Single regulator ruled unconstitutional

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The Quebec Court of Appeal has ruled a proposed national securities regulator is unconstitutional because the federal government does not have jurisdiction to regulate the securities sector.

The decision from Quebec's top court, released late Thursday, echoes a similar ruling from the Alberta Court of Appeal last month, which also ruled the federal government does not have the constitutional authority to regulate the securities industry.

Both provinces are staunch opponents of the Harper government's initiative to create a single securities regulator in Canada to replace a patchwork of 13 provincial and territorial regulators, and both referred proposed new federal legislation to their respective top courts for a ruling on its constitutionality.

Federal Finance Minister Jim Flaherty unveiled a new national securities act last spring, and the federal government immediately referred the legislation to the Supreme Court of Canada to rule on its constitutionality, arguing it needed to have the legal status clear before the new organization could begin operating.

As Canada's top court, the Supreme Court will ultimately determine the fate of the proposal, despite the negative rulings from the two provincial courts. The top court will hold a two-day hearing this month on the issue and is expected to rule by the end of the year.

Although the Quebec court rejected the regulator plan, it was not a unanimous decision. Four justices of the Quebec court concurred that the proposal is unconstitutional, while Mr. Justice Pierre Dalfond ruled the federal government has the authority to regulate securities.

The majority ruling said provincial jurisdiction to regulate securities has been recognized repeatedly by the courts over the past 80 years and the fact the industry has become more national and international in scope changes nothing about the province's right to regulate the sector.

In a statement Thursday, Quebec finance minister Raymond Bachand said the ruling is "striking proof that Quebec's claims are sound."

"In light of this second ruling, and considering the lack of support from many provinces, I ask the federal government to abandon its plan to encroach on provincial jurisdiction over securities," Mr. Bachand said.

Besides Quebec and Alberta, four other provinces - British Columbia, Alberta, Manitoba and New Brunswick - have applied for status to oppose the federal legislation before the Supreme Court, leaving Ontario as the only province that will support the legislation.