When I practised corporate law on Bay Street, securities lawyers often moaned about Canadian capital markets regulation. “Every province and territory runs its own show,” they said. “Prince Edward Island has fewer people than Sudbury, yet it’s got its own superintendant of securities. How crazy is that!”

There may have been a touch of ambivalence in this criticism. Those self-same lawyers were racking up a lot of high-priced billable hours while making their way through the nearly impenetrable thicket of our securities laws.

Their clients, who paid the freight, were not ambivalent. They knew that 13 regulatory regimes in one country was the antithesis of a modern and efficient capital market. They knew this chaotic system was bad for them, and bad for Canada.

In 2006, the federal government decided to fix the problem by creating a single, national securities regulator. (This possibility had been discussed for decades.) The feds produced a draft Canadian Securities Act. The act allowed provinces and territories to opt in. There was squawking, particularly from Quebec and Alberta, but that was no surprise. The smart money assumed that a national securities system was coming. It was so obviously a very good idea.

For political reasons, the Government of Canada asked the Supreme Court of Canada for an advisory opinion on whether the proposed act fell within Parliament’s general power to regulate trade and commerce. The government argued that the securities market had evolved from a provincial matter to a national matter affecting the country as a whole. The federal trade and commerce power, it said, now gave Parliament legislative authority over all aspects of securities regulation.

Alberta, Quebec, Manitoba and New Brunswick said the proposed scheme infringed the provincial power over property and civil rights. Observers thought that the dissident provinces were going through the motions, playing a futile political game destined for failure. A national securities regulator, most believed, was a done deal.

But it wasn’t. The SCC ruined everything in a heartbreaking decision of staggering dumbness. In an awkward, unanimous judgment, the court decided that the draft act is unconstitutional. The SCC agreed that “what the Act seeks is comprehensive national securities regulation, with the aim of fostering fair and efficient capital markets and contributing to the stability of Canada’s financial system.”

That sounds like just the sort of thing you would want the federal government to do.

But, said the court, “federalism demands that a balance be struck, a balance that allows both the federal Parliament and the provincial legislatures to act effectively in their respective spheres. Accepting Canada’s interpretation of the general trade and commerce power would disrupt rather than maintain that balance. Parliament cannot regulate the whole of the securities system simply because aspects of it have a national dimension.” To reach this conclusion, the court used an antiquated division- of- powers approach and hoary precedent, including a case from 1881.

As for the argument that the securities market has been so transformed as to make the day-to-day regulation of all aspects of trading in securities a matter of national concern, the court simply rejected it. “For example,” it said, “the record does not support a necessary link between the national interest in fair, efficient and competitive capital markets and the registration requirements applicable to a securities dealer in Saskatchewan or Quebec.”

There’s a hint of judicial unease in the judgment. The court says,”the policy question of whether a single national securities scheme is preferable to multiple provincial regimes is not one for the courts to decide.” Despite this disclaimer, the judges were, of course, deciding policy (that’s what the SCC does, routine disavowals notwithstanding), and very bad policy it was. Per-haps in their heart of hearts they knew this was so. Did they cast a sideways look at the European Union summit in Brussels, which took place just a few days before their decision was released, where the perils of a fiscally fragmented union were dramatically on show?

Traditional constitutional lawyers and turf-defending provincial politicians may oppose a national securities regulator, but capital markets participants see things more clearly. You know what? In the modern integrated era, where capital flows freely across borders, the Saskatchewan registration requirements for a securities dealer actually are of national importance.  IE

Philip Slayton’s latest book is Mighty Judgment: How the Supreme Court of Canada Runs Your Life.