Could a national Canadian securities regulator be on the horizon?
The Supreme Court of Canada’s 9 November 2018 decision removed a significant legal hurdle in the efforts to move forward with a national securities regulatory regime, currently supported by the federal government and six provincial and territorial governments: Ontario, British Columbia, Saskatchewan, New Brunswick, PEI and the Yukon (collectively, the Participants).
The creation of a national capital markets regulator has been discussed and debated at length for many years. While the Supreme Court previously found that the imposition of a national securities regulatory regime by the federal government was unconstitutional, that 2011 decision left open the possibility that a voluntary federal regulatory regime could be lawful. Post-2011, the Participants entered into a Memorandum of Agreement regarding the Cooperative Capital Markets Regulatory System (Memo). The Memo established four main components:
- The Capital Markets Regulatory Authority (CMRA): The proposed national securities regulator responsible for the administration and enforcement of the cooperative regime.
- The Capital Markets Act (CMA): Standardized provincial and territorial securities legislation addressing the day-to-day regulation of securities. Each participant in the pan-Canadian regime would enact legislation that mirrors the CMA.
- The Capital Markets Stability Act (CMSA): Federal legislation regulating issues of systemic, national concern, such as risk in Canada’s economy and criminal law issues.
- The Council of Ministers: The Council would be responsible for supervising the CMRA, and approving proposed amendments to the CMA and proposed regulations made under the CMSA. Individual members would include the federal Minister of Finance, and a selected representative from the cabinet of each participating province and territory.
The Quebec Court of Appeal initially held that the regime proposed under the Memo was unconstitutional, as it unduly fettered provincial and territorial governments’ legislative authority. The Supreme Court reversed the Quebec Court of Appeal’s decision on that point, finding that the pan-Canadian securities regime proposed by the Memo did not improperly fetter the provinces’ legislative authority.
Although this recent decision signifies a step in the right direction for those in support of a national securities regulator, there are still many hurdles to be overcome, both legal and political, before the regime can come into effect. A directors’ and officers’ (D&O) liability insurance policy provides financial protection for the organization, its board and management, when faced with a securities lawsuit. Indemnification for settlement and judgment amounts, as well as legal defence costs, can be provided by D&O liability insurance in the event of a covered claim. While there could be many benefits to a nationally regulated securities regime, including reduced legal fees due to the elimination of concurrent provincial securities actions, directors and officers of publicly traded companies could still face significant liability stemming from disclosure obligations. As such, it would be wise for boards and executives to remain informed of developments in this area.