The federal government appears to be edging closer to its goal of establishing a national securities regulator.

Although Quebec and Alberta are still exerting resistance, Ottawa has made clear it is determined to continue moving forward with its plan to centralize securities regulation.

One of the government’s top priorities is putting to rest questions about the constitutionality of the plan. Quebec has argued that under the Constitution, securities regulation lies within provincial jurisdiction. This past summer, the Quebec government brought the issue to court, filing a reference with the Appeal Court of Quebec contesting federal authority to create a national securities commission.

But rather than wait for the issue to work its way through the Quebec court, the federal government has gone straight to the country’s top court to clear up the matter. Rob Nicholson, Minister of Justice and Attorney General of Canada, announced in mid-October that the feds would seek the opinion of the Supreme Court of Canada as to whether Parliament has the constitutional authority to enact and implement a federal securities regulatory regime.

Although the federal government “strongly believes” it has the constitutional authority to move forward, Nicholson says, an opinion from the SCC would provide legal certainty on the issue to all provinces and territories and market participants.

By referring to the SCC, the federal government is putting itself in a position to define the question being considered by the courts rather than allowing the Quebec government to do so, says Edward Kerwin, a partner in the corporate finance group at McCarthy Tétrault LLP in Toronto: “The [federal] government is seizing the initiative and getting the opportunity to frame the question.”

Many constitutional experts support the view that the federal government has authority to establish a national securities regulator.

“My prediction would be that the Supreme Court of Canada will declare that Parliament has jurisdiction to regulate securities markets,” says Philip Anisman, a securities lawyer in Toronto. Anisman was lead author of a report commissioned by the federal government in the 1970s on the issue of a national securities regulator. That report had concluded then that the federal government had legislative jurisdiction to regulate securities markets in Canada.

In addition, Anisman points to the 1982 SCC decision Multiple Access v. McCutcheon, which involved overlapping provincial and federal laws. He says the SCC’s decision in that case indicated that the court was receptive to the notion that Parliament has legislative jurisdiction to regulate securities markets.

Meanwhile, the Canadian Securities Transition Office, which was appointed by the federal government to lead efforts on establishing a national regulator, is continuing with its work. In mid-October, a new committee of provincial and territorial representatives was appointed to advise and assist the CSTO as it shapes the Canadian Securities Act and designs the new regulator.

With members from government and the regulatory world, the committee also includes a number of corporate representatives with relevant industry experience. For example, the committee member representing British Columbia is Peter Brown, chairman and founder of Canaccord Capital Inc.

Kerwin says he was encouraged to see such representation by the investment industry. “I thought it was good that [the CSTO was] having people who would bring industry expertise,” he says, “and not just a regulator’s perspective, to the advisory panel.”

But three provinces are noticeably absent from the committee. Alberta, Manitoba and Quebec did not nominate representatives, leaving the three provinces without a place at the table. It is still unclear whether Manitoba will decide to participate in the advisory committee; that province recently underwent a change in leadership. The other two provinces have made it clear that they do not intend to participate.

The lack of input from these provinces, Kerwin warns, could result in the design of a national regulatory regime that gives insufficient consideration to certain aspects of Canada’s securities markets.

“The fact that they might not be at the table,” Kerwin says, “would undermine the prospects for a successful implementation of a national regulator.”

For instance, some provincial regulators look to Alberta on oil and gas industry matters, because the sector makes up such a significant portion of the province’s economy.

In addition, Kerwin points out, regulators in Alberta have taken the lead on a number of enforcement issues.

Similarly, he notes, Quebec is the jurisdiction that has taken the lead in dealing with derivatives and some structured instruments.

@page_break@“The Quebec financial markets have always been a vital part of our Canadian business scene,” Kerwin says. “I would hope that even if Quebec held out, there would be some structure put in place so that a national regulator could function with the co-operation of Quebec.”

Legal experts suggest that if a national regulatory regime is deemed to be constitutional by the SCC, the provinces resisting the plan may then decide to
co-operate.

“Depending on the legislation and what the Supreme Court says, it is possible that the decision of the provinces that currently oppose could be affected,” says Anisman. “Things can change.”

But, he adds, Quebec appears unlikely to adjust its position on the matter.

Even without all the provinces on board, many lawyers are confident that a national regulator could function effectively. Says Anisman: “A national regulator with the majority of the provinces participating could work.” IE