Ottawa’s efforts to establish a national securities regulator have been dealt a blow in the Alberta Court of Appeal, which has ruled the central entity would be unconstitutional if established.
In Reference Re Securities Act (Canada), the provincial government had asked the Alberta court to weigh in on the issue. The province strongly opposes establishing the federal watchdog. The court’s five judges were unanimous in their decision that the national regulator is an intrusion of the federal government into provincial powers.
“The proposed federal securities legislation would enter an area of regulation long occupied by the provinces, and long considered to be clearly within provincial jurisdiction,” says the decision, written by Justice Frans Slatter.
The ruling further noted: “It is inconsistent with numerous prior decisions of the highest courts delineating the division of power over specific industries. The proposed legislation would, if enacted, be unconstitutional.”
In addition to Alberta, the Quebec Court of Appeal is also scheduled to soon rule on a similar challenge brought forward by that province’s government.
Faced with the challenges from the provinces, the federal government has asked the Supreme Court of Canada to weigh in on whether establishing a single regulator is constitutionally acceptable. The SCC is scheduled to look into the case in April, leaving enough time for the provincial courts to send their decisions first.
The Alberta decision is not binding on the SCC, and there is a good chance the top court will rule the national regulator is constitutional, says Heather Zordel, a partner in the securities group at Cassels Brock & Blackwell LLP in Toronto and a member of the Expert Panel on Securities Regulation.
“Despite the decision of the Alberta court, I expect the Supreme Court to rule that the federal government has the authority,” Zordel tells InHouse.
The expert panel’s final report issued in 2009 strongly supported the idea of establishing a central national regulator as it would be more efficient, produce better policy, and better enforce securities laws than the current patchwork system.
Canada has 13 provincial and territorial securities commissions, however, the federal government says the lack of a national regulator is “an embarrassment” for Canada. “Canada is the only industrialized nation in the world that does not have a national securities regulator,” says Finance Minister Jim Flaherty.
Those who oppose the idea point out that much of the system is already harmonized and that most companies only deal with a single provincial regulator — and that regional issues are better addressed by provincial regulators.
“Our current system of harmonization of independent commissions also addresses regional issues. A federal system will not do that,” says Michael Provenzano, a securities lawyer with Northwest Law Group in Vancouver.
Flaherty says the national regulator should be established by 2012, and the federal government has also gone ahead and already established the Canadian Securities Transition Office, which with its mere existence has angered some of the provinces opposing the deal.
They say the federal government is wasting money on the national entity before the court system rules on its legality. Manitoba’s finance minister, Rosann Wowchuk, told the national media earlier this year the federal officials’ move was “disrespectful to the provinces.”
Read more about the debate over the national securities regulator in “Looking for certainty” and “National securities regulator gets more support, challenges.”