The battle lines have been drawn in the long-awaited constitutional showdown over the federal government’s drive to create a national securities regulator. The Supreme Court of Canada is slated to hear the case on April 13 to 14, and the provinces are choosing sides for the monumental event.

For years, the struggle to create a national regulator looked like a battle between Ontario and the rest of the country. But when the federal government decided to push the issue, the concept finally seemed to gather momentum outside Ontario. British Columbia had openly shifted its position and most of the other provinces — barring Alberta and Quebec — seemed ready to fall into line, joining an advisory committee at the Canadian Securities Transition Office.

Now that the SCC hearing on the constitutionality of the proposed national regulator is on the horizon, however, most provinces participating in the case are being pushed to choose sides. Again, it appears Ontario stands alone. Among the provinces that have filed factums in the case setting out their positions, Ontario is the only one supporting the federal government in its argument that it has the necessary jurisdiction to create a national regulator.

All of the other provinces are opposed, some more vehemently than others. For example, Alberta calls the federal effort “unprecedented and unsupportable” in its filing. And it argues that if the feds are successful, a national regulator would represent “a massive intrusion” into an area of long-standing provincial jurisdiction, which would “dramatically upset the ‘crucial’ balance of federalism.”

Moreover, a national regulator could disrupt the existing regulatory system, Alberta’s factum warns: “There will be the serious risk of the loss of the existing high level of harmonization of securities regulation across Canada.”

Although Alberta has always stood against the idea of a national regulator, B.C. previously had seemed to warm to it, supporting the federal initiative. However, B.C. is now weighing in against the proposal on the table. B.C. maintains that it still supports the concept of a national regulator — just not the model the feds are pushing.

B.C.’s filing says that the proposal goes too far in asserting federal jurisdiction in an area that has traditionally been under the provinces’ purview — and asks the provinces to surrender too much of their power. B.C. worries that “the imposition of a single securities regulator is only the first step in federal intrusion into provincial jurisdiction,” and that it interferes with provincial authority over property and civil rights.

Instead, the B.C. factum calls for a more co-operative model, suggesting the feds could establish their own regulator to deal with interprovincial and international issues that aren’t captured by the provinces, and that this body could accept delegated authority from willing provinces: “Given that such a scheme would respect the division of powers and would operate much like the passport system does today, the reluctance of the provinces to opt in would likely be nowhere near as pronounced as it is with the present unilaterally imposed [federal proposal].”

B.C.’s position is echoed by Saskatchewan, which also weighs in against the proposal as an “unprecedented extension” of federal power that would alter the balance of power. Nevertheless, Saskatchewan’s factum maintains that a national regulator could still be formed without upsetting that balance through provincial delegation to a single regulator — a model put forward in Purdy Crawford’s 2006 Blueprint for a Canadian Securities Commission.

Alternatively, Saskatchewan’s filing suggests that enforcement — both criminal and regulatory — could be delegated to a single authority charged with protecting investors, thereby creating national enforcement without disturbing the existing division of powers.

Although the provinces are now lining up against Ontario and the feds on this proposal, the financial services industry — in the form of the Canadian Bankers Association and the Investment Industry Association of Canada — is supporting it. In fact, so are institutional investors, represented by the Canadian Coalition for Good Governance and the Ontario Teachers’ Pension Plan, as well as investor advocates under the banner of the Canadian Foundation for Advancement of Investor Rights (FAIR Canada).

However, these sources of support are all based in Ontario, despite that all — except the OTPP — are national organizations. The only organizations not based in Ontario that have status in the case — Quebec’s law society, the Barreau du Québec; investor advocacy group Mouvement d’éducation et de défense des actionnaires; and governance advocates represented by the Institut sur la gouvernance des organisations publiques et privées — all line up with the “no” provinces.@page_break@Despite the strongly held views, the terms of the battle are generally agreed. Both sides acknowledge the federal government does have the jurisdiction to introduce new criminal provisions relating to securities. They also agree that the SCC will have to weigh the constitutionality of the proposed new federal securities legislation regarding federal power to regulate “trade and commerce” against five basic criteria that have been established in previous cases dealing with the limits of federal jurisdiction and the appropriate division of federal and provincial powers.

Those in favour of the federal proposal argue that the proposed legislation does meet all five of the criteria. Meanwhile those against the proposal generally admit that it meets two of the five but it fails on the other three — and it’s these three disputed criteria that are really at the core of the case.

The criteria for determining federal jurisdiction under the “trade and commerce” power were established in a case decided in 1989, General Motors of Canada Ltd. v. City National Leasing, which concerned the constitutional validity of elements of the Combines Investigation Act.

The elements that aren’t in question require that proposed legislation establishes a regulatory scheme under the continuing oversight of a regulatory agency, which the proposal would do.

The grounds on which the SCC case in April will be fought pertain to the other three criteria: whether the proposed legislation aims to deal with trade generally, and not just a particular industry; whether the provinces would be capable of enacting similar legislation themselves; and, finally, whether the absence of one or more provinces from the regime would undermine its operation in the rest of the country.

Applying these tests to the federal proposal leads to some basic disputes for the SCC to wade through. Supporters of the initiative argue that securities regulation doesn’t just amount to overseeing a particular industry — Bay Street — but that the scope is much wider, encompassing issuers from every sector and affecting the economy as a whole. The supporters aim to establish that securities regulation is a national concern. Says FAIR Canada’s factum: “Indeed, in this day and age, it is difficult to imagine an activity that is more truly of national economic concern than the regulation of Canada’s capital markets.”

The federal attorney general’s brief points to the recent financial crisis as evidence of the increasingly global nature of financial markets and their national importance.

Ontario cites the growing globalization of the exchange business as another area in which securities regulation raises a genuine national concern. This has been highlighted by the proposed merger of Toronto-based TMX Group Inc. and London Stock Exchange PLC — viewed as a national concern by the feds, who have decided to review the deal to ensure that it’s in the national interest.

Ironically, Ontario has also expressed concern about the deal’s possible impact on its economy, and the province has formed an all-party committee to hold public consultations and review the proposed transaction. The committee is slated to report by April 7. Thus, the committee’s findings could impact arguments made before the SCC the following week.

The second disputed criteria — whether the provinces could come up with a similar regime on their own — threatens to become a bit of a referendum on whether the existing regulatory system is adequate and, in particular, whether the Canadian Securities Administrators, with its efforts to harmonize rules, co-operate on enforcement and improve efficiency through the passport system, have created something close to a de facto national regulation.

Alberta argues that the provinces and the CSA have shown that they are “eminently capable” of legislating in this area. B.C. points out that the federal legislation mimics existing provincial securities laws, which proves provincial efforts have been sufficient. Ontario argues that the CSA and the passport system are no substitute for a national regulator.

Finally, the issue of whether federal regulation is necessary because the regime needs to include all the provinces to work properly is particularly interesting, as the feds have deliberately structured the model as being voluntary. IE