Canada: Trading Securities While Holding Public Office: When Is A Blind Trust Mandatory?
Political Law Bulletin

Recent allegations that several members of US Congress traded on information obtained at a government briefing on the COVID-19 pandemic have been met with anger and frustration, but also surprise: politicians can trade in securities while holding public office?

There is little doubt that Canadian politicians and political staff are also exposed to valuable, non-public information in the course of their work (and perhaps especially so during a pandemic). This knowledge may give rise to financial conflicts of interest and, if acted upon, break the law. The same question naturally arises: are Canadian politicians permitted to trade in securities?

The short answer is, it depends.

The following provides an overview of who can and who cannot trade securities while holding office federally or in Ontario, and who must divest their securities or place them in a mandatory blind trust.

Which federal politicians must establish a blind trust?

The Conflict of Interest Act prohibits federal reporting public office holders (RPOHs) from acquiring and holding controlled assets during the term of their office. Within 120 days of becoming a public office holder, a federal RPOH must divest his or her controlled assets by either selling them in an arm's length transaction or placing them in a blind trust.¹

Federal RPOHs include:

• The Prime Minister;
• Cabinet Ministers;
• Ministers of State;
• Parliamentary Secretaries;
• Full-time and salaried Cabinet appointees, including deputy ministers and many heads of agencies;
• Ministerial advisers; and
• Ministerial staff who work more than 15 hours per week.²

Controlled assets are those assets whose value could be directly or indirectly affected by government decisions or policy. They include, but are not limited to:

• Publicly traded securities of corporations foreign governments;
• Self administered RRSPs and RESPs;
• RIFFS composed of at least one asset that would be considered controlled if held outside the plan or fund;
• Commodities, futures and foreign currencies; and
• Stock options, warrants and rights.³

It is important to note that MPs and their staff are not federal RPOHs and, as such, they are not obligated under the Conflict of Interest Act to divest their financial holdings by selling them or placing them in a blind trust. The Conflict of Interest Code for Members of the House of Commons also does not have a divestment requirement for MPs.

However, if the Conflict of Interest Commissioner is of the opinion that an MP's holding in a publicly traded company is so significant that it may affect their obligations under the Code, the Member of Parliament can remain in compliance with the Code by placing these securities in a blind trust.⁴

MPs may also request an opinion from the federal Conflict of Interest Commissioner regarding their obligations under the Code, including as they relate to their investments.⁵

Which Ontario provincial politicians must establish a blind trust?

Similarly, the Members' Integrity Act prohibits a member of Executive Council (Cabinet Ministers, Ministers or Members of Cabinet) from holding or trading in securities, stocks, futures or commodities.⁶ While holding these positions, they must either divest these assets or place them in a blind trust.

MPPs who are not part of the Executive Council are free to hold or trade in securities, stocks, futures or commodities,⁷ but must not use information obtained in their official capacity to further their own or another person's private interests.⁸ Similarly, Ministerial staff are not required to divest their securities or place them in a blind trust. However, they have a duty under the Public Service of Ontario Act to notify the Integrity Commissioner of any pecuniary interests that could give rise to potential conflicts of interest.⁹

MPPs and Ministerial staff may request an advisory opinion from the Integrity Commissioner to ensure that their investments are compliant with any applicable conflict of interest rules. The Integrity Commissioner, for example, has advised a senior member of a Minister's staff to divest her holdings in cannabis stocks as her role required her to possibly work with stakeholders from the cannabis sector.¹⁰ In other cases, the Integrity Commissioner may be of the view that a blind trust would be a suitable measure to ensure compliance.

Features of mandatory blind trusts

A blind trust is a type of trust where the trustee has full authority over the assets held in the trust and the beneficiary has no knowledge of the assets held in the trust.

As explained above, only federal RPOHs and members of Ontario's Executive council are obligated to place their assets in a blind trust (if they choose not to divest).

These mandatory blind trusts have the following requirements:

• The federal RPOH or member of Ontario's Executive Council shall not have any power or control over the trust assets;
• The trustee shall not consult with or seek instruction from the federal RPOH or member of Ontario's Executive Council with respect to the administration of the trust;
• The trustee shall not provide information about the composition of the trust assets to the federal RPOH or member of Ontario's Executive Council; and
• The term of the trust shall be as long as the federal RPOH or member of Ontario's Executive Council holds their position.

Additionally, for trusts established by a member of Ontario's Executive Council, the provisions of the trust agreement and the trustee must be approved by the Integrity Commissioner of Ontario.¹¹ There is no statutory requirement that the federal Conflict of Interest Commissioner approve the provisions of the trust agreement of a federal RPOH, although the Commissioner must be satisfied that an arm's length relationship between the federal RPOH and the trustee exists.¹²

Federal RPOHs or members of Ontario's Executive Council who must place their assets in a blind trust are eligible for the reimbursement of reasonable costs associated with the establishment and administration of the trust.

Conclusion

Federal RPOHs and members of Ontario's Executive Council are statutorily prohibited from trading in securities and must either divest these assets or place them in a blind trust.

Please contact any member of Fasken's Political Law team for more information on the subject of this bulletin.

Footnotes