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Bay Street pans legal ruling on market regulation

A night-time photo of the Supreme Court of Canada building in Ottawa.


Canadian business leaders who backed Ottawa's push for a national securities watchdog say they are in for years of frustration after the Supreme Court of Canada rejected the Harper government's bid to create one.

In its ruling, the top court declared a new securities law advanced by Finance Minister Jim Flaherty unconstitutional. The law would have replaced the country's patchwork quilt of provincial regulators with a single body.

The ruling does not eliminate the possibility of a national regulator to police financial markets. But the court's decision that such an organization could be created only with the co-operation of the provinces means, at minimum, years of delay as politicians wrangle. Only Ontario had backed Mr. Flaherty's proposed legislation.

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As a result, many executives say, Canada's capital markets will remain stuck with an system that contains loopholes, unnecessary costs and maddening inefficiencies for public companies looking to raise money from investors.

"I'm very disappointed in the court's decision," said mining industry veteran Ian Telfer, the chairman of Goldcorp Inc. and Uranium One Inc., who has raised billions of dollars in Canadian markets for scores of mining companies, both large and small.

"It's very counterproductive for Canada to have more than ten securities regulators," because the costs they create are "being borne by companies that are growing, creating jobs and wealth for their shareholders," Mr. Telfer said.

But it isn't just miners who are frustrated. Stephen MacPhail, chief executive officer of CI Financial Corp., said his firm faces the same burdens every time it launches a new mutual fund.

"Prince Edward Island isn't that much bigger than the city of Barrie, [Ontario] and yet it has its own securities regulator," Mr. MacPhail said, which creates yet another filing and registration fee. "You have to pay to support securities commissions in every province."

Aside from the nagging inefficiencies, some say the system is a barrier to innovation. It's something that irks Nick Thadaney, head of ITG Canada, a firm at the forefront of the country's electronic trading revolution.

Any time there is a new product or process, Mr. Thadaney said, approval must be granted by each of the provincial regulators. Not only is this time consuming, it is difficult to bring regulators in smaller provinces up to speed on what is happening on Bay Street.

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"You have 13 bosses to deal with. How is that productive?" he said. "Imagine working in an environment with 13 different people and trying to get them all on side. It takes forever."

Enforcement is another a major issue, because the current system has many weaknesses. "We pointed out in our brief to the Supreme Court that you could have, and there are instances of, fraudsters being stopped by the Ontario Securities Commission ... but the fraudster can then go to another province and continue on there," said Stephen Erlichman, executive director of the Canadian Coalition for Good Governance, which acted as an intervenor in the Supreme Court case and supports a national regulator.

Though the provinces could resolve these issues in negotiations, Mr. Thadaney said he is skeptical. For years they have tried to get on the same page, slowly introducing programs such as the so-called "passport system" that allows for certain documents approved by one regulator to be automatically approved by the others, but progress has been slow.

"You know what? It doesn't work. Honestly," he said.

Quebec, for one, has long opposed a national regulator. A statement from Desjardins Group, one of the province's leading financial institutions, demonstrated just how hostile attitudes in the province are. While most industry groups released statements that expressed optimism about further integration, Desjardins said the national regulator issue has "monopolized the time and energy" of everyone involved. However, it did add that it is open to co-operation across all levels of government.

Still, there are some who see a way forward. "There still could be life in this thing," said Philip Anisman, a prominent Toronto securities lawyer who advised the government panel that recommend a national regulator in 2008. "It is not necessarily a death knell."

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Mr. Anisman has seen it all. He first took on the issue as a summer student working for the government in 1966 and later produced draft legislation for Ottawa back in 1979. Progress has been slow, but it exists, and it's not impossible for provinces to come together, he said.

Ed Waitzer of Stikeman Elliott LLP said such co-operation is no different from issues such as health care, retirement savings or education. It gives him hope for securities regulation. "We can make the system work under any jurisdictional framework," he said.

"Whether there's the will to do that or not is another question," he added.

With files from reporters Shawn McCarthy, Shirley Won and Carrie Tait.


In Quotes

"For the last 80 years or so, we've been saying the Constitution is a living tree. This [Supreme Court of Canada ruling]looks more like a view of the Constitution that's likely to wither on the vine."

--Lorne Sossin, dean, Osgoode Hall Law School


"Is a national regulator done? No, it's not. … It remains to be seen what the political will is. ... But from a legal perspective, the court has totally, expressly affirmed there are many aspects of capital markets regulation which are properly federal."

--Kelley McKinnon, a former Ontario Securities Commission official and a lawyer with Gowling Lafleur Henderson LLP who acted for the Ontario Teachers' Pension Plan on the issue before the Supreme Court


"I can't see it happening in my lifetime."

--Brian Radnoff, a securities litigator with Lerners LLP in Toronto


"I can't think of a Canadian company that doesn't raise money right across the country, and all over the world. Why is Air Canada federally regulated, why are interprovincial bus lines federally regulated, and [issuing securities]is not? It makes no sense."

--Alan Lenczner, business litigator, Lenczner Slaght Royce Smith Griffin LLP


"We remain focused on regulating Ontario's capital markets in the best interests of the province's investors and market participants. We are currently dealing with important policy, enforcement, market infrastructure and other matters that will require our full commitment."

--Howard Wetston, chairman and chief executive officer, Ontario Securities Commission

(Compiled by Jeff Gray)

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About the Authors
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

Toronto City Hall Reporter

Jeff Gray is The Globe and Mail’s Toronto City Hall reporter. He has worked at The Globe since 1998. From 2010 to 2016, he was the law reporter in Report on Business, covering Bay Street law firms and white-collar crime. He won an honourable mention at the National Magazine Awards for investigative journalism in 2010. More

Asia-Pacific Reporter

An award-winning journalist, Andy Hoffman is the Asia-Pacific Reporter for Canada's national newspaper, The Globe and Mail. More

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