Advocates for a national securities regulator have long acted as though claiming jurisdiction over securities regulation would be just a formality for the federal government. The assumption was that Ottawa could claim jurisdiction based on its “trade and commerce” powers.

Yet, after the recent Supreme Court of Canada’s hearing in April into the question, the result seems to be in some doubt.

The constitutionality of federal regulation has long been recognized as a possible hurdle but not regarded as a potential fatal flaw. Indeed, the Wise Persons’ Com-mittee, which handed down its report in 2003, had secured three legal opinions on the constitutional question — all of which concluded that the feds could claim jurisdiction.

The SCC may yet uphold this assumption, but the SCC proceedings indicate that this is far from the open-and-shut case that many pundits may have assumed. Already, appeal courts in Alberta and Quebec that were asked to consider the same issue have sided with the objecting provinces, ruling that securities regulation falls under provincial jurisdiction.

Notwithstanding those decisions, the SCC will be the final authority on the matter. At the conclusion of its two-day hearing on April 13-14, the SCC reserved its decision; it is expected to hand down its ruling within the year.

The attorney general of Canada and supporters of the proposed national securities regulator (including Ontario — alone among the provinces — and a variety of interveners, such as the Canadian Foundation for Advancement of Investor Rights, the Canadian Co-alition for Good Governance, the Investment Industry Association of Canada, the Canadian Bankers Association and the Ontario Teachers’ Pension Plan Board) appeared to have received a rougher ride at the SCC hearing from several of the justices than did those opposing the proposal.

The feds were opposed at the hearing by six provinces, led by Alberta and Quebec, and a handful of organizations that also intervened on the opposition’s side.

Essentially, the feds (and their supporters) argue that securities regulation should fall under federal jurisdiction based on previous decisions from the SCC that have established the limits of federal powers.

In making this case, the feds insist that securities regulation is fundamentally a national economic concern, and that a national agency is necessary to carry it out properly — in particular, to ensure adequate enforcement and to oversee systemic risk (the latter of which has emerged as a new concern for securities regulators in the wake of the recent global financial crisis).@page_break@However, the provinces that oppose the federal case argue that they are already doing an adequate job of regulating in this area, and that handing this authority to Ottawa will represent an unprecedented intrusion into an area that has traditionally come under provincial jurisdiction. This, in turn, would dramatically upset the balance of power between the provinces and the federal government.

This fear seemed to resonate with several of the SCC justices — particularly Justice Louis LeBel, who expressed concerns throughout the hearing that upholding federal jurisdiction in this case would radically alter the balance of power that fundamentally underpins Canadian federalism.

LeBel suggested that the implication of arguing that if something is an important economic concern, it must be considered a federal matter, leads to the conclusion that anything important should be considered federal and that only unimportant things should be left to the provinces, which would represent a fundamental shift in the balance between the provinces and the federal government. LeBel said the case raises “very major issues” in this respect.

FEDERAL POWERS

British Columbia and Saskat-chewan put forth a line of reasoning that suggests they both agree that securities regulation can be considered a national issue but also that they reject this specific proposal on the grounds that it tilts that balance too far toward increasing federal powers.

Both provinces noted that they support the idea of a federal authority, but not the one being proposed because it requires the provinces to give up too much jurisdiction.

George Copley, senior legal counsel in the B.C. attorney general’s office and the province’s lawyer, called the proposed national regulator a constitutional “Trojan horse” that is being presented as a voluntary, co-operative scheme but would actually open the provinces up to surrendering significant jurisdiction. As a result, he said, B.C. has decided the cost of supporting the initiative “paid in constitutional currency, is simply too high.”

Guy Paquette of Montreal-based Paquette Gadler Inc. , a lawyer for the Quebec-based investor advocacy group, the Mouvement d’education et de défense des actionnaires, argued that altering the balance of power as dramatically as this case would really requires a constitutional amendment to achieve — not simply a court opinion.

Calling the SCC’s ruling in this case its “most important decision in the past 50 years,” Paquette suggested that a constitutional conference, and negotiation between the provinces and the federal government, is necessary for a change of this magnitude. He encouraged the SCC to be excessively cautious in its judgment.

Although it’s impossible to predict how the SCC will rule, the tone of the hearing suggests that the SCC will be careful about allowing federal powers to expand. Some members of the SCC appear reluctant to do anything that would open that door too wide. IE