I think you may be confusing this with parking offences, which are indeed municipal. This however is a moving violation, under the HTA, regardless if it occurred in Toronto, Hamilton or anywhere else in Ontario; it will result in demerit points upon conviction and could subsequently affect his premium.
But the cop explicitly said something like "I'll write it under the by-law so that your fine is smaller and you don't get demerit points". Maybe it's just that he didn't know, or didn't want to upset me?!