Ottawa’s proposed national securities regulator would simply mimic what provincial bodies are already doing, and would provide no greater protection from financial market failure, provincial lawyers told the Supreme Court of Canada on Wednesday.
In the opening of a two-day hearing, federal and provincial lawyers jousted over whether Ottawa needs the power to establish a national securities regulator as part of its constitutional responsibility to manage the broader economy.
Ottawa has referred its proposed Securities Act to the top court for a ruling on whether it falls within federal jurisdiction, while lower courts in Quebec and Alberta have ruled against the legislation as an unwarranted intrusion into the historic provincial role over contract law.
Federal lawyers argued that securities trading has become a national, and indeed international, business. And that the Constitution gives Ottawa the power to regulate interprovincial trade and commerce.
But Ottawa has a tough challenge in persuading the court to uphold its legislation. Not only have two appeal courts ruled against it, but federal lawyers want the top court to depart from nearly a century of jurisprudence that established regulation of the securities business as a provincial matter.
Counsel for the provinces said the federal legislation is virtually a carbon copy of existing provincial statutes, and would merely replace a network of provincial bodies with a federal one doing the same job.
“Practically speaking, it is a situation where there was a copy and pasting of the [provincial]provisions,” Quebec’s lawyer, Jean-Yves Bernard said. “It’s too bad there’s no copyright on legislation or Alberta and Quebec could ask for royalties on the federal legislation.”
Mr. Bernard urged the court not to let the wishes of bankers and brokers for a more efficient system override the long-standing constitutional powers of the provinces.
Picking up on the federal argument, Madam Justice Rosalie Abella questioned whether Ottawa’s plan could be justified by the globalization of markets, and the need to manage the systemic risk to the economy posed by massive flows of capital.
Alberta’s lawyer David Tavender urged the court not to be blinded by changes in technology. “Fundamentally, the regulation is done on a contract and property law basis – nothing has changed in that regard,” he said.
He also rejected the suggestion that the single national regulator would be better equipped to deal with the risk of major failure by a securities dealer, noting that the U.S. Securities and Exchange Commission did not prevent the collapse of Lehman Brothers in September, 2008.
However, federal lawyers argued the regulation of securities markets goes far beyond the narrow scope of contract law.
“There is a larger purpose animating our act, namely managing the national economy,” federal lawyer Robert Frater said.
Mr. Frater argued the court should consider three aspects to the securities industry that take it beyond provincial jurisdiction: investors’ protection, the maintenance of fair and efficient capital markets, and managing the kind of systemic risk that resulted in the 2008-2009 market meltdown.
He noted that the Canadian market amounted to $1.4-trillion in issued securities at the end of 2009. “That’s trillion with a ‘tra’,” he joked.
In questioning Mr. Frater, Justice Abella picked up on provincial arguments that they are equally equipped to deal with those broader issues.
Mr. Frater said the court does not need to determine which level of government would be more successful at regulating the industry, merely that it is part of Ottawa’s role in managing the national economy.
Ontario Premier Dalton McGuinty told reporters on Wednesday that Canada’s fragmented regulation system is the “weak link” in the country’s banking system, which has been recognized globally as one of the strongest in the world.
“I think we’ve entered into an era now where we no longer enjoy the luxury of spreading our strengths around,” he said. “We’ve got to play to our natural advantages, play to our strengths.”
Mr. McGuinty reiterated his long-held stance that the head office for the proposed national regulator should be in Toronto, the country’s financial capital. While he acknowledged that many provinces oppose this idea, he likened Toronto’s financial services sector to one of Canada’s hockey legends.
“Secretly, some of Wayne Gretzky’s teammates would have complained that the guy was getting too much ice time,” he said. “But he got the ice time because he scored goals. When it comes to getting ice time and scoring goals in financial services, we’re the strongest player on the team so we should be on the ice when it comes to the location of a national securities regulator.”
Finance Minister Jim Flaherty expects the Supreme Court to reserve its decision for a few months, but that the government is laying the groundwork for the implementation of the legislation.
“We’ve done an awful lot of work,” he said in an interview last week. “So it will be capable of being implemented some time next year.”
With files from Karen Howlett and Tara Perkins