The Supreme Court ruled on Dec. 22 that the federal government's attempts to create a single Canadian securities regulator is "not valid" under the Constitution.
What is the issue?
Canada is one of the few G8 countries that doesn’t have an umbrella agency that governs companies that want to sell stocks, issue bonds or other financial products to the public.
Since he took office in 2006, Finance Minister Jim Flaherty has advocated for a national securities watchdog. He argues that such an agency would be more "comprehensive" and effective than the disparate collection of provincial regulator in stopping Earl Jones-style Ponzi schemes and other financial frauds that have arisen in Canada in the past few years.
Why is this controversial?
Regulating the stock and commodities markets is currently the jurisdiction of the 10 provinces and three territories.
A number of provinces and territories, including Ontario, are on board with Flaherty’s proposal. There are several holdouts, however, which is why the finance minister has sought agreement from the Supreme Court.
What the Supreme Court delivered on Dec. 22 was an "advisory opinion" on the legality of establishing a national securities regulator without the approval of all provinces and territories.
Who’s in favour of a national securities regulator?
Among the provinces, Ontario is the main proponent, while others have voiced varying degrees of support. The idea also has the backing of much of the Canadian business community, including the Canadian Bankers Association, as well as international bodies like the Organization for Economic Co-operation Development (OECD) and the International Monetary Fund (IMF).
Supporters say a national securities regulator will help discourage white-collar crime by making enforcement much more effective.
Alberta and Quebec are the main holdouts, saying they don’t want to lose control of their local economies to a federal agency. Lower courts in both of those provinces have already ruled that Ottawa is overstepping its bounds in trying to set up the national body.
What did the Supreme Court say?
In its opinion on Flaherty's proposal, the court ruled that the Proposed Canadian Securities Act "is not valid" under the constitution.
"In submitting this proposal, the Canadian government invoked its general trade and commerce power under section 91(2) of the Constitution. The court ruled, however, that this power "cannot be used in a way that denies the provincial legislatures the power to regulate local matters and industries within their boundaries."
The court's opinion really comes down to one thing — namely, that the federal and provincial governments have a shared desire to protect investors, promote fairness and competition and ensure stability in the markets. As a result, the court sees no need for "a wholesale takeover of the regulation of the securities industry which is the ultimate consequence of the proposed federal legislation."
Voices in the debate
"The fact is that Canada is routinely targeted for its lax enforcement of securities fraud and abuses and this suggests that the provinces are not doing an adequate job either to enforce their securities laws, or have not created adequate laws to enforce."
— Robert Adamson, executive director of the CIBC Centre for Corporate Governance and Risk Management at the Segal Graduate Business School at Simon Fraser University, writing on the centre's blog
"A single Canadian security regulator is long overdue. Not only will it reduce the cost of raising capital for businesses in Canada, enhance investor protection and increase Canada’s competitive advantage. It will also permit Canada to play an important leadership role in co-ordinating international action to end the global credit crunch and financial instability in the capital markets."
— Deborah Coyne, lawyer and independent public policy consultant, in an article on her website
"A single, Canadian regulator will offer improved investor protection, better enforcement and fraud prevention, more efficient capital markets and a reduction in the cost of raising capital for businesses of all sizes across the country."
— Canadian Bankers Association, on its website
"Beyond the job losses that such a project may cause, we fear a major shift of decision-making positions and expertise out of Quebec. Montreal, as a financial centre, and Quebec would be weakened."
— Françoise Bertrand, president of the Federation des chambres de commerce du Quebec, in a news release
"The proposed federal securities legislation would enter an area of regulation long occupied by the provinces, and long considered to be clearly within provincial jurisdiction."
— Alberta Court of Appeal, in a decision rejecting legislation for a national securities regulator
"Our view, based on my experience both at Canadian National and at BCE, is that the existing system, the passport system, works well, it functions well."
— Michael Sabia, head of the Caisse de depot et placement du Quebec and former CEO of BCE, speaking to reporters and throwing his support behind the Quebec government's opposition to the creation of a national securities regulator