Na­tional reg­u­la­tor still elu­sive

Wa­tered-down se­cu­ri­ties model full of opt-outs

Regina Leader-Post - - CLASSIFIED - AN­DREW COYNE

First, the good news. It is the­o­ret­i­cally con­ceiv­able the Supreme Court of Canada could have dis­cov­ered some con­sti­tu­tional ob­jec­tion to a vol­un­tary agree­ment among a group of provinces and the fed­eral gov­ern­ment, trans­fer­ring re­spon­si­bil­ity for the reg­u­la­tion of se­cu­ri­ties mar­kets in the par­tic­i­pat­ing provinces to a reg­u­la­tor un­der the con­trol of those provinces.

I’m not say­ing it would be easy — not only does the fed­eral gov­ern­ment have broad pow­ers un­der the Constitution to reg­u­late “trade and com­merce” in the fed­er­a­tion, but the agree­ment does noth­ing to di­min­ish or in­fringe the ju­ris­dic­tion of even the par­tic­i­pat­ing provinces, let alone those that choose to re­main out­side it — but the court has proved up to this sort of chal­lenge in the past.

This is the court, af­ter all, that re­cently found a clause in the Constitution stip­u­lat­ing that “All Ar­ti­cles of the Growth Pro­duce or Man­u­fac­ture of any one of the Provinces shall … be ad­mit­ted free into each of the other Provinces” meant some ar­ti­cles should be ad­mit­ted free to some of the provinces some of the time, de­pend­ing on whether a prov­ince had some pur­pose in mind in bar­ring or hin­der­ing their ad­mis­sion other than bar­ring or hin­der­ing for the sheer hell of it.

And in­deed the Que­bec Court of Ap­peal, asked its opin­ion on the con­sti­tu­tion­al­ity of the scheme by the prov­ince’s gov­ern­ment, had pre­vi­ously ruled the pro­posed Co-op­er­a­tive Cap­i­tal Mar­kets Reg­u­la­tory Sys­tem, de­spite its purely vol­un­tary na­ture, would nev­er­the­less have the ef­fect of un­duly “fet­ter­ing the sovereignty of the par­tic­i­pat­ing provinces.”

But of course this is quite wrong, as even the Supreme Court was able to rec­og­nize.

The sys­tem, set out in a 2016 agree­ment be­tween Ot­tawa and five provinces — On­tario, Bri­tish Columbia, Saskatchewan, New Brunswick and P.E.I. — plus one ter­ri­tory (Yukon), comes in two parts: leg­is­la­tion to be adopted in each of the par­tic­i­pat­ing provinces, called the “model pro­vin­cial act,” stan­dard­iz­ing their ap­proach to most as­pects of se­cu­ri­ties reg­u­la­tion, plus fed­eral leg­is­la­tion deal­ing with the spe­cific prob­lem of “sys­temic risk,” the whole to be ad­min­is­tered by a Cap­i­tal Mar­kets Reg­u­la­tory Au­thor­ity un­der the su­per­vi­sion of a Coun­cil of Min­is­ters drawn from the par­tic­i­pat­ing provinces and the fed­eral gov­ern­ment.

The provinces, un­der­stand, are not obliged to pass the model act into law, ex­actly as writ­ten: they have only agreed to try (“best ef­forts”) to do so. Nei­ther is any pre­vented from mak­ing changes to what­ever leg­is­la­tion it does en­act. Nor are they re­quired to im­ple­ment any sub­se­quent changes to the model act that might be agreed upon. The only con­straint to which they have agreed is that changes to the model act can­not be made with­out fur­ther agree­ment. Did I men­tion the whole thing is purely vol­un­tary?

So, no, even the cur­rent Supreme Court, for whom “co-op­er­a­tive fed­er­al­ism” is the god of gods — a prin­ci­ple that ap­pears nowhere in the Constitution but be­fore which the court in­sists ev­ery line of the constitution must bow down — would have had a hard time find­ing fault with this one. Just so long as no one thinks this means we now have a na­tional se­cu­ri­ties reg­u­la­tor.

If the lat­est pro­posal found favour with the court — un­like a pre­vi­ous fed­eral at­tempt to cre­ate a na­tional se­cu­ri­ties reg­u­la­tor on its own, struck down as an un­con­sti­tu­tional in­va­sion of pro­vin­cial turf in 2011 — it is more be­cause it has been wa­tered down be­yond recog­ni­tion than be­cause of any sud­den out­break of sense on the court. Where the 2011 leg­is­la­tion would have seen the feds take over ev­ery as­pect of se­cu­ri­ties reg­u­la­tion, this time the fed­eral role is lim­ited to guard­ing against sys­temic threats to the Cana­dian fi­nan­cial sys­tem as a whole.

Fair enough, per­haps — ex­cept even in this re­gard the fed­eral role is strictly lim­ited. Not only would the nec­es­sary reg­u­la­tions be sub­ject to the ap­proval of the Coun­cil of Min­is­ters, and not only would the body charged with ad­min­is­ter­ing th­ese reg­u­la­tions be sub­ject to its su­per­vi­sion, but all of this would ap­ply, again, only in the five par­tic­i­pat­ing provinces. Noth­ing com­pels the other provinces to join them, and in­deed the court had barely is­sued its de­ci­sion be­fore Que­bec an­nounced it would not.

This makes no sense. The court, in its de­ci­sion, makes a good ar­gu­ment that sys­temic risk can­not be left to the provinces, ei­ther in­di­vid­u­ally or col­lec­tively. A de­fault or other event that orig­i­nates in one prov­ince,

HALF THE COUN­TRY WILL RE­MAIN OUT­SIDE THE REACH OF THE NEW SYS­TEM.

pos­si­bly be­cause of gaps in its reg­u­la­tions or fail­ures to en­force them, can quickly spread to the oth­ers, im­per­illing the sta­bil­ity of the en­tire sys­tem. That is why ev­ery other ad­vanced econ­omy en­trusts the reg­u­la­tion of se­cu­ri­ties mar­kets to a sin­gle na­tional au­thor­ity. Only in Canada has it been left to 13 dif­fer­ent pro­vin­cial and ter­ri­to­rial reg­u­la­tors.

Yet half the coun­try will re­main out­side the reach of the new Co-op­er­a­tive Cap­i­tal Mar­kets Reg­u­la­tory Sys­tem. For all the court’s em­pha­sis on the ne­ces­sity of a na­tional ap­proach to threats to the na­tional econ­omy, sys­temic risks will re­main the re­spon­si­bil­ity of no fewer than eight sep­a­rate reg­u­la­tors: those un­der the un­gainly um­brella of the CCMRS, plus the other five provinces and two ter­ri­to­ries. Per­haps the oth­ers will feel it in their in­ter­ests to join, in time; per­haps they will see a com­pet­i­tive ad­van­tage in re­main­ing out­side. “Come to (Prov­ince X), where you can list your stocks with­out all that tire­some pa­per­work!”

Bear in mind that se­cu­ri­ties reg­u­la­tion is just one item on the broader agenda of re­pair­ing our bro­ken eco­nomic union, 151 years af­ter Con­fed­er­a­tion. There re­main hun­dreds of other bar­ri­ers to the free move­ment of goods, ser­vices, cap­i­tal and labour be­tween the provinces. And it was sup­posed to be the easy one!

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