The National Securities Regulation Debate Intensifies

June 21, 2010

In earlier issues of this publication, we reported on the Federal Government’s initiative to establish a single national securities regulator for Canada. To summarise what has happened in the last six months, there has been little substantive progress on the issue but the stage has been set for perhaps the most significant judicial consideration of the separation of constitutional powers in more than 50 years.

In February, the Alberta government stated its intention of rejecting the federal proposal and challenging it in the courts. The government initiated a reference to the Court of Appeal of Alberta for this purpose. Alberta cited both longstanding provincial jurisdiction as well as “a provincial regulatory system that works well”.

Similarly, Quebec reiterated its position that the plan is unacceptable. Quebec’s reasons for opposition were, of course, different. The existing regulator, the AMF, stated that establishing a national regulator in one centre would inevitably shift high value-added activities away from other centres, i.e. financial activities and related talent could leave Quebec for elsewhere. The AMF estimated that there are almost 300,000 financial sector jobs in Quebec of which half are in the Montreal region. Quebec also argues that “The securities regulation system in place in Canada is ranked among the world’s best” – the classic “if it ain’t broke don’t fix it” argument. Quebec also initiated a “coalition” to fight the federal initiative including, among others, the Quebec Bar Association. However, Quebec doesn’t oppose further integration of the existing separate regimes: “We are not against a Pan-Canadian system”, stated the Quebec Minister of Finance, “We are opposed to a centralized system”.

While Ontario has supported the federal position, its stance that the single regulator must be in Toronto has deprived the federal side of a very large bone that might otherwise be thrown to Quebec.

Nevertheless, the Federal Government has steadfastly proceeded with its plan to establish a national securities regulator. Following on from the work of the Expert Panel on Securities Regulation chaired by the Honourable Tom Hockin, the Department of Finance has now drafted a proposed Securities Act (Canada), initiated its own reference on federal constitutional authority to the Supreme Court of Canada and established the Canadian Securities Transition Office to lead the transition to a single Canadian securities regulator. The CSTO has just released its Transition Plan for the national securities regulator.

The Department of Finance fact sheet on the Supreme Court reference estimates that there may be an opinion from the court within 10 to 24 months of filing the notice of reference and the Court has set its hearing of the matter for April 2011. The Quebec hearing has been set for January 2011. It is anticipated that Alberta’s hearing will also be held in early 2011. The recent setting of the Supreme Court of Canada date may signal that the Court would prefer to have both the Alberta and the Quebec decisions in hand before it responds to the federal reference but that it will proceed in any event to ensure that its decision will be released in 2011. 

Another significant development in the period is that the issue has been receiving a good deal of attention. A quick review of the national press in 2010 shows more than 70 items on the topic. Of those that can be classified as “opinion” versus “news” in that they take a stance on the plan, there appears to be an approximately even split for and against. This divergence underscores that the ultimate outcome will not be determined solely by the legal process. Further, the three appeal courts involved will most likely frame their decisions in a manner that will force negotiations between the Federal Government and the dissident provinces. Once that begins, the remaining provinces and the territories will necessarily be involved.

While the Federal Government makes much of the strength of its legal opinions supporting its initiative, there is no consensus of legal scholars on these issues. It is too early to predict the ultimate outcome but, at a minimum, the Canadian securities regulatory regime should emerge from the process with greater uniformity and consistency then ever before. And that is hard to argue with.


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