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Curtain has yet to fall on a national securities regulator

Finance Minister Jim Flaherty and the Canadian Mint unveil the 2012 Proof Silver Dollar coin, which commemorates the bicentennial of the War of 1812, during an event at the Canadian War Museum in Ottawa on Jan. 17, 2012.

Sean Kilpatrick/The Canadian Press/Sean Kilpatrick/The Canadian Press

When it comes to Finance Minister Jim Flaherty's quest to create a single national securities regulator, Andrew Fleming, a senior partner at Norton Rose, says the fat lady hasn't sung.

The Supreme Court of Canada may have unanimously blocked the federal government's attempt to force the matter, but it also invited Ottawa to try again, he notes.

"The court was asked a very defined question, the court gave a very defined answer," Mr. Fleming says. "There may be other ways of skinning this cat."

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Pressure is already mounting on Ottawa not to let the issue drop. Last week Ontario Securities Commission chair Howard Wetston said he thinks the provinces and federal government should give it another go. Mr. Flaherty`s desire to see a single regulator created is not in doubt - before the court`s ruling, he suggested that it would be one of the accomplishments that define his career. But Bay Street is wondering whether he has the appetite to go back at the issue and, if so, how soon.

The Supreme Court's ruling suggests at least a couple of different paths that the government could try, according to Mr. Fleming. The first is cooperative federalism, which essentially means that Ottawa and the provinces should play nice and hammer out between them a cooperative approach to securities regulation, deciding who is responsible for what.

The ruling also leaves room for Ottawa to go back to the courts and try to win the ability to create a single regulator under a different section of the Constitution than the one it tried. Ottawa had argued that it had the power to do this because the Constitution allows it to regulate trade and commerce. The court disagreed. But the ruling notes that the court has not considered whether Ottawa might have the power to do this under other sections of the Constitution, such as legislative authority in relation to interprovincial and international trade and commerce. That is a similar power to the interstate commerce power that was used in the United States to establish the SEC, Mr. Fleming says.

"Each state in the United States has a securities commission, as well as the SEC, so it's perhaps not a perfect model," he adds.

Another avenue open to Ottawa is the path it took to force its way into insurance regulation, which was essentially sheer determination.

In the middle of the last century Ottawa and the provinces battled over the right to regulate insurance, which Peter Hogg points out in the fourth edition of Constitutional Law of Canada was, unlike banking, not specifically mentioned in the Constitution Act.

In the latter part of the nineteenth century, both levels of government began to regulate the insurance industry, and the situation wound up in the courts multiple times, the book notes. At one point, Ottawa's Insurance Act of 1910, which banned insurers unless they had a license from the minister of finance, was deemed to be unconstitutional. The Privy Council rejected Ottawa's attempt to say that it had the power to do this because the Constitution allows it to regulate trade and commerce (sound familiar?).

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Ottawa kept going back to the courts multiple times, first trying to make it an offense under the Criminal Code to carry on the business of insurance without a licence from the finance minister. That was soundly rejected.

But the federal government didn't give up. And as Mr. Hogg's book says: "Despite all these setbacks in the courts, the federal government continues to regulate a substantial part of the insurance industry … Presumably, the provinces and the industry are now content with, or at least reconciled to, the continued federal presence, because there has been no constitutional attack on it since 1942."

Says Mr. Fleming: "it's not over until the fat lady sings, and I don't think the fat lady has sung yet."

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