The federal government is making all the right moves as it works to set up a single pan-Canadian agency to regulate the securities markets. Ottawa's most recent step, announced late Friday, is to go direct to the Supreme Court and ask for a ruling: Does the federal government have the power to do this, or not?
This process should accelerate the birth of the new agency, by short-circuiting the Quebec government's own reference of the issue, to the Quebec Court of Appeal.
Ottawa plainly believes it has the whip hand legally, since Section 91 of the Constitution Act puts "regulation of trade and commerce" among federal powers, along with defence, currency, the post office, etc. Legal experts agree. "The consensus view among most constitutional scholars is the federal government has the full authority to proceed," Patrick Monahan of York University told the Globe and Mail.
But this is Canada, where you've got law but you also have politics. Quebec political parties, even the governing Liberals, unanimously oppose one Canada-wide regulator, and sovereignist politicians can be relied upon to do all they can to whip up a new frenzy of manufactured humiliation over this.
In the era of Vincent Lacroix and Earl Jones and all the others, however, the argument that 13 provincial and territorial regulators can protect investors is plainly wrong. Imagine a Quebec nationalist with, say, $300,000 to invest: will he or she be content with the status quo in investor protection? We doubt it. As Justice Minister Rob Nicholson said last week, "a Canadian securities regulator will create a more efficient and streamlined ... system that reinforces financial stability, strengthens enforcement, protects investors, and is more accountable."
Defenders of the status quo say central regulators elsewhere, notably the U.S. Securities and Exchange Commission, neither deterred nor detected the Enron fiasco, Bernie Madoff's fraud, or other such calamities. That's true. But now the tendency everywhere, within the U.S. and in other countries is toward more-centralized, better-staffed, and more-muscular supervision of securities and investment operators, large and small.
Provincial and territorial agencies have attempted to square this circle by setting up a so-called "passport" system by which they would - in theory - co-operate together. But you wouldn't need to be Vincent Lacroix to drive an armoured car through the loopholes in that arrangement.
The future, then, plainly belongs to a single Canadian regulator. Ottawa has deftly tried to sugar-coat the pill by saying the new agency could be voluntary - that is, provinces could adhere to it, or continue to go their own way, as they choose. But with Ontario, B.C., Saskatchewan. and all Atlantic provinces ready to sign up, the holdout provinces might start having trouble keeping investors interested.
Having made these various right moves, Finance Minister Jim Flaherty is determined to push ahead, and expects the Supreme Court decision, when it comes, to pave the way.
Of course, the federal Conservative government has to be careful what it wishes for: The high-profile 1996 "reference case," on Quebec sovereignty, was in some ways a split decision, as the court ruled in 1998 that Quebec could legally leave Canada, under certain conditions.
Still, in this case Flaherty and the cabinet are plainly thinking that however Delphic the Supremes might be, it's better to get their ruling before proceeding with legislation, rather than after.