On the Supreme Court rejecting a national securities regulator

The court doesn’t doubt that valid reasons for national securities regulation exist. But that’s not the point.


The key thing to keep in mind about today’s Supreme Court of Canada rejection of the Conservative government’s bid to create a national securities regulator is that the nine judges didn’t say it was a bad policy idea.

Their unanimous opinion, handed down this morning, only said the federal attempt to usurp the longstanding provincial regulation of stock markets and other securities trading is unconstitutional. Finance Minister Jim Flaherty’s proposed law, they say, “overreaches the proper scope” of the federal government’s broad constitutional power to regulate “trade and commerce.”

The court doesn’t doubt—and in fact confirms—that valid reasons for national securities regulation exist. But that’s not the point. Flaherty’s problem is that the provinces, under the Constitution, have jurisdiction over contracts and property matters. They’ve long regulated securities. The federal government failed to make its case that something about trading stocks and bonds and derivatives has changed so fundamentally in recent times that Ottawa must now step in.

“It is not for the court to suggest to the governments of Canada and the provinces the way forward…” the judges delicately say, before going on to suggest just that: “Yet we may appropriately note the growing practice of resolving the complex government problems that arise in federations, not by the bare logic of either/or, but by seeking cooperative solutions that meet the needs of the country as a whole as well as well as its constituent parts.”

It’s good to be reminded every so often what sort of a country we live in—namely, a highly decentralized federation. The command-and-control tone of the Stephen Harper government tends to make us forget that fact. The Prime Minister rarely bothers to meet with the premiers at all to remind us, and his manner doesn’t exude an invitation to cooperative initiatives.

The judges’ opinion today (it shouldn’t be called a “ruling,” because the matter was referred to the court by the federal government, rather than arriving there as an appeals case) will come as a shock to many observers. It was widely assumed Flaherty wouldn’t have proceeded on this without being sure he stood on solid constitutional ground.

But, with the benefit of hindsight, I think the likelihood of the court finding against the way the federal government was going about trying to create a national securities regime should have begun to seem likely very early this year, when British Columbia decided to adopt a nuanced opposition to the federal position.

The B.C. move was telling because the province was originally in the federal camp (along with Ontario), and continued to support the national regulator concept as a matter of policy. But in terms of constitutional law, then-B.C. finance minister Colin Hansen decided Flaherty’s approach—if the court approved of it—would have sweepingly expanded Ottawa’s ability to impose economic regulation.

“The federal government has responsibility over trade and commerce; provincial governments have responsibility over property rights,” Hansen told Maclean’s back when he was first withdrawing B.C.’s support for the federal legislation. “We have argued in past cases that the provincial powers in a case like this would be most important. That will obviously be for the Supreme Court to decide.”

And the court has now decided pretty much precisely as B.C. hoped it would. On the law, the judges say the constitutional underpinning of Canadian federalism must be respected. On the policy question, however, as they so gingerly suggest, the judges point out that Ottawa’s goal of a national approach to securities regulation can surely be accomplished by a cooperative, federalist approach.

The question now is whether this government will regroup to try to do just that, or abandon the field in frustration.


On the Supreme Court rejecting a national securities regulator

  1. I quibble with the author’s use of “key” in the first sentence, I find the policy aspects interesting and more than tangential but not the focus of the matter, politically or legally.

    What I find most interesting is that the government can no longer maintain that their policies are based on a strict interpretation of the division of powers.  There may be good reasons to have a national securities commission – there are also good reasons to attach standards to health care funding. 

    • Yes, I find that odd as well.  They’re perfectly willing to dump healthcare solely on the provinces, because it’s ‘in the constitution’….even though it’s long outdated by circumstances….but then want a provincial matter, also outdated by circumstances,  to become a federal one.

      Now the constitution has become a buffet….and all without a word of consultation.

    • “What I find most interesting is that the government can no longer maintain that their policies are based on a strict interpretation of the division of powers.”

      When have they ever maintained this?  The reason the government submitted this reference case  to the SCC is that they (like virtually every government that has preceded them) sought clarification from the SCC as to how the division of powers applies in a particular circumstance where there’s a clear overlap of those powers.

      • Fair enough, but it’s long been a Conservative and conservative reason to put less spending or control into health care (I know, I know, it deals more with spending power than delineation between the two powers, but still….) 

  2. Over on Maxime Bernier’s blog, there are entries about why Provinces should hold onto securities regulation, instead of Ottawa moving in.

    It’s good to see that they were not over-turned by the SCOC.

  3. Something has fundamentally changed, Mr. Geddes.

    The porosity of economic borders under growing free-trade regimes. Without national regulation, which is the rule among G8 countries, rather than the exception, huge corporations will be able to target weak or ill-devised provincial regulatory, laws, policies and agencies over contracts and securities matters with litigious gang-rape.

    The U.S. SEC has had some major failures, but that’s the failure of effective real-time, in-depth oversight. That’s Obama’s business, and it’s correctable.

    Notice the court consensus: National regulation is a good idea, but as good constitutional fundamentalists they won’t have the provinces overruled.

    I dislike the idea of constitutional change, but really the provinces should gather behind this. Right now things are manageable, but surely they will not be able to handle the future.

    • I agree with your premise, but don’t agree constitutional change is needed.  The application of the powers allocated in 1867 have never been clean and without overlap – securities regulation is simply the latest example of an issue that encompasses both federal and provincial constitutional powers.

      The answer to this – as stated very clearly by the SCC – isn’t to amend the constitution and rejig the powers, but to send the feds and provinces back into the meeting room to work out an arrangement that works, although it may be a lengthy and tortuous path to get there.  Sales tax is a reasonably good example – the recent BC dust-up notwithstanding, the feds and most of the provinces that impose their own sales tax have managed (albeit over the course of a decade and a half) to come up with a workable national approach that didn’t require constitutional tweaking to happen.

  4. Unfortunately, this government doesn’t do collaborative or consultative.

    • They did with the HST, and that has worked well.

      5 provinces decided to go that route (one has since changed their mind), a 6th has no sales tax, and 4 decided to keep their provincial sales taxes.

  5. Might as well tell Stephen Harper to pass a camel through the eye of a needle as tell him he needs to negotiate or collaborate with someone.

  6. I understand the court’s position on this matter.  The ruling was sound.

    How can this possibly square with the Canada health act?  Health is also a provincial matter… in particular this was confirmed with the recent ruling on Insite.  But the Canada health act is federal regulation of health.  There seems to be a gaping inconsistency. 

    Wikipedia has the answer it seems… “Because of the constitutional division of powers among levels of government, adherence to CHA conditions is voluntary.”

    This makes me wonder if the government could simply go the same route, a set of voluntary regulations that ensures consistency in securities regulation, which appears to be Geddes note that “the judges point out that Ottawa’s goal of a national approach to securities regulation can surely be accomplished by a cooperative, federalist approach”

  7. The Supreme Court has demonstrated it will allow federal encroachment on property and civil rights when there is a cooperative federal-provincial scheme – see Reference re Agricultural Products Marketing, [1978] 2 SCR 1198.

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