Nearly a year has passed since the November 9, 2018 ruling of the Supreme Court of Canada (SCC) that the proposed cooperative capital markets regulatory system (Cooperative System) is constitutional. While the unanimous decision in Reference re Pan-Canadian Securities Regulation  3 SCR 189 opened the door to a proposed pan-Canadian securities regulator that will exercise delegated authority from participating jurisdictions, there remains no public implementation timeline for the Cooperative System:
Under the proposed Cooperative System, a single regulator – the Capital Markets Authority (Authority) – would receive delegated powers from the federal government and the governments of Ontario, British Columbia, Saskatchewan, New Brunswick, Nova Scotia, Prince Edward Island and the Yukon (Participating Jurisdictions). The Authority would administer the proposed federal Capital Markets Stability Act (CMSA) and a uniform Capital Markets Act (CMA). The CMA would be adopted by all participating provinces and territories in the Cooperative System to replace their respective securities acts.
A memorandum of agreement (Memorandum) entered into by the Participating Jurisdictions provides for a council of ministers (Council) consisting of the federal minister of finance and the minister responsible for capital markets regulation from each participating province or territory. Among its other powers, the Council would be required to approve regulations proposed by the board of directors of the Authority and any changes to the CMA.
The SCC’s decision overturns the Quebec Court of Appeal’s ruling in the Reference re Pan-Canadian Securities Regulation.
A four-judge majority of the five-member panel of the Quebec Court of Appeal previously determined that the Cooperative System was unconstitutional because it fettered the sovereignty of the respective participating provincial legislatures and was inconsistent with principles of federalism. For more information, please see our May 2017 Blakes Bulletin: National Securities Regulator on the Ropes? Quebec Court of Appeal Rules Proposed Cooperative System Unconstitutional.
In reaching its decision, the SCC addressed two questions from the Quebec Court of Appeal:
Does Canada’s Constitution authorize the implementation of a pan-Canadian securities regulator under the authority of a single regulator, in the model proposed in the Memorandum?
Does the draft CMSA exceed the authority of Parliament over the general branch of the federal trade and commerce power under subsection 91(2) of the Constitution?
Constitutionality of Pan-Canadian Regulator
The SCC held that the proposed Cooperative System does not fetter parliamentary sovereignty because it does not require the legislatures of the participating provinces to adopt amendments to the CMA approved by the Council. Nor does it preclude provincial legislatures from making any other amendments to their securities laws. The executive signatories to the Memorandum were simply bound to “use their best efforts to cause their respective legislatures to enact or approve the Cooperative System Legislation”. This demonstrates that the legislatures remain free to reject the proposed statutes if they wish.
The SCC concluded that the proposed Cooperative System is consistent with principles of parliamentary sovereignty and the rule that the executive cannot bind the legislature.
It also rejected the Quebec government’s argument that the proposed Cooperative System represents an unconstitutional delegation of authority. A legislature has broad authority to delegate subordinate law-making powers to a person or an administrative body. However, a legislature may not delegate its primary authority to legislate in respect of matters that fall within its exclusive jurisdiction under the Constitution.
The SCC concluded that the argument was premised on a misunderstanding about how the Cooperative System is designed to operate. Neither the Memorandum nor the Cooperative System empowers the Council to unilaterally amend the provinces’ securities legislation. No aspect of the Cooperative System imposes a legal limit on the participating provinces’ legislative authority to enact, amend and repeal their respective securities laws as they see fit. Accordingly, primary legislative authority would be maintained and no improper delegation would occur.
Constitutionality of the CMSA
The Quebec Court of Appeal unanimously held that Parliament had the constitutional authority to enact the CMSA. However, four judges determined that certain sections that dealt with the Council’s role and powers in the making of federal regulations were unconstitutional and would, unless removed, render the CMSA as a whole unconstitutional. One dissenting judge disagreed with the majority’s analysis regarding the Council’s role and powers.
The SCC agreed with the dissenting judge. The SCC applied the principles that it developed in its 2011 decision, Reference re Securities Act, in which it rejected a prior attempt to form a national securities regulator, and concluded that the CMSA falls within Parliament’s general trade and commerce power. Moreover, the manner in which the CMSA delegates regulation-making responsibilities to the Council accords with Parliament’s constitutional powers.
Political Versus Legal Effects
The SCC was careful to distinguish the Memorandum’s political and practical effects from its legal effects; pointing out that only the latter were relevant to its analysis. While the Memorandum does not and cannot legally bind the provinces’ respective legislatures, its political objective is to achieve uniformity in provincial securities laws across Canada.
The SCC observed that “[p]ractically speaking . . . the Council of Ministers may well play an important political role in the area of securities regulation if the Cooperative System operates as planned”. Further, the Cooperative System will require a “significant commitment from its participants” including dissolving their existing securities commissions and merging the administration of those commissions into the contemplated organizational structure.
The SCC observed that, “[o]nce this has been done, it would undoubtedly be impractical for those provinces to extricate themselves from the Cooperative System at a later date”.
These practical implications, although irrelevant to the constitutional issues to be determined, are “likely to weigh heavily in the exercise of each jurisdiction’s sovereign will — especially given that, at present, no draft of the Authority’s enabling legislation has yet been published,” the SCC noted.
In April of 2019, Nova Scotia signed on the Cooperative System, the only jurisdiction to join since the SCC ruled that the Cooperative System was constitutional.
The last published implementation timeline for the Cooperative System was released in July 2016. The Participating Jurisdictions at that time issued a statement in May 2018 indicating that they would provide an update on the launch of the Cooperative System once the SCC had issued its decision on the constitutionality of the Cooperative System. However, no new timeline has been provided.
As well, draft legislation establishing the Authority has not yet been released. However, the SCC cautioned that such legislation would “need to be carefully drafted so as to respect the limits on overlapping, yet distinct federal and provincial authority.”
In order for the Cooperative System to operate, the legislature of each Participating Jurisdiction will need to adopt the uniform CMA.
The effect of the results of the recent federal election, which returned a minority parliament, on the prospects and timing for implementation of the Cooperative System are unclear. None of the four national parties with members elected to seats in the 43rd Parliament touched on the implementation of the Cooperative System in their election platforms.