An Integrated and National Approach to Securities Regulation

December 4, 2018 | Rory Godinho

Canada’s pursuit of an integrated and national approach to securities regulation recently received a significant boost. On November 9, 2018, the Supreme Court of Canada released its decision in the 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 (the “Cooperative System”), currently embraced by the Federal Government, the Yukon territory, and the Provinces of British Columbia, Saskatchewan, Ontario, Prince Edward Island, and New Brunswick (the “Participating Jurisdictions”). The judgment confirms the 2011 decision of the Supreme Court which provided 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.


In its 2011 decision, the Supreme Court found that a proposed federal statute which would establish a single Canadian securities regulator was ultra vires Parliament’s authority as set out in section 91 of the Constitution Act, 1867. 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 noted that a harmonized system in which the provinces/territories enacted legislation governing provincial/territorial matters and the Federal Government addressed matters of national concern may be constitutional. The possibility of a national approach to securities regulation left open by the Supreme Court in 2011 ultimately resulted in a memorandum of agreement for the creation of the Cooperative System (the “Memorandum”) with the following principal elements:

  • Capital Markets Act (“CMA”) – Uniform provincial and territorial securities legislation which would govern the “day-to-day” intra-provincial/intra-territorial aspects of the securities trade. Each participating province and territory would enact the CMA. The current draft of the CMA, dated August 2015, is available on the CCMR website.
  • Capital Markets Stability Act (“CMSA”) – Once enacted, federal securities legislation that would regulate criminal matters and matters related to systemic risk in Canada’s capital markets. The current draft of the CMSA, dated January 2016, is available on the CCMR website.
  • Capital Markets Regulatory Authority (“CMRA”) – a national securities regulator to which the federal and provincial/territorial governments will delegate certain regulatory powers. The CMRA is intended to have enforcement and adjudicative functions in addition to its regulatory responsibility. The CMRA will also represent Canada internationally in matters of capital markets regulation.
  • The Council of Ministers – A council comprised of the federal Minister of Finance and the ministers responsible for securities regulation in each of the Participating Jurisdictions. The council would supervise the CMRA and have the authority to approve certain proposed amendments to the CMA and proposed regulations made under the CMSA. A list of the Council of Ministers can be found on the CMAIO website.

The Capital Markets Authority Implementation Organization (“CMAIO”)

CMAIO is a not-for-profit organization incorporated on behalf of the Participating Jurisdictions in July 2015 as an interim body. On July 22, 2016, the Council of Ministers chose 15 qualified individuals, broadly representative of the regions of Canada, to form the initial board of directors of the CMRA (the “Board of Directors”). Pending the creation of the CMRA, the Board of Directors will serve in that same capacity for the CMAIO. The Board of Directors includes Rory Godinho, Miller Thomson LLP’s Co-Chair of the Capital Markets & Securities Practice Group.

The CMAIO’s purpose is to assist in the transition to, and implementation of, a single operationally independent CMRA. Once implemented, the CMRA will better protect investors, enhance Canada’s financial services sector, support efficient capital markets and strengthen the management of systemic risk. It will also preserve the positive elements of the current system, including the capacity to weigh and consider local perspectives. The CMAIO has completed a substantial amount of work resulting in the publication of the consultation drafts of the CMA and the CMSA.

Additionally, the CMAIO has published the following regulations for comment:

  1. draft prospectus and related registration exemptions; and
  2. draft initial regulations.

The above regulations including comments received in response to the regulations can be found on the CCMR website.

The Quebec Reference

In 2016, the Government of Quebec (a non-signatory to the Cooperative System) asked the Quebec Court of Appeal to rule on the constitutionality of the Cooperative System.

The Court of Appeal accepted that the model provincial/territorial CMA and the proposed federal CMSA were each within the legislative authority of the provincial/territorial and federal legislatures, respectively. However, the Court of Appeal held that the Cooperative System would be unconstitutional because of the role of the Council of Ministers. Specifically, the role of the Council of Ministers in amending the legislation and adopting regulations for the Cooperative System would be an infringement of the legislative sovereignty of participating jurisdictions and an impermissible delegation of regulation-making authority

This decision was appealed to the Supreme Court of Canada.

Decision of the Supreme Court of Canada

The Supreme Court unanimously overturned the Quebec Court of Appeal’s decision. The Supreme Court agreed with the Quebec Court of Appeal that the federal CMSA – which the Court accepted was intended to preserve the integrity and stability of the Canadian economy as a whole – was within the Federal Government’s constitutional authority, and did not infringe with the powers of provinces and territories to regulate their own capital markets.

However, the Supreme Court disagreed that the proposed process for amending legislation and adopting regulations was unconstitutional. The Supreme Court held that the Memorandum establishing the Cooperative System did not (and indeed legally could not) interfere with the legislative sovereignty of Participating Jurisdictions because neither the Memorandum nor any of the draft legislation compelled their legislatures to enact any of the legislation forming part of the Cooperative System (or any proposed amendments thereto). Such legislation (and any amendments) would need to be adopted by each participating jurisdiction’s legislature through the conventional legislative process and each legislature would be free to reject any proposed legislation or amendments, or enact its own legislation, if it so chose.

The Supreme Court also disagreed that the CMSA would involve an unconstitutional delegation of regulation-making authority, holding that the federal legislature has broad authority to delegate subordinate law-making powers to a person or an administrative body, including the power to make legally binding regulations. This is true as long as a legislature does not delegate its primary authority to legislate in respect of matters that fall within its exclusive jurisdiction under the Constitution.


The Supreme Court’s decision removes a significant barrier to the implementation of the Cooperative System. The Supreme Court deciding that the Cooperative System does not fetter parliamentary sovereignty made constitutional uncertainty a question of the past. However, the question that remains is whether the Cooperative System will be adopted and that depends primarily on the governments of the Participating Jurisdictions. It is notable that given the length of time that has passed since the Memorandum, there have been changes of government at both the federal level as well as amongst the Participating Jurisdictions. Whether the new governments stay committed to the Cooperative System is to be seen. Additionally, since some provinces (notably Quebec and Alberta) and territories remain opposed to the Cooperative System, it is still unclear whether the ultimate objective of the Cooperative System – to create a truly national harmonized securities regulatory regime – will be achieved. However, even if the Cooperative System is only implemented by the Participating Jurisdictions, the Cooperative System may still bring additional efficiencies to the Canadian securities markets.

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or any other member of our Capital Markets & Securities Practice Group.


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