Canada's long pursuit of a more integrated and national approach to securities regulation has received a major boost. In its November 9, 2018 decision in Reference, re Pan-Canadian Securities Regulation the Supreme Court of Canada unanimously upheld the constitutionality of a proposal to implement a national cooperative capital markets regulatory system currently embraced by the federal government and six (6) of thirteen (13) provincial and territorial governments. The judgment confirms the Court's 2011 decision that, although the federal government does not have the ability to unilaterally establish a single Canadian securities regulator, Parliament and the provinces may exercise their respective powers collaboratively to create a pan-Canadian securities regulator.
Two questions were before the Court:
- Does the Constitution of Canada authorize the implementation of a pan-Canadian securities regulation under the authority of a single regulator, according to the model established by the most recent publication of the Memorandum of Agreement regarding the Cooperative Capital Markets Regulatory System ("MOA")?
- Does the most recent version of the draft of the federal Capital Markets Stability Act ("CMSA") exceed the authority of the Parliament of Canada over the general branch of the trade and commerce power under subsection 91(2) of the Constitution Act, 1867?
The Court held that the MOA does not run afoul of the principle of parliamentary sovereignty or the rule respecting the legislature's authority to delegate law-making powers and that the enactment of the CMSA falls within Parliament's power over trade and commerce under s. 91(2) of the Constitution Act, 1867.1
As discussed previously here, in a 2011 reference the Supreme Court found that a proposed federal statute which had as its purpose the establishment of a single Canadian securities regulator was ultra vires Parliament's authority as set out in section 91 of the Constitution Act, 1867 (the "2011 Reference").2 The Supreme Court found that the proposed statute encroached too greatly on the provinces' jurisdiction over property and civil rights because it focused on the day-to-day regulation of securities. However, the Supreme Court left open the possibility that Parliament could pass legislation focusing on truly national concerns relating to securities, such as the prevention and management of systemic risk. The Supreme Court also found that it was open to Parliament and the provinces to exercise their respective powers over securities harmoniously.
Following the 2011 Reference, five provinces, one territory and the federal government entered into the MOA.3 The regime contemplated by the MOA has the following principal components:
- The CMSA—federal legislation aimed at responding to issues of national concern such as systemic risk and criminal law;
- The Capital Markets Act (the "CMA")—uniform provincial and territorial legislation aimed at the day-to-day intra-provincial regulation of securities;
- The Capital Markets Regulatory Authority (the "CMRA")—a single authority to administer the entire cooperative regime; and
- The Council of Ministers—a body made up of the federal Minister of Finance and the Ministers responsible for securities regulation in each participating province and territory. The MOA provides that the Council of Ministers is responsible for the supervision of the CMRA and has approval authority for proposed amendments to the CMA and proposed regulations made under the CMSA.
Judgment of the Quebec Court of Appeal
Quebec, a non-signatory to the MOA, impugned the constitutionality of the proposed cooperative securities regime and referred the two constitutional questions outlined above to the Quebec Court of Appeal.4
On the first question, the majority of the Court of Appeal ruled that the MOA was unconstitutional for two reasons. First, it found that the MOA fettered legislative sovereignty by delegating the authority to amend the uniform provincial CMA to the Council of Ministers. Second the Court of Appeal found that the Council of Ministers' role in approving regulations made under the federal CMSA, as set out in the MOA, conflicted with the principles of federalism. The majority took issue with the MOA's provision of approval power over regulations made under a federal statute to a body made up, in part, of provincial Ministers.
On the second question, the majority ruled that the CMSA did not exceed Parliament's authority and that the pith and substance of the draft federal legislation was the management of systemic risk related to capital markets. However, the majority went on to note that unless the power given to the Council of Ministers to approve regulations made under the CMSA was revoked, the CMSA as a whole would be unconstitutional.
Judgment of the Supreme Court of Canada
In overturning the Quebec Court of Appeal's decision, the Supreme Court held that both the draft CMSA and the regime set out in the MOA were constitutionally sound.
In respect of the first question, the Court held that the MOA does not improperly fetter the legislatures' sovereignty, nor does it entail an impermissible delegation of law-making authority.5 The Court reasoned that neither the executive signatories of the MOA, nor by extension the Council of Ministers, purport to bind the legislatures of their respective jurisdictions under the proposed regime.6 The Court found that nothing in the MOA empowers the Council of Ministers to unilaterally amend the provinces' securities legislation nor does it impose any legal limit on the participating provinces' legislative authority to enact, amend and repeal their respective securities laws as they see fit.7
In respect of the second question, the Court held that the CMSA falls within Parliament's general trade and commerce power. Further, the Court held that the manner in which the CMSA delegates the power to make regulations accords with Parliament's constitutional powers.8 The Court held that the pith and substance of the CMSA is to control systemic risks having the potential to create material adverse effects on the Canadian economy.9 The Court noted that while provinces have the capacity to legislate in respect of systemic risk in their own capital markets, they cannot effectively address systemic national concerns which transcend their own respective concerns and the CMSA, with its carefully tailored scope, constitutes a response to this provincial incapacity, with Parliament stepping in to fill this constitutional gap.10
Signatories' Continued Preparation for Cooperative Regime
The MOA signatories did not sit idle while they waited for the Supreme Court's decision on the constitutionality of their cooperative regime. On May 8, 2018 the signatories released draft prospectus and related registration exemptions ("draft exemptions") made under the CMA for comment. These draft exemptions are set out in a series of regulations which, if enacted, would serve to harmonize the prospectus exemptions provided for in the signatories' jurisdictions.
In a backgrounder published alongside the draft exemptions the MOA signatories undertook to provide an update on the timing of the launch of the cooperative system following the Supreme Court's decision in the constitutional reference. However, the signatories acknowledged that the cooperative system will not be ready for launch by the end of 2018.
The outcome of this Reference can be seen as removing a significant legal cloud that has hung over the initiative. A number of material steps have been completed, including the appointment of an expert Board of Directors, the appointment of the agency's first Chief regulator, and the publication of draft provincial legislation, and the initial Rules proposed thereunder, as well as federal substantive legislation, all of which had been subject to public consultation for comment.11 Nonetheless, a number of key steps remain to see the project to conclusion, including the release of the joint legislation which sets out the governance framework contemplated by the MOA.
Now that the constitutional uncertainty has been removed, market participants and investors who operate within and are protected by the capital markets regulatory system, will be watching to see if there is sufficient political will among the participating jurisdictions to see this initiative to fruition.
 Reference re Pan-Canadian Securities Regulation, at para. 129.
 Reference re Securities Act, 2011 SCC 66.
 British Columbia, Ontario, Saskatchewan, Prince Edward Island, Yukon, and Canada signed onto the MOA in July 2016. New Brunswick signed on shortly thereafter in August 2016.
 Renvoi relatif à la réglementation pancanadienne des valeurs mobilières, 2017 QCCA 756. For a summary and discussion of the Court of Appeal's judgement, see Lawrence E. Ricthie, David Rankin & Robert Yalden "Québec Court of Appeal finds aspects of the proposed co-operative capital markets model unconstitutional" (12 May 2017), Osler, www.osler.com/en/resources/governance/2017/quebec-court-of-appeal-finds-aspects-of-the-propos.
 Reference re Pan-Canadian Securities Regulation, at para. 7.
 Reference re Pan-Canadian Securities Regulation, at para. 61.
 Reference re Pan-Canadian Securities Regulation, at para. 78.
 Reference re Pan-Canadian Securities Regulation, at para. 85.
 Reference re Pan-Canadian Securities Regulation, at para. 87.
 Reference re Pan-Canadian Securities Regulation, at paras. 113–114.
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