Ottawa defeated in bid for stock market regulator
Published Thursday, December 22, 2011 7:41PM EST
The federal government won't go ahead with legislation that would have created a national securities regulator after the Supreme Court of Canada ruled it unconstitutional in a unanimous decision Thursday.
Finance Minister Jim Flaherty conceded defeat and said the government will respect the court's decision.
"It is clear we cannot proceed with this legislation," he said in a statement. "We will review the decision carefully and act in accordance with it."
Flaherty introduced the Canada Securities Act in May, 2010, which called for the provinces to voluntarily join a program that gradually transferred power to a single national regulator, replacing the current 13 provincial and territorial commissions.
The top court was asked to rule whether Ottawa had the authority to legislate in an area of provincial jurisdiction, after courts of appeal in Alberta and Quebec, both opposed to the plan, ruled it unconstitutional.
"This decision based on constitutional principles also confirms the harmonization of regulators in Canada based on the establishment of a passport to which the provinces adhere, with the exception of Ontario," said Francoise Bertrand, chief executive of the Quebec Federation of Chambers of Commerce.
Ottawa had argued that the financial markets have become such an integral part of the intertwined global economy the country needed a single voice on the international stage.
But in its 64-page decision, the court said the federal government failed to prove its case and therefore can't interfere in the day-to-day operations of the securities industry in areas like licensing and policing.
"Legislation aimed at imposing minimum standards applicable throughout the country and preserving the stability and integrity of Canada's financial markets might well relate to trade as a whole," the court said.
"However, the proposed act reaches beyond such matters and descends into detailed regulation of all aspects of trading in securities, a matter that has long been viewed as provincial."
Observers note that since the provinces and the feds couldn't reach a deal on the legislation, it boxed the court in, forcing it to rule strictly on legal precedent.
The court's ruling is in line with previous decisions involving the securities industry, treating it as a legal problem and not one of policy.
"The unilateral approach by the federal government is no way to do business. I hope they will take this ruling as a signal from the high court that we all need to put our heads together and work co-operatively to deal with issues like transfer payments for health care and other key public services," said Manitoba Finance Minister Stan Struthers.
While only an advisory ruling -- not a binding judgment -- analysts had said any decision declaring it unconstitutional would effectively kill the legislation.
The top court did urge the federal and provincial governments to find "common ground" on securities issues that pose a "systemic risk" to the economy, noting Ottawa does have the right to intervene in such cases under the "general trade and commerce" clause of the Constitution.
"Cooperation is the animating force. The federalism principle upon which Canada's constitutional framework rests demands nothing less," the court wrote.
The decision will likely upset many in the banking and business sectors, and Ontario, which supported the plan.
"There's more work to be done, there's more negotiations to be done. There's a clear federal interest and clear federal jurisdiction, so we build from here," said Canadian Bankers Association head Terry Campbell.
The Canadian Banker's Association suggested a national regulator would have been beneficial during the 2008 economic meltdown by offering a unified national policy similar to other countries.
With files from The Canadian Press