Following the release of the Supreme Court of Canada's decision on December 22, 2011 in the Reference Re Securities Act, 2011 SCC 66, the Government of Canada will be forced to rethink its efforts to implement a national regime for securities regulation.
Although the Supreme Court acknowledged that aspects of securities regulation raise valid national concerns, it clearly rejected the federal government's claim to constitutional authority to displace day-to-day provincial regulation of the securities industry:
[W]e accept that 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. However, as important as the preservation of capital markets and the maintenance of Canada's financial stability are, they do not justify a wholesale takeover of the regulation of the securities industry which is the ultimate consequence of the proposed federal legislation. The need to prevent and respond to systemic risk may support federal legislation pertaining to the national problem raised by the phenomenon, but it does not alter the basic nature of securities regulation which, as shown, remains primarily focused on local concerns of protecting investors and ensuring the fairness of the markets through regulation of participants....
The Court noted that "a cooperative approach that permits a scheme that recognizes the essentially provincial nature of securities regulation while allowing Parliament to deal with genuinely national concerns remains available." We expect that a cooperative approach to securities regulation that results in a single set of rules and interpretations for all market participants and avoids the unnecessary costs and delays of the current system would be welcomed by all. However, as the Court summarized in its reasons, several proposals for cooperative securities reform since 1935 have proven unsuccessful. Accordingly, while further progress in rationalizing securities regulation in Canada may be made by the provincial and territorial securities regulators, we expect that the impact of this decision will be the maintenance of the status quo of 13 independent regulators for the Canadian securities market.
That being said, by effectively removing the potential for unilateral federal action, this decision will result in a dramatic change in the conversation regarding how Canadian securities regulation should evolve.
The passport system, adopted by all of the provinces and territories other than Ontario, could potentially be expanded. Additionally, some of the preliminary work undertaken by staff of the Canadian Securities Administrators who were seconded to the Canadian Securities Transition Office could be continued as part of the CSA's ongoing efforts to harmonize the rules under the existing provincial and territorial securities legislation.
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