, its provisions and other evidence, the Court concluded that the pith and substance of the legislation "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."

Second, does the legislation as characterized fall within the federal trade and commerce power or the provincial property and civil rights power? On its face, the general trade and commerce power is broad, having the ability to subsume other federal heads of power, and duplicate (and perhaps displace) provincial powers. In order to constrain this seemingly limitless power, it has been confined to matters that are genuinely national in scope. There are five indicia of federal competence under the general trade and commerce power:

  1. Is the law part of a general regulatory scheme?
  2. Is the scheme under the oversight of a regulatory agency?
  3. Is the law concerned with trade as a whole rather than a particular industry?
  4. Is the scheme of such a nature that provinces, acting alone or together, would be constitutionally incapable of enacting it?
  5. Would failure to include one or more provinces jeopardize its successful operation in other parts of the country?

These indicia are not exhaustive, and do not need to be present in every case. The first two indicia identify the required structure of the legislation. The latter three consider whether the matter is one of genuine national importance distinct from provincial concerns.

The Court accepted that goals of the CSA, in particular, the preservation of capital markets to fuel Canada's economy and maintain financial stability, go beyond a particular industry and engage "trade as a whole" (making the CSA part of a general regulatory scheme and under oversight of a regulatory agency). But the Court also found that the CSA descends into the day-to-day regulation of all aspects of securities trading within the provinces, which has long since been regulated provincially. The federal government argued that the securities market has transformed into a national concern but the Court rejected this view. The fact that the structure and terms of the CSA "largely replicate the existing provincial schemes belies the suggestion that the securities market has been wholly transformed over the years."

The Court also found that the provinces lack the constitutional capacity to sustain a viable national scheme aimed at genuine national goals, such as managing systemic risk. But the CSA goes beyond matters of national interest and reaches down into the detailed regulation of all aspects of securities, meaning that the provinces are not "constitutionally incapable" of responding to those matters.

The national goals of the CSA, such as managing systemic risk, would be rendered ineffective if a province absented itself from the CSA. But, because the main thrust of the CSA is the day-to-day regulation of securities, the Court stated that the CSA would not give way if a province declined to participate. Significantly, the CSA contains an opt-in feature, whereby provinces would opt-in to the federal scheme. This feature of the CSA contemplates that not all provinces will participate, which weighed against the federal government's argument that the success of the CSA requires the participation of all provinces.

In conclusion, while the Supreme Court noted that certain aspects of the CSA may be of genuine national concern (and realities such as systemic risk could justify federal regulation), the CSA as a whole cannot be sustained under the general trade and commerce power. The main thrust of the legislation–the day-to-day regulation of securities–cannot be described as a matter that is truly national in importance and scope. Systemic risk, however concerning, cannot justify a complete federal takeover.

Final Comments from the Court

The Supreme Court was careful to confine its decision to the constitutionality of the proposed CSA. Its decision was focused on legislative competence, not policy.

The Supreme Court made clear that "courts do not have the power to declare legislation constitutional simply because they conclude that it may be the best option from the point of view of policy". This statement leaves the door open for alternative strategies for regulating Canada's securities markets.

The Court highlighted the potential for a cooperative approach with both levels of government working in collaboration on securities regulation. The Court appears to suggest that since the matter possesses both central and local aspects, the federal government should pursue an approach that permits a scheme recognizing the essentially provincial nature of securities regulation, while still allowing Parliament to deal with genuinely national concerns.

The Supreme Court also noted, on several occasions, that the federal government grounded its position that the CSA was constitutional entirely on the general trade and commerce power, and that the Court had not been asked to opine on Parliament's authority over securities regulation under other federal heads of power. If the CSA is redrafted, the federal government may contemplate a different constitutional position.

Next Steps?

The Supreme Court's decision arguably provides a map to a new securities regime. It characterizes many aspects of provincial and federal jurisdiction with respect to securities, and suggests where the federal government may be able to regulate (such as with respect to systemic risk). The Court also essentially proposes a cooperative approach between the federal and provincial governments, envisioning roles for both national and provincial regulators.

The federal government has not announced what, if any, steps it will take next. The Supreme Court's decision makes it clear that, absent a constitutional amendment, a single national regulator, without provincial involvement, will not succeed. It remains to be seen whether both levels of government can cooperate on a national securities regime that deals with some of the national concerns raised by the federal government. For now, the only thing that remains certain is that a national securities regulator will not be in place any time soon.

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

Click to Login as an existing user or Register so you can print this article.

Alan P. Gardner
Ranjan K. Agarwal
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions