Canada’s Decentralized Securities Regulation Continues—What Can the United States Gain From Canada’s Unique Experience?

by Keith Edmund White

Canada was always unique in how it approached regulating its securities market—being the world's only major economy to adopt a provincial approach to securities regulation.  And now it stands to become an even greater outlier: with the Canadian Supreme Court’s unanimous decision last December finding a proposal to create a comprehensive federal regulator unconstitutional (Reference re Securities Act).  But first, how could the Canadian Supreme Court rule that securities regulation doesn't fall under the federal government's authority?  Well, in short, it didn’t—instead it stated knocked down a comprehensive federal opt-in regulator; yet, it did point out federal areas of regulation.  From the Financial Post:

Power has shifted with the unanimous decision of the court, which establishes that oversight for the investment industry fits squarely within the “property and civil rights” powers that were assigned to the provinces by the Constitution Act of 1867.

But some industry groups hailed the decision as progress, noting that the Supreme Court’s acknowledgment of federal jurisdiction over such matters as systemic risk pushes the idea of some sort of national regulation further along than in the more than 40 years its has been considered.

Naturally, the decision has not killed plans for federal securities regulation—but it has sure made the project much more complicated.  Officially, the Conservative government in Canada has shelved plans for a federal regulator, but just last month Canada's Finance Minister--Jim Flaherty--made clear he hasn't given up on the federal project.   

(Side-note:  The blog concise but thorough summary can be found in this Dec. Financial Post blog post by Jeffrey MacIntosh—though it may be a touch to giddy about the federal government’s Supreme Court slap-down.)

I’ll be exploring this topic in the coming months.  But, for a quite primer on the differences between America and Canada’s respective approaches to securities regulation check out Heather Zordel’s 2010 article Unconventional Wisdom and the Canadian Securities Market.