(CN) – Canada’s Supreme Court unanimously dashed the Canadian government’s plan to create a national securities regulator, finding that securities regulation is a provincial responsibility under the country’s constitution.
Canada has 13 provincial and territorial securities regulators, often referred to by critics as an inefficient patchwork out of step with the demands of global financial markets.
The federal government sought to change that and bring securities regulation under one national umbrella. It asked the Supreme Court of Canada whether the legislation would stand up to constitutional challenge.
The provinces won.
“While the economic importance and pervasive character of the securities market may, in principle, support federal intervention that is qualitatively different from what the provinces can do, they do not justify a wholesale takeover of the regulation of the securities industry which is the ultimate consequence of the proposed federal legislation,” the court wrote in a 72-page ruling.
“A cooperative approach that permits a scheme recognizing the essentially provincial nature of securities regulation while allowing Parliament to deal with genuinely national concerns 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.”
Supported by regulators in Ontario but opposed by counterparts in Alberta, Quebec, Manitoba and New Brunswick, the federal government contended “that the securities market has evolved from a provincial matter to a national matter affecting the country as a whole and that, as a consequence, the federal general trade and commerce power gives Parliament legislative authority over all aspects of securities regulation.”
But the court found that investor protection and day-to-day operations of securities markets have long been a provincial responsibility, as it is provincial governments that have jurisdiction over property and civil rights.
The federal government failed to show that securities markets have evolved enough to fall under federal jurisdiction over trade and commerce.
While the court did not rule on the merits of one system or the other, the ruling states that the provincial governments and the federal government are free to explore a cooperative system that would allow “the federal government and the provinces to exercise their respective powers over securities harmoniously.”
The ruling points out that calls for a national regulator are not new, the first dating back to 1935, although “in the past decade, calls for a national securities regulator have intensified.”
The federal government’s plan, however, did “not seek to unilaterally impose a unified system of securities regulation for the whole of Canada,” the ruling states. Instead, it allowed for provinces to opt in or out in the hope that all provinces would be on board, creating a unified system representing “a dramatic realignment in the manner in which securities have been regulated in this country,” the ruling states.
Opponents claimed that the legislation was a “thinly disguised attempt” to regulate the securities industry, which has been under provincial jurisdiction since the country’s confederation in 1867.
In the end, the court found that the dispute hinges upon the constitutional division of powers despite its promotion of cooperation and “flexible federalism.”
“[The] constitutional boundaries that underlie the division of powers must be respected,” the ruling states. “The ‘dominant tide’ of flexible federalism, however strong its pull may be, cannot sweep designated powers out to sea, nor erode the constitutional balance inherent in the Canadian federal state.”