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Securities Blanket

Updated: Mar 31, 2018

First published in The National Post -

By: Anita Anand and Grant Bishop

In a recent decision, the Supreme Court nixed the federal proposal for a national securities regulator, finding that its proposed scheme was unconstitutional. Admittedly, the federal government’s proposal largely (and intentionally) uploaded the current provincial model to a federal statute. The court held that, while aspects of the proposed legislation were within the federal wheelhouse, these could not justify a “wholesale takeover” of securities regulation in Canada.

Nonetheless, the court’s decision should not be read as foreclosing a federal role in securities regulation. The judgment specifically observes that provinces would be incapable of enacting legislation to effectively address systemic risk and comprehensive data collection. Indeed, the court expressly stated that “[t]he need to prevent and respond to systemic risk may support federal legislation pertaining to the national problem raised by this phenomenon.”

While the Court has barred one proposal, we note Minister Jim Flaherty’s recent statements that the federal government remains committed to a presence in securities regulation to address a glaring regulatory gap with respect to systemic risk. But we seem to have moved from the specific notion that “systemic risk” is the interconnected financial breakdown where a triggering event causing default by one market participant in turn impacts others’ ability to fulfill their legal obligations, causing a chain of negative economic consequences. As Governor Carney has suggested, “systemic risk” can be used more broadly to refer to the financial system’s inability to support economic activity.

The recent (and arguably ongoing) financial crisis underscores how financial contagion can spread from securities markets to financial institutions and back again, threatening the integrity of the entire economy. In Canada, our regulatory framework has not kept pace with the increasing integration of financial institutions and securities markets. In particular, banks are frequent counterparties in over-the-counter derivatives — products for which provincial securities regulators have yet to enact a coherent regime.

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