What’s the background on this issue?
Canada is the only major industrialized country without a national securities regulator. Several expert studies have said this is a problem. In May, 2010, Finance Minister Jim Flaherty promised to address this with a proposed Canadian Securities Act. Knowing that some provinces would argue that the federal government is overstepping its constitutional bounds, Mr. Flaherty asked the Supreme Court of Canada for its opinion on whether Parliament has the right to legislate in this area.
What was the Supreme Court’s main message?
The government’s proposed law goes too far. While Ottawa’s powers under the Constitution relating to trade and commerce give the federal government some room to act in this area, the day-to-day regulation of securities markets is clearly a power reserved for the provinces.
Does the court weigh in on whether investors would be better served by a national regulator?
No. The ruling stresses that it would be inappropriate to comment on the larger question of whether a national regulator is better than having 10 provincial regulators. In the words of the nine justices: “The courts do not have the power to declare legislation constitutional simply because they conclude that it may be the best option in terms of public policy.”
Investor and banking groups supported the proposed federal law. Why did they react positively after the court ruled it was unconstitutional?
Even though their legal arguments in favour of Ottawa’s law were rejected, the banking and investment industry praised the fact that the court identified areas where the federal government does have the constitutional power to regulate securities. The industry says the ruling lays out a path for Ottawa to work with the provinces to create a national regulator that respects provincial powers.
Ottawa isn’t saying whether it has the stomach to take another crack at this. Mr. Flaherty said he won’t move ahead with his proposed law, but the government “will review the decision carefully and act in accordance with it.” The court does hint at a way forward, however. While the provinces could remain in charge of regulating securities markets as part of a national system, Ottawa could play a role in areas such as collecting data and preventing “systemic risk” to the economy.