Would a national securities watchdog be unconstitutional?

Would a national securities watchdog be unconstitutional?

Would a national securities watchdog be unconstitutional? The Quebec Court of Appeal has said that the federal government’s plan for a national securities regulator, to be voluntarily participated in by the provinces and territories, is unconstitutional.

The appellate court was asked by Quebec’s provincial government to weigh in on whether the federal government has the constitutional power to establish the so-called Cooperative Capital Markets Regulatory Authority, a pan-Canadian securities regulator that proponents hope to establish by next year.

Four out of the court’s five judges said the federal government’s plan is unconstitutional. “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.

Since Quebec isn’t among the five provinces that have already agreed to participate in the plan, it will not necessarily stop the proposed measure. According to Larry Ritchie, a capital markets expert and partner at law firm Osler, Hoskin & Harcourt, the matter could be raised to the Supreme Court of Canada, or the offending portions of the agreement could be renegotiated.

“The proposed legislation has not been completed or introduced, so there is no doubt a path forward,” Ritchie, who was a key player in an earlier effort to set up a national regulator, told the Post.

The Quebec judges just provided their legal opinion; they were not asked to issue any order that would either allow or prevent the targeted 2018 launch. Still, the assertion from four appellate-level judges that the plan violates the constitution could be cause for concern.

“The court found that Parliament has a role to play in the management of systemic risk in Canada’s capital markets and Canada-wide data collection,” Jessica Martin, press secretary to Ontario Finance Minister Charles Sousa, told the Post. “Ontario intends to fulfil these responsibilities in a manner that is collaborative and respectful of provincial and territorial jurisdiction, including of those, such as Quebec, that choose not to participate.”

In 2011, the Supreme Court of Canada ruled against the federal government’s previous effort to create a single, national securities regulator. Citing the Constitution Act of 1867, the court said provinces should have the exclusive power to regulate their securities industries.

The federal government has since changed its approach, proposing a voluntary system under which provinces and territories can enter into a “memorandum of agreement” creating a federal regulatory authority. So far, Ontario, British Columbia, New Brunswick, Prince Edward Island, and Saskatchewan and Yukon have agreed to sign on.

Quebec, which has been against all efforts to create a national regulator, consulted the Quebec Court of Appeal. The court was asked two “reference” questions: whether the Canadian constitution authorizes pan-Canadian securities regulation under one regulator; and whether the federal government’s proposed Capital Markets Stability Act (CMSA) falls within Parliament’s constitutional power to regulate trade and commerce.

For the first question, four judges said that the constitution doesn’t authorize national oversight by a single regulator; one declined to answer because the question referred not to an actual law, but a “memorandum of agreement.”

As to the second question, four out of the five Quebec judges said that since the act puts the Council of Ministers in charge rather than Parliament, it falls outside of the constitutional provision for federal government to regulate systemic risk in capital markets.


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