QUEBEC COURT STALLS OTTAWA’S PLAN TO CREATE A NATIONAL SECURITIES REGULATOR,
Not within constitution: Court of Appeal
The Quebec Court of Appeal says the federal government’s plan to set up a national securities regulator with the voluntary participation of the provinces and territories is unconstitutional.
Quebec’s government asked the appellate court to provide legal opinions on whether the federal government has the constitutional power to create a pan- Canadian securities regulator known as the Co- operative Capital Markets Regulatory Authority.
Four of the five Quebec judges said the federal government’s plan is unconstitutional because it “fetters” the parliamentary sovereignty of the provinces.
“It subjects the province’s power to legislate in this matter to the approval of an external entity ( the Council of Ministers), which is not permitted,” the court said.
The reference decision is hardly the final say on the fate of the proposed national securities regulator. Quebec is not one of the five provinces who have already agreed to participate in the voluntary plan.
“It is by no means the end of the co- operative regulatory initiative,” said Larry Ritchie, a capital markets expert and partner at law firm Osler, Hoskin & Harcourt LLP. He said the matter could be taken to the Supreme Court of Canada, or the parties could renegotiate the offending portions of the agreement.
“The proposed legislation has not been completed or introduced, so there is no doubt a path forward,” said Ritchie, who was a key participant in an earlier attempt to create a national regulator.
Indeed, the Quebec judges were merely asked for their legal opinions. They were not asked to issue any sort of order that would prevent the proposed Capital Markets Regulatory Authority from launching in 2018.
But having four appellate-level judges state that the current plan violates the constitution should be some cause for concern.
Government officials were not immediately available for comment. A spokesperson for the country’s largest securities regulator, the Ontario Securities Commission, said the OSC would not be commenting on the Quebec court decision.
In late 2011, the Supreme Court of Canada ruled that a federal government plan to create a single, national securities regulator was flawed because the Constitution Act of 1867, gives the provinces exclusive power to regulate their securities industries.
Since the 2011 court loss, the federal government has tried a new tack. It has proposed setting up a voluntary system in which provinces and territories can sign on to a “memorandum of agreement” that would create a federal regulatory authority.
Participating jurisdictions would pass a uniform securities law, and the governing body of the regime would be a “Council of Ministers” made up of the representa- tives from the federal government and participating provinces and territories.
So far Ontario, British Columbia, New Brunswick, Prince Edward Island and Saskatchewan and Yukon have agreed to participate.
But Quebec, which has opposed all efforts to create a national regulator, asked the Quebec Court of Appeal to answer two“reference” questions on the constitutionality of the voluntary plan.
The court was asked whether the constitution of Canada authorizes pan- Canadian securities regulation under a single regulator. Four Quebec appellate judges are of the opinion the constitution does not provide such authority. A fifth judge declined to answer because the question was in reference to a “memorandum of agreement” and not an actual law.
The second question asked whether the federal government’s proposed Capital Markets Stability Act fits within Parliament’s constitutional power to regulate trade and commerce.
In the 2011 decision, the Supreme Court of Canada said the federal government has the constitutional power to regulate “systemic risk” in capital markets. Yet since the current version of the proposed federal Capital Markets Stability Act would put the Council of Ministers in charge, four of the five Quebec judges said that would be offside of the federal government’s exclusive trade and commerce power.
PROPOSED LEGISLATION HAS NOT BEEN COMPLETED.