Skip to main content

British Columbia has warned the Supreme Court of Canada that Ottawa's proposed legislation to establish a national securities regulator is 'a constitutional Trojan horse' that would allow the federal government to seize key regulatory powers from the provinces.

In the second day of a two-day hearing, lawyers for four provinces – B.C., Saskatchewan, Manitoba and New Brunswick – sparred with Ontario and industry associations that argue a national regulator would give Ottawa a critical lever in its effort to safeguard the national economy.

B.C. and Saskatchewan are not opposed to a federally led national regulatory body, provincial counsel told the nine judges. But they worry that the court's approval of the federal government's proposed Securities Act would create a troubling precedent, giving Ottawa de facto jurisdiction over areas such as insurance and trusts that are now regulated by the provinces.

After years of attempting to win provincial approval for a national regulator, the federal government – backed by Ontario – has decided to proceed and has asked the top court to rule in advance whether it has the constitutional jurisdiction to do so under its trade and commerce powers.

The court reserved judgment in the case, and will likely take several months to issue a ruling.

British Columbia's opposition to the legislation came as a disappointment to Ottawa and industry proponents because the province had supported in principle the establishment of a national body.

"The proposed act is a constitutional Trojan horse," B.C. lawyer George Copley told the panel of nine justices, led by Chief Justice Beverley McLachlin.

"Once it is dragged through the gates, this Trojan horse cannot be expelled and its forces become paramount to the provinces' local forces which are under the banner of property and civil rights."

Mr. Copley was reprising a theme that figured prominently in two days of oral argument.

Mr. Justice Louis LeBel persistently questioned lawyers whether the historic balance of Canadian federalism would be upset by a court ruling that recognized a federal regulatory role in an area of traditional provincial competence.

Judge LeBel used the Trojan horse metaphor himself when he quoted – in Virgil's original Latin – the warning: "Beware of Greeks bearing gifts." He suggested that Ottawa's "voluntary" approach would offer no escape for provinces that join the system but then find it wanting, and would create a precedent for federal intrusion into other areas.

Saskatchewan also argued that it was not opposed to a national regulator, but that it should be done under a "co-operative federalism model" rather than what lawyer Graeme Mitchell called Ottawa's "unilateral" approach.

"There is a way to structure a single regulator that is much different from the current federal approach," Mr. Mitchell said. However, he offered no details on what that approach might look like, nor was he asked by the judges to elaborate.

Lawyers for investor groups said a national system is necessary for efficient regulation of systemic risk and proper enforcement when abuses occur.

Kelley McKinnon, lawyer for the Ontario Teachers' Pension Plan, said a critical element of securities regulation is managing the risks to the national economy that could arise from abuse.

"From a financial investor's perspective, that is absolutely critical and it can only be done efficiently at the federal level," Ms. McKinnon said.

Madam Justice Rosalie Abella, however, noted the World Bank has rated Canada's capital market oversight as highly effective – better than that of the United States or the United Kingdom, which have national regulators.

Luis Sarabia, representing the Canadian Coalition for Good Governance, said the provinces simply cannot provide national enforcement against abuse of Canadian or international investors in securities.

He argued that few provinces take up enforcement orders from other jurisdictions barring scam artists from participating in capital market activities. The priority of the provincial regulators – indeed their principle mandate – is to protect investors within their jurisdiction.

The regulation of Canada's capital markets is an essential element of the country's economic well-being, and should be undertaken by a national government, lawyers representing Ontario and investors told the Supreme Court of Canada on Thursday.

Under tough questioning from several justices, Ontario lawyer Janet Minor said the province backs the federal government's position that Ottawa has the constitutional responsibility to oversee security markets.

Judge LeBel repeatedly interrupted Ms. Minor to suggest Ontario's position would lead to a fundamental restructuring of the federation – with all important economic powers held by Ottawa.

"What you are essentially saying is federalism doesn't work and should move towards a unitary system," he said. "If it's important, it's federal."

The Ontario lawyer countered that argument, saying the federal position would limit Ottawa's additional powers to the specific instance of securities regulation.

"We submit there would not be a shift in federalism here," Ms. Minor said. "There is not a slippery slope here."