Quebec’s Court of Appeal has ruled in a split decision handed down on Wednesday that a proposed new “pan-Canadian” securities regulator is unconstitutional because its proposed mechanism for amending securities laws would create jurisdictional issues between the provinces and the federal government.

Quebec’s provincial government brought forth a reference about the constitutionality of “pan-Canadian securities regulation” as proposed in an agreement between the federal government and several provinces — most prominently Ontario and British Columbia — to create a Co-operative Capital Markets Regulator (CCMR). The two other significant provincial securities commissions, Alberta and Quebec, have continued to oppose the idea.

The reference contained two questions:

  1. Whether the CCMR model proposed in an agreement between the feds and the provinces is constitutional.
  2. Whether proposed federal legislation to oversee systemic risk violates the constitution.

On the first question, the majority of the court ruled that, no, the proposed CCMR model would not be constitutional, as currently drafted. In particular, it found that the mechanism for amending securities laws under the proposed regime “fetters the parliamentary sovereignty of the participating provinces and is consequently unconstitutional.”

The majority found that the model would subject the provinces’ power to legislate to the approval of an external entity (a council of ministers), which is not permitted.

In addition, the court found that the voting mechanism that the council of ministers would employ for adopting regulations under the proposed new federal securities act would effectively give certain provinces “a veto over federal initiatives that seek to guard against systemic risks,” thereby undermining that legislation.

On the second question, the majority found that the proposed new federal securities legislation would comply with the Supreme Court of Canada (SCC) opinion in 2011 that ruled the federal government could have jurisdiction over certain national issues, such as systemic risk.

However, again, the judges noted that the powers of the proposed council of ministers would “undermine the constitutional foundation of the federal act and to be irreconcilable with the purposes of the proposed federal legislation.”

If these provisions are not removed, the court found, the federal act would be rendered unconstitutional.

One of the judges, Justice Mark Schrager, dissented from the majority, indicating that he believes the proposed legislationwould be valid.

However, Schrager said in his dissenting opinion that the court should decline to answer the first question, saying that the court only has jurisdiction to rule on proposed legislation, not the validity of an agreement between the federal government and the provinces. On the second question, he ruled that the federal act would be permitted under the constitution.

“In my opinion, none of the content illegally delegates legislative authority nor abdicates parliamentary sovereignty,” Schrager said in his dissent. “However, there are aspects of the ‘memorandum of agreement regarding the Co-operative Capital Markets Regulatory System,’ which may constitute illegal delegation of legislative power or an abandonment of legislative sovereignty. This court’s opinion on constitutional validity should be limited to the legislative instruments (the two statutes submitted) and should not encompass any agreement between governments.”

Read: A CCMR challenge

Quebec’s Government House Leader Jean-Marc Fournier said he hoped the federal government would stop trying to create a national regulator.

“I hope this ruling sends a clear message to Ottawa,” he said.

Fournier added there is no need to touch the country’s current decentralized system.

“There is no reason to upset the system because it works,” he said.

With files from the Canadian Press.

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