Court ruling leaves two options for Canadian regulator

Author: | Published: 11 Jan 2012
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Canadian Parliament was effectively allotted two options in pursuit of a national securities regulator following a December 22 Supreme Court ruling that the Securities Act overreached provincial jurisdiction over the regulation of property and civil rights.

The first option is to implement a national regulator strictly for the collection of data to be analysed in the assessment of systemic risk.

The provincial regulators would remain intact and their duties untouched, thus adding a fourteenth regulator and further convoluting a system the federal government criticised for its inefficiency.

Torys partner Glen Johnson thinks systemic risk is a compelling policy goal, but says implementing a fourteenth regulatory regime would increase compliance costs among banks and financial companies.

He said it is unclear how regulators would draw the line between information gathering and other possible federal regulatory powers and the day-to-day operations of the capital markets, which was found to be a provincial responsibility.

"I think the thrust of this legislation is about coordination and harmonisation," Johnson said. "As important as the systemic risk might be, it would be off-message to impose an additional regulatory regime on market participants."

Federal action to implement a national regulator of systemic risk with national data collection authority as recognised in the Supreme Court decision would be contradictory to the intent of the Securities Act and would likely result in provincial pushback.

"I think as a practical matter it would be difficult to layer that on the provincial regime without stirring up the hornets’ nest again," Johnson said. "I think it’s more likely that any developments on this front will be made in cooperation with the provinces."

It is unclear how Parliament and the Canadian Securities Transition Office will respond to the ruling. A Department of Finance official told IFLR "the federal government will review the Supreme Court of Canada’s decision carefully and act in accordance with it."

Hope Remains

A second option - a securities regulatory regime with one regulator having national authority over registration of securities dealers, filing and disclosure requirements, derivatives regulation, enforcement remedies and other powers currently held by provincial regulators - remains a possibility, however meek.

This remains an option because the court only rejected the federal government’s claim that securities regulation was a national concern falling under trade and commerce powers, and not the constitutionality of a national regulator implemented in collaboration with provincial governments as an opt-in system.

While the Securities Act called for an opt-in system, an approval by the court would have empowered the government to cite securities regulation as a national concern, enabling it to use coercive powers in requiring provinces to join.

"In light of the decision, it remains to be seen whether the federal government will still pursue this goal and how many provinces would be willing to participate," Osler Hoskin & Harcourt partner Jeremy Fraiberg said. "If there’s a will, there’s a way."

Johnson said the political will to collaboratively legislate a national regulator "ranges from uncertain to unlikely at this stage", even though he thinks opposition to the Securities Act was based in fear of greater intervention that might have resulted from recognition of federal jurisdiction in securities regulation.

"It took a lot of political will on the federal government’s part to push this as far as they did," Johnson said. "It’s a low-return issue for a politician. No one is ever going to vote for you because they are happy with their securities commission."