The proposed Canadian Securities Act creating a single national federal securities regulator and regime is not valid under the general branch of the federal power to regulate trade and commerce under s. 91(2) of the Constitution Act, 1867, ruled the Supreme Court of Canada. In an advisory opinion, the Court said that, while the trade and commerce power is broad its face broad, it cannot be used in a way that denies the provincial legislatures the power to regulate local matters and industries within their boundaries. Allowing an interpretation of the general trade and commerce power supporting an exclusively federal securities regulatory regime, said the Court, would disrupt the careful balance of federal and provincial powers.
Parliament cannot regulate the whole of the securities system simply because aspects of it have a national dimension, held the Court. The Court did say, however, that a cooperative approach involving a regime recognizing the essentially provincial nature of securities regulation while allowing Parliament to deal with genuinely national concerns, such as systemic risk, remains available and is supported by Canadian constitutional principles. But the Court cautioned that the need to prevent and respond to systemic risk may support federal legislation pertaining to the national problem raised by this phenomenon, but it does not alter the basic nature of securities regulation which remains primarily focused on local concerns of protecting investors and ensuring the fairness of the markets through regulation of participants.
Taken as a whole, the proposed Act overreaches genuine national concerns. While acknowledging that the economic importance and pervasive character of the securities market may, in principle, support federal intervention, the Court said that this does not justify a wholesale takeover of the regulation of the securities industry, which is the ultimate consequence of the proposed federal legislation. Indeed, in order to be included in the comprehensive regulatory scheme created by the Act, provinces and territories must suspend their own securities laws. The follow-through effects of the proposed Act will therefore be to subsume the existing provincial and territorial legislative schemes governing securities under the federal regulatory scheme.
The main thrust of the Canadian Securities Act is to exclusively regulate 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. It would effectively duplicate and displace the existing provincial and territorial securities regimes.
Viewed in its entirety, noted the Court, the Act cannot be classified as falling within the general trade and commerce power. The main thrust of the legislation 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.
Canada has not established that the area of securities has been so transformed that it now falls to be regulated under the federal head of power. The preservation of capital markets to fuel Canada’s economy and maintain Canada’s financial stability is a matter that goes beyond a specific industry and engages trade as a whole.
However, the Act is chiefly concerned with the day to day regulation of all aspects of contracts for securities within the provinces, including all aspects of public protection and professional competences. In the Court’s view, these matters remain essentially provincial concerns falling within property and civil rights in the provinces and are not related to trade as a whole.
Specific aspects of the Act aimed at addressing matters of genuine national importance and scope going to trade as a whole in a way that is distinct from provincial concerns, including management of systemic risk and national data collection, appear to be related to the general trade and commerce power. With respect to these aspects of the Act, the provinces, acting alone or in concert, lack the constitutional capacity to sustain a viable national scheme. Viewed as a whole, however, the Act is not chiefly aimed at genuine federal concerns. It is principally directed at the day to day regulation of all aspects of securities and, in this respect, it would not founder if a particular province failed to participate in the federal scheme.