Top court ruling leaves us no closer to a national securities regulator

First, the good news. It is theoretically conceivable the Supreme Court of Canada could have discovered some constitutional objection to a voluntary agreement among a group of provinces and the federal government transferring responsibility for the regulation of securities markets in the participating provinces to a regulator under the control of those provinces.

I’m not saying it would be easy — not only does the federal government have broad powers under the Constitution to regulate “trade and commerce” in the federation, but the agreement does nothing to diminish or infringe the jurisdiction of even the participating provinces, let alone those that choose to remain outside it — but the court has proved up to this sort of challenge in the past.

This is the court, after all, that recently found a clause in the Constitution stipulating that “All Articles of the Growth Produce or Manufacture of any one of the Provinces shall … be admitted free into each of the other Provinces” meant some articles should be admitted free to some of the provinces some of the time, depending on whether a province had some purpose in mind in barring or hindering their admission other than barring or hindering for the sheer hell of it.

And indeed the Quebec Court of Appeal, asked its opinion on the constitutionality of the scheme by the province’s government, had previously ruled the Co-operative Capital Markets Regulatory System, as it is called, despite its purely voluntary nature, would nevertheless have the effect of “fettering the sovereignty of the participating provinces.”

But of course this is quite wrong, as even the Supreme Court was able to recognize.

The system, codified in a 2016 memorandum of understanding between Ottawa and five provinces — Ontario, British Columbia, Saskatchewan, New Brunswick and P.E.I. — plus one territory (Yukon), comes in two parts: a model act to be adopted in the participating provinces, standardizing their approach to most aspects of securities regulation, plus federal legislation dealing with the specific problem of “systemic risk,” the whole to be administered by a Capital Markets Regulatory Authority under the supervision of a Council of Ministers drawn from the participating provinces and the federal government.

The provinces, understand, are not obliged to pass the model act into law, exactly as written: they have only agreed to try (“best efforts”) to do so. Neither is any prevented from making changes to whatever legislation it does enact. Nor are they required to implement any subsequent changes to the model act that might be agreed upon. The only constraint to which they have agreed is that changes to the model act cannot be made without further agreement. Did I mention the whole thing is purely voluntary?

So, no, even the current Supreme Court, for whom “co-operative federalism” is the god of gods — a principle that appears nowhere in the Constitution but before which the court insists every line of the constitution must bow down — would have had a hard time finding fault with this one. Just so no one thinks this means we now have a national securities regulator.

If the latest proposal found favour with the court — unlike a previous federal attempt to create a national securities regulator on its own, struck down as an unconstitutional invasion of provincial turf in 2011— it is more because it has been watered down beyond recognition than because of any sudden outbreak of sense on the court. Where the 2011 legislation would have seen the feds take over every aspect of securities regulation, this time the federal role is limited to guarding against systemic threats to the Canadian financial system as a whole.

Fair enough, perhaps — except even in this regard the federal role is strictly limited. Not only would the necessary regulations be subject to the approval of the Council of Ministers, and not only would the body charged with administering these regulations be subject to its supervision, but all of this would apply, again, only in the five participating provinces. Nothing compels the other provinces to join them, and indeed the court had barely issued its decision before Quebec announced it would not.

This makes no sense. The court, in its decision, makes a good argument that systemic risk cannot be left to the provinces, either individually or collectively. A default or other event that originates in one province, possibly because of gaps in its regulations or failures to enforce them, can quickly spread to the others, imperilling the stability of the entire system. That is why every other advanced economy entrusts the regulation of securities markets to a single national authority. Only in Canada has it been left to 13 different provincial and territorial regulators.

Yet half the country will remain outside the reach of the new Co-operative Capital Markets Regulatory System. For all the court’s emphasis on the necessity of a national approach to threats to the national economy, systemic risks will remain the responsibility of no fewer than eight separate regulators: those under the ungainly umbrella of the CCMRS, plus the other five provinces and two territories. Perhaps the others will feel it in their interests to join, in time; perhaps they will see a competitive advantage in remaining outside. “Come to (Province X), where you can list your stocks without all that tiresome paperwork!”

Bear in mind that securities regulation is just one item on the broader agenda of repairing our broken economic union, 151 years after Confederation. There remain hundreds of other barriers to the free movement of goods, services, capital and labour between the provinces. And it was supposed to be the easy one!


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