Two provinces dig in heels against national securities regulator bill

Date: Thursday, May 27, 2010
Author: Investment Executive

The federal government has set off a constitutional battle with at least two provinces by introducing legislation for the creation of a national securities regulator with enhanced policing powers over stock fraud across the country.

The bill will first have to pass the hurdle of three courts -- the Supreme Court of Canada and courts of appeal in Quebec and Alberta -- but Finance Minister Jim Flaherty said Wednesday he is confident of victory.

The minister told a news conference that the draft bill is being sent to the Supreme Court for a ruling on whether Ottawa has jurisdiction and he expects an answer in 10 months to two years.

“We expect the court will rule that Parliament... has the authority to do this,” he said. “Legal opinions going back decades are uniform in the conclusion that, without exception, the federal Parliament has jurisdiction to legislate in this area.”

But Quebec and Alberta have already launched challenges of their own, arguing that the matter falls under provincial jurisdiction. And Manitoba is also believed to oppose the idea.

The initial reaction to the announcement was swift and acrimonious.

“We will defend our jurisdictions with plenty of vigour,” Quebec Premier Jean Charest told reporters in Quebec City.

“We will keep up the fight in the legal arena. We will keep up the fight in the political arena. We will keep up the fight in the economic arena,” added his finance minister Raymond Bachand in the provincial legislature.

Alberta Finance Minister Ted Morton called it an “unprecedented power grab” and totally without justification.

“The passport system of securities regulation already accomplishes all that a federal regulator purports to do,” he explained in a statement.

“It provides a single window of access to Canada’s capital markets, just as a federal regulator would, by allowing market participants who file in one province a ‘passport’ to operate in all participating provinces.”

He noted that the Organization for Economic Co-operation and Development and the World Bank Group have consistently ranked Canada’s financial system as among the world’s best.

British Columbia, which is nominally onside, said it would opt in only if provincial jurisdiction is respected.

It is unclear what would occur if the Supreme Court were to give Ottawa the green light and a national regulator is established with the participation of only 10 provinces and territories.

The minister suggested the current passport system, in which regulatory approvals in one province are recognized by others, will cease to exist once the national office is in place, leaving opt-out provinces isolated.

He said it is Ottawa’s intention that all provinces and territories would join.

Just tabling draft legislation is as close to the creation of a national regulator as Canada has gotten since the idea was first proposed in 1935. For Flaherty, it has been an arduous and determined battle. It has included intense negotiations, the appointment of an expert panel that recommended a national presence be established and the naming of a transition office.

It has not been all futile. At least two provinces once hostile to the idea -- B.C. and Saskatchewan -- now generally endorse it. And most other provinces and territories appear ready to go along -- Ontario has been a key proponent from the beginning.

Flaherty said all the provincial and territorial offices and staff would remain but would fall under the umbrella of a new national Crown corporation that would administer a single set of rules and policies.

As well as being more efficient, the national regulator would have enhanced enforcement powers to criminally prosecute stock manipulation and insider trading, officials said.

“Canadians who rely on capital markets for their saving and retirement plans deserve the protection of strong regulation that reaches all parts of the country,” Flaherty said.

Flaherty said Canada has gained a black eye internationally for toothless enforcement of stock fraud, which he blamed on the existence of 13 securities commissions, each with their own rules and investigatory approaches.