A National Securities Regulator is Unconstitutional says Alberta and Quebec

The Alberta Court of Appeal in a unanimous decision in early March held that the proposed federal Securities Act (the “Act”) is unconstitutional. 

Justice Slatter, writing for the unanimous court stated that if the legislation “were to be enacted, it would be unconstitutional”.  The core of Justice Slatter’s reasoning is that securities regulation has always been within the provincial jurisdiction, so to allow the federal government to usurp the provinces constitutional powers, would be unconstitutional.  The court acknowledged the federal government’s argument that the securities industry has changed and evolved, however the court felt that those changes did not convert who has constitutional jurisdiction over the matter.

In a split decision released March 31, the Quebec Court of Appeal handed down a similar pronouncement to that of the Alberta Court of Appeal.  The court said "The proposed Act does not constitute a valid exercise of the general trade and commerce power."  Again, it was an issue of provincial versus federal constitutional jurisdiction.  Justice Dalphond however, accepted the federal government's arguments.   

The proposed legislation has been the subject of controversy since it was released last May.  Supporters of the Act hoped that it would bring about a more efficient and effective regulatory system.  Both Alberta and Quebec have been strongly opposed to the Act since the beginning. 

So, the plot thickens.  With the conservative government now in the midst of a federal election, where does the issue of a national securities regulator stand?  Both Alberta and Quebec will be arguing their positions before the Supreme Court of Canada this month, where the question as to the constitutionality of the Act will ultimately be decided.  

IIROC and the Social Media Phenomenon

Recently, IIROC published updated guidelines dealing with the supervision of communications using social media web sites, such as Facebook, Twitter and blogs.  The draft guidelines which were published February 7 are out for a 60-day comment period.

The guidelines aim to address “the unique compliance and supervisory issues” that may arise when advisors use social media tools as a means of communicating with their clients and the public for a business purpose says IIROC.  The proposed guidelines are also intended to assist Dealer Members with designing firm policies and procedures to ensure they satisfy their compliance function.

Although IIROC in issuing the proposed guidelines has recognized that the nature of client communications has changed, the guidelines do little in the way of giving Dealer Members “meaty” guidance on how to supervise the activity, leaving Dealer Members to their own devices on how to satisfy their legal and regulatory obligations.  The guidelines tend to blur the lines on the types of communications that have to be pre-approved and those that have to be supervised, the difficulty being determining what constitutes static versus interactive communications.  It is no surprise then that many Dealer Members are hesitant to allow their advisors to use such tools. 

The potential risks associated with using social media are significant, and there is no guarantee of any great returns.  The added costs to Dealer Members in having to establish additional procedures and train staff on how to monitor twitter feeds or advisor blogs can become expensive and time consuming.  There is no requirement for Dealer Members to permit their advisors to use such tools, however, the message is clear, if they are using social media to communicate with clients, the Dealer is required to either pre-approve or supervise the communication, and maintain copies of advertising material. 

Despite the potential risks, Dealer Members and advisors will find it difficult to ignore the explosion of social media tools in everyday business.  Clients have come to expect a different level of service with the social media tools available, and those firms not looking at ways to employ them, may fall behind the eight ball.

Nevertheless, the fact that IIROC has stepped out and tried to provide some guidance to the industry is better than keeping their head buried in the sand on the social media phenomenon that is taking the world by storm.