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.

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