Flaherty's smack down

Supreme Court rejects national securities regulator plan

By Drew Hasselback, Financial Post December 22, 2011 10:06 AM

The Supreme Court of Canada has ruled on the constitutionality of a national securities regulator, as proposed by the federal government.

OTTAWA — The federal government's ambitious plan to set up a single national securities regulator has been dealt a severe blow by the Supreme Court of Canada, which ruled Thursday that Ottawa's proposed legislation is unconstitutional.

In a ruling that is bound to disappoint Ottawa, Ontario, and several business groups, the Supreme Court held that oversight for the investment industry fits squarely within the "property and civil rights" powers that are assigned to the provinces by the Constitution Act of 1867.

Ottawa had tried to claim control over the securities business by invoking its regulatory power over trade and commerce, but the Supreme Court ruled that the federal government's plan overstepped the constitutional boundaries that case law has erected over time to prevent Ottawa from overusing that power.

In the unanimous decision, which was released by the court and is therefore not attributed to any specific judge as author, the court says Ottawa's planned approach would dive too deeply into the day-to-day operations of the securities industry, which are contractual in nature and therefore fit squarely within the provincial power over property and civil rights.

Yet the ruling does suggest that it would be possible for both levels of government to seek "common ground" and share oversight of securities, with the provinces able to look after the day-to-day aspects of the industry and the federal government able to keep an eye on systemic risk.

"While the proposed act must be found ultra vires (beyond) Parliament's general trade and commerce power, a co-operative approach that permits a scheme that recognizes the essentially provincial nature of securities regulation while allowing Parliament to deal with genuinely national concerns remains available," the court's written 64-page written ruling states.

Finance Minister Jim Flaherty introduced the Proposed Canada Securities Act in May 2010. The federal government's plan called for the provinces to voluntarily join a scheme that would gradually transfer regulation of securities to a single national regulator from the current patchwork of 13 provincial and territorial securities commissions.

The federal proposal is too heavy handed and upsets the existing constitutional balance that exists in the division of powers, the court said.

"Co-operation is the animating force. The federalism principle upon which Canada's constitutional framework rests demands nothing less."

The court's reasoning strictly adheres to previous court rulings and treats the question before the court as a legal problem, not a policy one. It applied a five-step test from a 1989 decision called General Motors that sets out the boundaries for the federal government's trade and commerce power. The essence of the test is to determine whether the federal government seeks to oversee something that would be beyond the ability of the provinces to regulate on their own.

For generations, previous court rulings have confirmed that securities oversight was a provincial competence under the "property and civil rights" provisions of the Constitution.

Indeed, provincial courts of appeal in Alberta and Quebec have previously concluded that Ottawa's planned legislation is constitutionally out of bounds. Alberta's Court of Appeal last March ruled 5-0 that Ottawa lacked the power to regulate securities, while Quebec's court in early April rejected Ottawa's plan in a 4-1 ruling.

In a decision that reiterates long-held constitutional boundaries, the nine Supreme Court judges unanimously confirmed that Ottawa's legislations fails the constitutional test.

Financial Post

dhasselback@nationalpost.com
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