Quebec court rules against securities regulator

MONTREAL — Quebec’s top court says Ottawa’s plan to set up a national securities regulator is unconstitutional.

The provincial government asked the Quebec Court of Appeal in the summer of 2015 to look into the legality of the federal plan after arguing securities regulation falls under provincial jurisdiction.

A majority of the five justices who studied the matter ruled in Quebec’s favour on Wednesday.

Ontario, British Columbia, Saskatchewan, New Brunswick, Prince Edward Island and Yukon have all signed on to the proposed national regulator which, if implemented, would be expected to help oversee stock markets by policing abuses and securities fraud.

Canada is the only G20 country without a national regulator — a fact that can be attributed to the country’s Constitution, which places securities regulation squarely in the realm of provincial jurisdiction.

Proponents of a national regulator say centralizing the process would cut red tape for publicly traded companies and for investors. They also claim it would give smaller jurisdictions access to a more robust regulatory regime.

Opponents say Ottawa is attempting to seize power away from the provinces.

In 2011, the Supreme Court ruled a previous plan was unconstitutional, but hinted that structuring the regulator as a co-operative model —where provinces can choose whether to participate — would make the proposal fair game.

Ottawa’s newest proposal is called the Co-operative Capital Markets Regulator.

The Quebec government referred two questions to the appeals court.

The first dealt with whether the Constitution authorizes the implementation of a pan-Canadian securities regulation under the authority of one body, according to the proposed model.

Four of the five justices, including Chief Justice Nicole Duval Hesler, said it does not, while Justice Mark Schrager abstained.

“The mechanism for amending the Uniform Act…fetters the parliamentary sovereignty of the participating provinces and is consequently unconstitutional,” Duval Hesler wrote.

“It subjects the province’s legislative jurisdiction to the approval of an external entity (the council of ministers), which is impermissible.”

The council would oversee the work of the securities regulator.

The court was also asked to rule on whether the Capital Markets Stability Act, one specific aspect of the proposed overall regime, exceeded Parliament’s authority.

While the four majority justices replied No, they said four particular sections concerning the role and powers of the council of ministers, if not removed, would render the act unconstitutional as a whole.

Quebec’s Government House Leader Jean-Marc Fournier said he hoped the federal government would stop trying to create a national regulator.

“I hope this ruling sends a clear message to Ottawa,” he said.

Fournier added there is no need to touch the country’s current decentralized system.

“There is no reason to upset the system because it works,” he said.

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