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Canada high court strikes down national securities regulator proposal

The Supreme Court of Canada [official website] on Thursday rejected a proposal [judgment; press release] to establish a single national securities regulatory body to replace the current system managed by individual provinces and territories. Canadian Finance Minister Jim Flaherty [official website] introduced [JURIST report] the legislation [text; official backgrounder] in May 2010, and it was submitted to the Supreme Court for a ruling on its constitutionality. The court ruled unanimously that, "[t]he Securities Act as presently drafted is not valid under the general branch of the federal power to regulate trade and commerce under s. 91(2) of the Constitution Act, 1867 [text]." The court concluded:

To summarize, we accept that 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. However, as important as the preservation of capital markets and the maintenance of Canada’s financial stability are, they do not justify a wholesale takeover of the regulation of the securities industry which is the ultimate consequence of the proposed federal legislation. The need to prevent and respond to systemic risk may support federal legislation pertaining to the national problem raised by this phenomenon, but it does not alter the basic nature of securities regulation which, as shown, remains primarily focused on local concerns of protecting investors and ensuring the fairness of the markets through regulation of participants. Viewing the Act as a whole, as we must, these local concerns remain the main thrust of the legislation—its pith and substance.
Flaherty said the government would respect the court's decision and proceed in accordance with it [CTV report].

The legislation was based on the recommendations of a seven-member panel appointed by Flaherty, which concluded in January 2010 that the global financial crisis [FT backgrounder] increased the need for a national securities regulatory system. It came as a culmination of the efforts of successive Canadian governments to form a single securities regulator. When the legislation was proposed last year, Quebec Premier Jean Charest [official profile] sharply criticized it, saying that it would interfere with provincial jurisdiction and that his government would pursue a legal challenge in the Quebec Court of Appeal [officials website]. The governments of Alberta and Manitoba were also critical of the legislation.

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