Thursday, December 22, 2011

Score 1 for provincial rights, 0 for federal overreaching

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


  1. It's too bad. Obviously, the constitutional law for the Supremes was very clear on this or else there would have been some dissenting opinion.

    But this is not good for Canada. Having 13 different securities regulatory bodies and jurisdictions is insane and costing Canada billions of dollars and lots of jobs. To be a public company in Canada means you have to spend a huge amount of money in several different jurisdictions, maintain an internal bureaucracy to ensure ongoing compliance. All for such a little country in the grand scheme of things.

    This is great for us corporate law firms so my family says thank you to the Supreme Court. But the world has changed since the Constitution was written and it never contemplated the kind of securities markets we have within Canada or globally.

  2. Ted, I was the CFO of a large public company (Globe and Mail listed us among the largest 100 employers), and I can't say the current system was especially onerous. But that's only one case--here's the view of someone that follows these issues closer than I:

    Merry Christmas!