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Reference Concerning the Constitutionality of the Implementation of Pan-Canadian Securities Regulation Under the Authority of a Single Regulator

On September 8, 2014, the federal government made public a Memorandum of Agreement Regarding the Cooperative Capital Markets Regulatory System entered into, to date, by British Columbia, Prince Edward Island, New Brunswick, Ontario, Saskatchewan, and Yukon. Draft versions of a uniform provincial and territorial legislation on capital markets1 and complementary federal legislation, applicable to non-participating provinces and territories as well, were also released at that time. The Memorandum of Agreement and the draft legislation foresee the creation of a new pan-Canadian cooperative body, the Capital Markets Regulatory Authority.

It should be pointed out that, in 2011, the Supreme Court of Canada considered the constitutionality of a similar initiative in the Reference re Securities Act and unanimously concluded “that the day-to-day regulation of securities […] essentially remains a matter of property and civil rights”, an exclusive provincial legislative competence under section 92(13) of the Constitution Act, 1867.

It should also be noted that the Autorité des marchés financiers, an independent body, is currently regulating Québec’s financial sector. Furthermore, the harmonized collaborative regime regulating securities, established in 2004 among the provinces and territories with the exception of Ontario, allows the attainment of the goals of investor protection and economic development, while taking local markets into account.

The federal initiative announced in 2014 has the same objective as that challenged in the 2011 reference to the Supreme Court. The Government of Québec decided to refer the case to the Court of Appeal of Québec for its opinion on the constitutionality of this new initiative (Order in Council No. 642-2015, July 7, 2015).

The questions submitted to the Court of Appeal were formulated as follows (original version in French):

  1. Does the Constitution of Canada authorize the implementation of 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”?
  2. Does the most recent version of the draft of the federal “Capital Markets Stability Act” exceed the authority of the Parliament of Canada over the general branch of the trade and commerce power under section 91(2) of the Constitution Act, 1867?

The Court of Appeal of Québec handed down its opinion in respect of this reference to the court on May 10, 2017. In response to the first question, four of the five judges concluded that the federal initiative is contrary to the Constitution. In response to the second question, a majority of the judges concluded that the federal statute falls under federal jurisdiction over trade and commerce, since its objective is related to systemic risk. However, it is of the opinion that the provisions that subject federal regulations to the approval of the governing body of the cooperative organization render unconstitutional the federal statute if they are not withdrawn from it. The dissenting judge is of the opinion that the Court of Appeal must not answer the first question since it concerns the validity of an intergovernmental agreement that cannot be subject to judicial control. As for the second question, he shares the conclusions of the majority concerning the veritable nature of the federal statute, although his opinion diverges from that of his colleagues on their grounds.

On June 9, 2017, the Attorneys-General of Canada, British Columbia and Québec submitted notice of appeal to the Supreme Court of Canada. Since then, the Attorneys-General of Alberta, Prince Edward Island, Manitoba, New Brunswick, Nova Scotia, Ontario and Saskatchewan have indicated their intention to intervene in the reference to the court.

The hearing before the Supreme Court is set for January 19, 2018.

For further information on this matter, you may consult the following documents:

Case before the Supreme Court of Canada

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Briefs submitted

Case before the Court of Appeal of Québec

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1. A new version of the draft uniform provincial and territorial legislation as well as a draft regulation were published on August 25, 2015.

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