Canada’s highest court has given a green light to a more unified approach to securities regulation across the country. But experts say the development of a cooperative securities regulator still faces many challenges.
In a unanimous decision in November, 2018, the Supreme Court of Canada found that the Cooperative Capital Markets Regulatory System was constitutional, overturning a Quebec Court of Appeal decision that found that the regime overstepped the federal government’s ability to make decisions on trade and commerce.
The CCMR aims to replace securities regulation in participating jurisdictions with a harmonized regulatory framework.
It includes a model statute that would become law in all participating provinces and territories as well as a federal law allowing the Canadian government to regulate systemic risks affecting capital markets.
Ideally, the CCMR would create what John M. Tuzyk calls “one-stop shopping” – a multi-jurisdictional cross-Canada unified approach to securities regulation.
However, the Toronto-based partner with Blake, Cassels & Graydon LLP points out that not all provinces have signed on to the CCMR.
The cooperative regime is currently endorsed by the federal government, along with the governments of Ontario, British Columbia, New Brunswick, Prince Edward Island, Saskatchewan and the Yukon.
Advocates say the CCMR will create a more efficient system for capital markets by streamlining regulations to protect investors and manage systemic risk.
But experts such as Tuzyk agree that the CCMR will face many challenges in implementation and operation in the future.
The idea of a national securities regulator has been around for more than 80 years, says Barbara Hendrickson, the chief executive officer and founder of BAX Securities Law in Toronto.
“This is a regulatory area where people have been asking for change for a long, long time,” says Hendrickson, who credits the Canadian Bar Association with being at the forefront of advocating for this change.
In 1935, the Royal Commission on Price Spreads recommended that Canada create a national securities board. Since that time there have been numerous attempts to develop a cross-Canada framework for capital markets.
“For many years, the provincial securities regulators worked to harmonize their rules in what became known as national instruments,” says Tuzyk.
Under this system, provincial securities regulators used a passport system giving every issuer a so-called “principal jurisdiction,” he explains.
“The idea of the passport system was that the provincial regulators would substantially rely on the administration by the principal regulator. So if you were dealing in one province and that province gave you a pass, then another province would heavily rely on that and not do its own complete investigation or review without completely abandoning its jurisdiction,” says Tuzyk.
The regime became fractured, he adds, when Ontario refused to participate in the passport system to pressure the rest of Canada to create a national security regulator.
Then in 2011, the Supreme Court of Canada rejected the creation of a federal security regulator.
At that time, the court found that the federal government did not have the constitutional authority to create the national regulator as the provinces have the jurisdiction to make day-to-day decisions about capital markets.
Andrea Laing, also a partner with Blake, Cassels & Graydon LLP, says that in analyzing the 2011 Supreme Court of Canada decision, she was not surprised by the unanimous ruling in 2018.
“I don’t see the two decisions as being diametrically opposed,” she says. “I really see the latest decision as building on the framework that was laid down in 2011 when the Supreme Court disallowed the federal securities legislation.”
The earlier case laid the groundwork for a cooperative securities regime between the federal government and the provincial governments by suggesting “that they could work together in areas that were outside their legislative competence,” says Laing, who practices in the area of corporate and commercial litigation in Toronto.
Challenges for the CCMR
Even though the CCMR has been found to be constitutional, there are still many challenges ahead, experts agree.
Each of the provinces that want to opt in to the cooperative securities framework will now need to adopt the standard legislation to replace the current securities law.
“Each jurisdiction has to adopt the exact same legislation as everyone else or it doesn’t work,” says Tuzyk.
This could be a challenge, says Laing, as “there is a significant degree of turnover in leadership at the provincial level.”
“One thing we are also waiting for to see is if the provinces who initially endorsed the cooperative system will want to continue to do so,” she adds.
As well, one of the main issues with the CCMR is that the securities regulator is not accepted by all provinces across Canada.
“Some provinces – Alberta and Quebec primarily – are not keen on the federal government being involved in securities regulation and want to keep securities regulation as a wholly under provincial government jurisdiction,” says Tuzyk.
Hendrickson, who has practiced in the securities and corporate areas for more than 20 years, describes the CCMR in its current form as “patchwork.”
The two main holdouts, Alberta and Quebec, could hamper the efforts to make a Canadian securities regime, she says. “If you’re looking at Canada from an international perspective, you are still going to be dealing with three jurisdictions.”
Tuzyk says this is a challenge that the new securities regime will have to deal with.
“Something that is unknown is the degree to which this new regulator will harmonize administration with the non-participating provinces. We don’t know what the interface is going to be between the new regulator and the provinces like Quebec and Alberta and others that haven’t joined and don’t look like they are going to join,” he says. “There is a risk that we’re going to be worse off than before Ontario effectively withdrew from the passport system.”