Quebec offers weak arguments to keep its Securities Commission

Published on May 11, 2016

While a similar legal procedure set up by my colleague Jim Flaherty follows its course at the Supreme Court, audiences will soon begin at the Quebec Court of appeal on the constitutionality of my government’s draft bill creating a national securities regulator. After reading the documents filed by the government of Quebec, I decided to intervene publicly on the matter. Le Devoir ran my opinion piece this morning (see the translated version below).

As noted by the journalist who covers the story in the same paper, I am well acquainted with this file, having worked at the Quebec Securities Commission in the late 1990s and participated in a working group on that issue. The arguments that I put forward in this morning’s article were already contained in a speech that I gave in 2004, which was mentioned in a National Post article more than a year ago. -- 12 January 2011

Quebec offers weak arguments to keep its Securities Commission

By Maxime Bernier – Member of Parliament for Beauce and former director of corporate and international relations for the Quebec Securities Commission between 1997 and 2000

Le Devoir

January 12, 2011

In the coming months, the Supreme Court will have to determine the constitutionality of a draft bill creating a national securities regulator. My colleague Jim Flaherty, the minister of finance, asked the judges’ opinion to make sure this initiative from the federal government does not constitute an intrusion into provincial jurisdictions. Contrary to the Liberal Party of Canada, which never hesitated to tread on provincial powers, our government has said that it will respect the Constitution.

As I have already said in the past, I personally believe that securities regulation is a provincial responsibility. That’s what the Supreme Court should conclude on the basis of jurisprudence and the elements of proof presented to it – provided that the rights arguments are being presented, of course.

However, I read the document filed by the Government of Quebec with the Court of appeal in a similar case and I was disappointed and disconcerted by its weakness.

Quebec is arguing that securities are the responsibility of provinces on the basis of section 92 (13) of the 1867 Constitution Act dealing with “property and civil rights.” This is a well recognized and accepted argument. But after you have said that, you have not said much that is relevant to the case.

That’s because the Supreme Court, even though it has already accepted this argument, has twice stated that it could change its opinion if it is demonstrated to it that the securities trade is not local in nature anymore, as it was ostensibly in pre-Confederation times, but rather interprovincial or even international.

This is what the federal government is pleading to establish the constitutionality of its bill. According to this argument, the new reality pertaining to trade in securities places it under federal jurisdiction, in accordance with section 91 (2) of the Constitution dealing with “the regulation of trade and commerce.”

What is most perplexing is that in its memorandum, Quebec ignores the warnings from the Supreme Court. It offers no historical proof showing that transactions in securities were in fact already, in the pre-Confederation era, being carried out at the interprovincial and international level, and that the Fathers of Confederation knew this. There is no doubt that this proof exists.

It can be observed that trade in securities already constituted an important economic activity in Canada before 1867. The Board of Brokers was set up in 1848. This was the first association of brokers dealing in securities in Montreal.

Pre-Confederation laws also show that this trade was already taking place at the time in an international context. Several of those laws contained clauses that had an extraterritorial reach. It cannot be a mere coincidence that they often anticipated that the securities of a corporation could be issued or transferred abroad, and that dividends could be paid to foreign holders. Some of these statutes set out the names of cities such as London, Boston and New York, where subscription books could be opened.

The globalization of financial markets is nothing new. A first phase of globalization started around 1820 and ended with the First World War in 1914. The second phase began after the Second World War and is still going on.

International financial markets were already well integrated before Confederation. The network of financial institutions established in London was responsible for large movements of capital across the planet, which fuelled the rapid growth of economies such as Argentina, Australia and Canada. The development of natural resources in our country was largely financed by foreign investments.

A number of studies have established the importance of the mobility of capital in the 19th century, which led Alan Greenspan, the former chairman of the Fed, to note that “the degree of globalization today is not measurably greater than that prevailing in the century-ago world of our grandparents.”

Not only does the document filed by the Government of Quebec ignore these facts, it mentions none of the historical studies showing that the Fathers of Confederation were well aware of what was going on in that field.

When we analyze the biographies of the Fathers, we observe that almost two thirds of them had studied in law and almost half belonged to the world of business. Thirty out of thirty-six Fathers had a personal interest in the various fields of finance, either as investors, members of a board of directors or lawyers. As members of the legislature, they had adopted the private bills necessary at that time to set up corporations. They knew that these had the right to issues securities and bonds outside of Canada.

It was thus with full knowledge of the facts that they gave provinces jurisdiction over that sector. Nothing has changed fundamentally since then that would justify transferring this jurisdiction to the federal government.

In its arguments to the Court of appeal, Quebec’s attorney general offers no reply to his federal counterpart on any of these points. He provides none of the arguments that would be necessary to win this cause, and so risks losing it.

If that were to happen, nobody will be able to say this time that Quebec’s powers were weakened by another illegal assault from Ottawa, since our government did everything it could to follow constitutional due process. It will entirely be Quebec’s fault.