Supreme Court opens door to na­tional se­cu­ri­ties reg­u­la­tor


The fate of a uni­fied, pan-Cana­dian se­cu­ri­ties reg­u­la­tor rests with pro­vin­cial lead­ers af­ter the Supreme Court of Canada unan­i­mously en­dorsed leg­is­la­tion to cre­ate one.

The ques­tion now is whether there re­mains the po­lit­i­cal will to fin­ish the project, a quest that goes back to 1935.

On Fri­day, the Supreme Court gave its bless­ing for a pan-Cana­dian reg­u­la­tor, which would gov­ern the coun­try’s fi­nan­cial in­dus­try, to be known as the Cap­i­tal Mar­kets Reg­u­la­tory Au­thor­ity (CMRA). Canada is the only Group of 20 coun­try that does not have a na­tional se­cu­ri­ties reg­u­la­tor. Its pro­po­nents have strug­gled to cre­ate one for decades be­cause of po­lit­i­cal ten­sion be­tween the provinces and Ot­tawa, as well as the in­tri­ca­cies of the coun­try’s con­sti­tu­tional law.

The mo­men­tum to cre­ate a na­tional reg­u­la­tor picked up 10 years ago, but in 2011, the Supreme Court rejected Ot­tawa’s plan for one, say­ing the fed­eral gov­ern­ment had over­stepped its au­thor­ity. How­ever, it left the door open to a more co-op­er­a­tive ap­proach with the provinces.

A new pro­posal was drafted in 2013, and its sup­port­ers have made sig­nif­i­cant head­way since – most no­tably, clear­ing the Supreme Court on Fri­day. How­ever, the key po­lit­i­cal lead­ers that cre­ated the cur­rent plan are no longer in of­fice. The late fed­eral fi­nance min­is­ter Jim Fla­herty used to be one of project’s big­gest, and most in­flu­en­tial, back­ers.

While the rul­ing “con­firms that the le­gal frame­work, in­clud­ing the gov­er­nance regime that was di­rected by the first Supreme Court ref­er­ence, has a sound con­sti­tu­tional ba­sis,” Lawrence Ritchie, a part­ner at Osler Hoskin & Har­court LLP, said in an in­ter­view. “What now needs to fol­low is the po­lit­i­cal will of the par­tic­i­pants to get it past the fin­ish line.”

The ques­tion now is whether there re­mains the po­lit­i­cal will.

Echo­ing this sen­ti­ment, Ed Waitzer, a part­ner and head of the cor­po­rate-gov­er­nance group at Stike­man El­liot LLP, said “it will be in­ter­est­ing to see if any of our cur­rent lead­ers are pre­pared to ex­pend the po­lit­i­cal cap­i­tal that will be re­quired to move this for­ward de­ci­sively.”

The ar­gu­ment for a na­tional reg­u­la­tor is that it will make se­cu­ri­ties rules more con­sis­tent across the coun­try, which will help reg­u­la­tors pool their re­sources for en­force­ment ac­tions, while re­mov­ing red tape for busi­nesses, which must now abide by, and file doc­u­ments with, a patch­work of provinces and ter­ri­to­ries.

A uni­fied reg­u­la­tor would also sim­plify pol­icy de­ci­sion-mak­ing. Un­der the sta­tus quo, each ju­ris­dic­tion has an equal voice and de­ci­sions are made by con­sen­sus, not by ma­jor­ity votes.

The pro­posed CMRA is sup­ported by five provinces and one ter­ri­tory – On­tario, British Columbia, Saskatchewan, Prince Ed­ward Is­land, New Brunswick and Yukon. Ot­tawa has also backed the idea. The provinces must now each en­act a uni­form Cap­i­tal Mar­kets Act, which har­mo­nizes cap­i­tal-mar­kets laws, as well as a Cap­i­tal Mar­kets Reg­u­la­tory Au­thor­ity Act, which cre­ates the reg­u­la­tor. The fed­eral gov­ern­ment, mean- while, must en­act the Cap­i­tal Mar­kets Sta­bil­ity Act, which ad­dresses sys­temic risk in Canada’ s cap­i­tal mar­kets and cre­ates new crim­i­nal of­fences re­lated to cap­i­tal mar­kets.

Be­fore Fri­day’s rul­ing, On­tario and B.C. had said lit­tle about their cur­rent po­si­tions. Af­ter so many years of de­lays the pro­posal ar­guably seemed likely to die.

But shortly af­ter the rul­ing, On­tario voiced its sup­port. In a state­ment on Fri­day, a spokesper­son for Fi­nance Min­is­ter Vic Fedeli said the prov­ince is “pleased” with the rul­ing and is “com­mit­ted to work­ing with the other par­tic­i­pat­ing ju­ris­dic­tions to­wards the launch of the sys­tem.”

British Columbia also of­fered its sup­port – al­beit in a more muted tone. “We be­lieve there are op­por­tu­ni­ties for B.C. in a Canadaw­ide ap­proach to th­ese types of cap­i­tal-mar­ket pro­tec­tions and reg­u­la­tions,” spokes­woman Sonja Zoe ll erina ne-mail .“But we also know that we need to move ahead on our pri­or­ity of get­ting white-col­lar crime out of B.C.”

Que­bec and Al­berta op­pose the plan, which is struc­tured as a co-op­er­a­tive agency run by the provinces and ter­ri­to­ries that choose to opt in. Over­seen by a coun­cil of min­is­ters from each par­tic­i­pat­ing ju­ris­dic­tion, this pan-Cana­dian ap­proach was crafted to en­sure the provinces do not cede power to Ot­tawa.

Af­ter the plan was pro­posed in 2013, the Que­bec gov­ern­ment re­ferred it to the Que­bec Court of Ap­peal, which ruled it un­con­sti­tu­tional be­cause the coun­cil of min­is­ters in­ter­fered with pro­vin­cial rights, by giv­ing an ex­ter­nal body con­trol over pro­vin­cial law, and fed­eral rights, by giv­ing provinces a veto over fed­eral law.

The Supreme Court dis­agreed. The court stressed that its opin­ion does not oblige provinces to par­tic­i­pate nor deal with prob­lems that may oc­cur when and if the reg­u­la­tor is run­ning.

Que­bec re­mains op­posed and, in a state­ment on Fri­day, Fi­nance Min­is­ter Éric Gi­rard said the prov­ince in­tends “to re­tain our au­ton­omy and keep our ex­per­tise in Québec.”

Al­berta is­sued a state­ment on Fri­day re­it­er­at­ing its be­lief in the im­por­tance hav­ing a lo­cal reg­u­la­tor that un­der­stands the com­plex­i­ties of the prov­ince’s mar­ket. How­ever, a pro­vin­cial elec­tion is sched­uled for May, 2019, which could change Al­berta’s stand.

With­out Al­berta, two of the four largest provinces are not in­volved. “If Al­berta’s not in it, I’m not sure it’s worth the ef­fort,” Ralph Shay, a for­mer di­rec­tor of the On­tario Se­cu­ri­ties Com­mis­sion and pre­vi­ous head of Cana­dian se­cu­ri­ties law at Den­tons LLP, said in an in­ter­view.

If Al­berta’s not in it, I’m not sure it’s worth the ef­fort.


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