Supreme Court ruling clears the way for national markets watchdog

The Supreme Court of Canada has cleared the way for the creation of a cooperative federal-provincial securities regulator to govern the country’s capital markets.

Quebec challenged the Cooperative Capital Markets Regulatory System, several years in the making and supported by five jurisdictions including Ottawa, British Columbia, and Ontario, at Canada’s highest court, on the grounds that it exceeded the federal government’s authority over trade and commerce.

On Friday morning, the Supreme Court ruled that the draft legislation to create the regulator did not exceed Ottawa’s authority, trumping an earlier Quebec court ruling that was appealed by Ottawa, as well as the provinces of British Columbia and Quebec.

The court challenges stalled the progress of the CCMR, but proponents believed the idea of a more unified regulatory body for Canada would move ahead.

Quebec and Alberta have been the strongest opponents to bringing together Canada’s patchwork of 13 provincial and territorial capital markets watchdogs, a unification that has been contemplated in several forms and forums over the past 50 years.

In 2011, the two provinces led a challenge of an earlier attempt by Ottawa to create a single national regulator to govern securities regulation across the entire country. That time, the Supreme Court of Canada ruled that the federal government was overstepping its authority, which led to the creation of the current cooperative model with the participation of Ottawa and willing provinces.

So far, the cooperative regulator, while not truly national, has the support of Ottawa, British Columbia, New Brunswick, Ontario, Prince Edward Island, Saskatchewan, and Yukon.

Anita Anand, a law professor at University of Toronto who specializes in securities and governance issues, said Friday’s Supreme Court’s decision was “well reasoned” and should allow the creation of the new regulator to move forward within the established boundaries.

The court ruled that the current model does not impede provincial powers to enact securities regulation, and held that the federal government has the constitutional power to regulate in the area of “systemic” risk because this type of regulation is not intended to affect day-to-day regulation of securities markets.

With the court’s endorsement of the current regulatory model, Anand said a question remains about where the Liberal government, including Prime Minister Justin Trudeau and Finance Minister Bill Morneau, stand on the idea of a cooperative regulator, which they inherited when they took power.

“They have been conspicuously quiet on the issue of securities regulation in this country, which is surprising given that over 50 per cent of adult Canadians are invested in the capital markets,” she said.

Mark Machin, chief executive of the Canada Pension Plan Investment Board, called Friday’s court ruling “an encouraging development,” adding that “nationwide regulation is generally a good thing.”

Brigeeta Rochdale, a partner and securities litigator at law firm Cassels Brock & Blackwell in Vancouver, said there isn’t yet a clear timeline for when the new regulator will be functional, but the cooperative model should improve enforcement and harmonize policy interpretation.

“Industries that have been struggling to navigate regulation in Canada will be provided greater clarity in a more transparent and supportive regulatory environment,” she said. “These conditions are critical to ensure long-term success in emerging markets like cryptocurrency and cannabis as we enter a progressive new era of conducting business at a global scale.”

However, investor advocates remain critical of some aspects of Canada’s newest securities regulator, which would not carry forward an investor advisory panels or investor education offices established by existing provincial regulators such as the Ontario Securities Commission.

“While the objectives of the proposed cooperative system are long standing and laudable, the delicate process of inter provincial negotiations has resulted in a proposed system which waters down or eliminates key investor protection initiatives by some provinces,” said Harold Geller, a lawyer at MBC Law Professional Corp. in Toronto.

“We will be stepping back to a time when the civil courts were the protectors of investors from dealer and advisor abuses and negligence,” added Geller, a former member of the OSC’s investor advisory committee.

Published at Fri, 09 Nov 2018 19:39:06 +0000