The Supreme Court of Canada has ruled unanimously against the federal government’s attempt to create a national stock market regulator, because the legislation presented to it “overreaches” into provincial jurisdiction. Thursday’s decision should end Finance Minister Jim Flaherty’s plan, which called for the dismantling the current system under which the 13 provinces and territories regulate securities under a “co-operative passport system.”
The government had argued financial markets are now so critical to our economy and so interwoven with the world’s economy that Canada needed a single voice to more effectively represent its interests. The government also maintained that a single regulator would be more effective in detecting and policing fraud.
To help his case, Flaherty used examples of fraudsters such as Earl Jones in Montreal and the perpetrators of the Bre-X gold mine swindle suggesting they might have been caught sooner had single-regulator policing rules been in place. Critics, however, have rightly pointed out that a single regulator did not prevent Bernie Madoff, Enron and other stock manipulation scandals in the United States.
The court, however, left Ottawa room to continue playing a role in securities trading regulation, such as in setting minimum standards, and in guarding against systemic risk whereby a failure of one player creates a “domino effect” setting off a chain reaction affecting the greater financial system.
Hat’s off to Canada’s top court for reinforcing that we live in a federation and that provincial jurisdictions are to be adhered to. We have a constitution which lays out the boundaries of federal and provincial jurisdiction. If such boundaries are no longer in our national and provincial interests, then change the constitution. Until then, respect the boundaries.
© 2011 Russell G. Campbell