National securities regulator not dead: CFA Institute

The Supreme Court of Canada says the federal government does not have the power to unilaterally create a national securities regulator through legislation, but reaction to the decision suggests there might still be a way forward, through federal and provincial co-operation.

The proposed Canadian Securities Act “overreaches genuine national concerns,” the high court said in an opinion released on Thursday. “While the economic importance and pervasive character of the securities market may, in principle, support federal intervention that is qualitatively different from what the provinces can do, they do not justify a wholesale takeover of the regulation of the securities industry which is the ultimate consequence of the proposed federal legislation.”

However, the decision notes that a “cooperative approach” that recognizes the essentially provincial nature of securities regulation while allowing Parliament to deal with national concerns “remains available and is supported by Canadian constitutional principles and by the practice adopted by the federal and provincial governments in other fields of activities.”

“We’re optimistic that a national securities regulator is still possible given today’s decision,” says Beth Hamilton-Keen, CFA and board member of the CFA Institute. “The important takeaway for us is that the Supreme Court of Canada has recognized federal jurisdiction over securities regulation – that’s an important first that we haven’t seen before. The decision is urging a cooperative approach that will allow Parliament and the provinces to work together for national concerns and the ultimate protection of Canadian investors.”

“The members of the CFA Institute have very clearly indicated their support for a single regulator model,” Hamilton-Keen adds. “Although it’s not as clean and straightforward as we would have hoped for, it’s certainly encouraging.”

Ottawa released the draft Securities Act last year in an effort to replace the current patchwork system of rules created by 13 separate regulators. A number of provinces, including Quebec and Alberta, opposed the move, arguing the current system, which does allow the provinces to work together on some issues, is working just fine.

In a statement, Finance Minister Jim Flaherty admitted that “it’s clear we cannot proceed with this legislation,” adding that he would review the court’s decision and act in accordance with it.

Flaherty has argued that the lack of a national regulator hurts Canada’s reputation, noting that Canada is the only developed economy in the world without a single regulator.

Ian Russell, head of the Investment Industry Association of Canada, says the court ruling is in fact a positive step, giving the feds and the province the ability to move forward co-operatively. “What the court is saying is that one level of government doesn’t have the authority to design a single regulator, what I’m talking about is building a single regulator co-operatively, using both federal and provincial jurisdictions together to create an efficient, effective, forward-looking single regulator for Canada.”

The Portfolio Management Association of Canada (PMAC) says the decision “clearly paves the way for a more cooperative federalism model.”

“There is more work to be done to move towards a national securities regulator, and the ruling provides some principles and boundaries to move in this direction,” says PMAC President Katie Walmsley.

More on the SCC decision in Supreme Court nixes national regulator