A pan-Canadian securities regulator at last?

By Justin Ling March 19, 201819 March 2018

A pan-Canadian securities regulator at last?

It’s déjà vu, all over again, as the Quebec government heads to the Supreme Court to try and nix an opt-in national securities regulator.

The case is the culmination of a fight that originally began as a crowd-pleasing compromise solution.

A provincial history: In 2011, the top court considered in a reference case the constitutionality of a proposed national securities regulator and unanimously concluded “that the day-to-day regulation of securities […] essentially remains a matter of property and civil rights”, which falls under exclusive provincial jurisdiction.

It also held that the nature of a financial market “may, in principle, support federal intervention that is qualitatively different from what the provinces can do,” but ultimately concluded that, despite their fundamentally intertwined nature, they couldn’t be managed by a single desk — at least not by Ottawa’s edict. The court called that the “wholesale takeover of the regulation.”

Instead, the court said that a “cooperative approach” which would allow for “the essentially provincial nature of securities regulation” could work, while simultaneously addressing national issues “remains available and is supported by Canadian constitutional principles and by the practice adopted by the federal and provincial governments in other fields of activities.”

It was invitation of sorts to Ottawa to figure out a voluntary system.

The limits of voluntary: As CBA National reported in 2016, creating an opt-in regulator is easier said than done. There was promise at first, with the government of Ontario volunteering for the scheme, alongside British Columbia, Saskatchewan, New Brunswick, PEI and Yukon. But there were two notable hold-outs in Quebec and Alberta. Manitoba, Nova Scotia, Newfoundland & Labrador, the Northwest Territories and Nunavut are also refusing to participate. 

The project, entitled the The Cooperative Capital Markets Regulatory System, forged ahead nonetheless.

A lengthy back-and-forth over the fine print of the regulator’s scope dragged on throughout 2014, 2015, and into 2016, but a final memorandum of agreement came out of it, by September of that year. The provinces who have signed up intend to have legislation adopted at both the provincial and federal level by June 30 of this year. The regulator announced its executive management team at the end of January.

The problem: Even though Quebec is free to sit out Ottawa’s voluntary regulator, it filed a reference pertaining to the regulatory system. The Quebec Court of Appeal  agreed with the  assertion that the system, as proposed, infringed on the provinces’ authority.

Digging deep deep into the test of what was being proposed by the voluntary regulator and, the court found that it was compatible with the constitution — except for one part. The proposal to create a council of ministers, compromised of the various finance ministers for the provinces who have signed up, would render the whole thing unconstitutional.

The Quebec ruling made the whole thing fraught once again. Given the uncertainty that it threw into the mix, it’s no surprise that the matter made its way to the Supreme Court. Arguments will be heard this week on March 22.

The end of the line, at last? The Attorney-General of Canada’s factum carries with it a tone of relative incredulity.

For one, they argue, the cooperative opt-in framework appears to have been exactly what was contemplated by the Supreme Court in its original decision in 2011. The memorandum of agreement between Ottawa and the opted-in provinces proposes a regulator tasked with creating consistency and normalcy to a currently-amd-uniquely-fractured system — that doesn’t mean that the regulator would become a super-national body that would “fetter parliamentary or legislative sovereignty,” the Attorney-General wrote.

“The Court of Appeal unreasonably construed the text of the agreement by failing to read the agreement as a whole, and by mischaracterizing the effect of key provisions,” they continued.

Quebec’s Attorney-General, however, sees wisdom in the Court of Appeal’s decision, contending that the decision actually manages to capture the totally of the issue quite well.

“The real objective of the parties is to uniformize and centralize securities regulation and strip the provinces of the ability for any autonomous legislative action in that field,” Quebec’s Attorney-General writes in their factum. “This is a surrender of jurisdiction, far from the type of collaboration this Court contemplated in its 2011 ruling. In short, it is a colourable attempt to amend the Constitution.”

But while it may be easy to see this as merely federal-provincial jurisdictional wrangling, an intervention from the Quebec Bar does raise the possibility that the Supreme Court could find that this cooperative system isn’t the type of cooperative system it had envisioned in 2011.

Ottawa’s plan, here, they write, “sets up an arrangement between the Parliament of Canada and the provincial legislatures where there exists no subject which laws cannot be devised to apply to. Therefore, if we were forced to put in place this cooperative regime where provincial legislation would need to be made uniform each time a new global regulatory efficiency is improvised, this would, then, redefine the federal authority to be more or less unitary.”

In other words: What’s the point of having provincial enacting legislation if it is, in effect, just dictated from Ottawa? Even if it’s voluntary, it’s still an encroachment on the rights of the provinces, if we were to accept this line of thinking.

Obviously, the provinces who signed up for the regulator will have issue to take with that — after all, the council of ministers is specifically designed to allow the parties to block or veto efforts to ram through changes or updates.

Either way, it seems a final answer may be on the horizon.

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