Quebec heading to court to challenge national securities regulator

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The Quebec government is heading back to court to again challenge Ottawa's plan to create a national securities regulator.

The province argues that Ottawa's revised plan to create a securities regulator jointly run by the participating provinces still violates Canada's constitutional division of powers between federal and provincial governments and runs afoul of a 2011 Supreme Court of Canada ruling on the issue.

"Regulation in securities trading is too important a matter to run the risk of its unhinging, in whole or in part, on legislation whose legal basis is potentially unconstitutional," Quebec Justice Minister Stéphanie Vallée said in a statement. "Given this new attempt by Ottawa to set up a pan-Canadian commission, Quebec needs to apply to the Court of Appeal once again."

Quebec has sent the securities regulator proposal to the Quebec Court of Appeal for a decision on its constitutionality. The province is not participating in the new voluntary system.

Toronto securities lawyer Jeremy Fraiberg, who worked on a previous attempt to create a national regulator model, said on Wednesday that he is surprised by Quebec's move because the new system was structured carefully to fit within the parameters laid out in the Supreme Court's 2011 ruling. It struck down Ottawa's initial proposal to create a national regulator, but said a different co-operative model would be possible.

As a result, Mr. Fraiberg said he doesn't believe Quebec can argue there is no fundamental right for Ottawa and the provinces to create a co-operative regulator.

"The Supreme Court of Canada left the door open for a joint scheme, so it becomes a question of whether the execution of this joint scheme is somehow botched so it somehow doesn't pass constitutional muster," Mr. Fraiberg said. "I think that appears to be a tough argument."

The federal government introduced a new model in 2013, crafted to try to stay within legal parameters by structuring the regulator as a co-operative agency run by all participating provinces and the federal government, ensuring provinces are not ceding control to Ottawa.

However, Quebec said it will argue that the proposed model creates regulations that will ultimately apply even to provinces that opt out of the new body, and ultimately gives Ottawa authority over the system. The province said it takes issue with Ottawa's plan to give the federal finance minister a veto over amendments and other major decisions, saying the federal power is "unacceptable if the division of powers is to be respected."

The new regulator will be overseen by a council made up of the responsible ministers from each participating jurisdiction. Under the new model, fundamental changes to the organization would require two-thirds overall support from members of the council, as well as approval by the minister from each "major" province, and support from the federal finance minister. Fundamental changes include changes to the governance or operational structure of the regulator, the addition of new members, or the relocation of any geographic-specific operations.

Toronto securities lawyer Phil Anisman, who has advised extensively on a national regulator for Canada, said he does not believe that giving Ottawa a veto over various fundamental changes would trigger constitutional concerns by transforming a co-operative system into a federally run institution.

He said bodies participating in any co-operative regime must have some ability to approve major changes to the model.

"It's essential to the working of a co-operative scheme that the co-operating parties have to agree to change it," Mr. Anisman said. "Without that power, there couldn't be a co-operative scheme that would permit adaptation as the market requires. So it seems to me that the argument is inconsistent with co-operative federalism."

Mr. Fraiberg said the fact Quebec is challenging the new system at this time could be a sign they believe "it has legs" and is looking increasingly likely to be adopted.

But University of Toronto law professor Anita Anand said she was anticipating a court challenge by Quebec once the legislation to run the new agency was drafted. She said she isn't convinced there is a constitutional law issue with the new model, however, and said Quebec isn't joining anyway, so is unlikely to be harmed or significantly affected by its operation.

"Quebec can still run their local securities markets in the way they see fit," she said.

British Columbia, Saskatchewan, Ontario, New Brunswick, Prince Edward Island and Yukon have so far agreed to join the new body. Quebec and Alberta are the largest provinces that have refused to participate. The launch of the new organization has faced repeated delays, and is not expected to be operational until well into 2016 at the earliest.