Thursday, January 5, 2012

(No.184) Oops! 'No' to a national securities regulator

When the Canadian government decided to push ahead with establishing a national securities regulator, over the objections of several provinces but cheered on by the large financial institutions, Finance Minister Jim Flaherty (a former Ontario Treasurer) wisely decided in the spring of 2010 to refer the proposed Securities Act to the Supreme Court of Canada for a ruling on whether it fell within federal jurisdiction.

Most 'experts' in the financial media and related playpens were confident that the Supreme Court would come down on the side of the feds and not that of provincial jurisdiction. The Globe and Mail was representative:
May 27, 2010 -- "most legal experts believe the highest court will approve Ottawa's request";
May 28, 2010 -- editorially the Globe considered that the proposed federal Securities Act would be found acceptable to the Supreme Court and concluded that "probably it will say it is".

Two days later in a column (No.95 posted May 30, 2010), and because I lacked the Globe and Mail's 'expertise', I took the opposing view and argued that a Supreme Court "endorsement of Ottawa's view of the creation of a national securities regulator vis-a-vis the provincial government authority is very, very far from being a dead bang certainty."

By March 2011 the appeal courts in both Alberta and Quebec had ruled that the proposed federal legislation was unconstitutional. The 'experts' who had so confidently predicted a win by Ottawa fell largely silent. They seemed, as I pointed out in April of 2011, "to have retreated quietly into the bushes, a good place for those who wish to be able once the SCC decision is handed down to foster some appearance of wisdom even if after the fact" (, No.147).

On Dec. 22, 2011 the Supreme Court gave its opinion in response to the federal government's reference request. The opinion was unanimous: the securities laws of Canada fall exclusively under provincial authority. The proposed federal legislation was constitutionally invalid.

I was particularly interested by the fact that one of the three constitutional principles supporting the SCC opinion involved the SCC's own judgement of May 31, 2007 in the Canadian Western Bank case. In that case, involving a challenge to provincial jurisdiction over insurance by the big banks, the Supreme Court also upheld provincial jurisdiction.

It was another case in which the media 'experts', including the lawyers advising the banks, were confident that the provinces would lose. I was confident publicly (as I had been in various published comments over the years) that provincial jurisdiction over insurance would prevail if the banks were ever foolish enough to challenge provincial authority in the insurance field (see for example columns Nos. 69, 95, 114).

That the Dec. 22, 2011 Supreme Court decision received far less attention by the financial services paparazzi than did the initial reference by the feds is hardly surprising. For every financial columnist offering valuable insights -- like Eric Reguly, the Globe and Mail's Rome-based business correspondent -- there are battalions of 'experts' and cable news 'talking heads' whose erroneous analyses and predictions are rarely revisited by the host media.

The Western Bank and Securities Act cases and the SCC decisions on both illustrate a continuing theme of mine in columns. As I observed over the years as both an editor and an executive, the likelihood of most senior business excecutives being wise before the fact rather than after it is, logically, no better than the financial media whose writings provide the grist for executives' daily media 'clipping' services.

by Alastair Rickard




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