The Supreme Court of Canada’s ruling that the federal government’s proposed new securities legislation is unconstitutional may not kill national regulation outright, but it should spell the end of Ontario’s strategic intransigence. The court probably has put an end to the dream that all the various provincial regulators can be consolidated into a national authority. While this decision opens the door for the feds to regulate in narrow areas, such as systemic risk, it’s hard to see what the feds would achieve by trying to cobble something together that’s confined to that area.
Alternatively, the feds could try to make their case before the SCC once again, on different grounds — the constitutional equivalent of getting a no from Mom and running to ask Dad instead. This approach could be successful, but it is likely to poison the well of federal/provincial co-operation that the court sees as critical to this effort.

Or the feds could try to come up with a more co-operative solution, perhaps with the provinces that don’t really need to be in the business of securities regulation agreeing to delegate the task, in exchange for transfer payments that cover their lost revenue. Other provinces, which see the related fees as being essential to their local economy, would be left to their own devices.

None of these paths is likely to end in a national regulator. And, if that’s not the endgame, why bother involving the federal government at all? Its participation is likely to add just another layer of bureaucracy and complexity. The outcome remains distinctly uncertain.

Investors and the industry will be better off, in the short term, if the Canadian Securities Administrators could be made more effective.

Right now, the CSA appears to be run on an ad hoc basis with insufficient funding and no accountability. One of its biggest weaknesses is the fact that its most significant member, Ontario, has refused to sign on to the passport system, clinging to the dream of a single, national regulator. If that’s ever to happen, it’s a long way away. In the meantime, Ontario should get with the program and help make the passport system, and the CSA, as useful and efficient as possible.