OTTAWA/VANCOUVER/QUEBEC/TORONTO — Alberta and Quebec threatened a court fight against a fresh proposal for a national securities regulator after a panel headed by former cabinet minister Tom Hockin recommended Canada form a new decentralized commission.

Mr. Hockin, appointed to help Finance Minister Jim Flaherty end the long struggle to create a national regulator, proposed a commission that would bend over backwards to address regional concerns.

Mr. Hockin's seven-member panel ended 11 months of study and consultation Monday with a proposal to create a national commission that would oversee the trading of stocks and bonds, a separate governing body that would watch the watchdog, and an independent tribunal to adjudicate the charges of wrongdoing brought by the commission.

Mr. Hockin said the credit crisis and resulting downturn in the economy have created “a tremendous sense of urgency” for the creation of a national regulator.

“My friends, if a basic purpose of security regulation is to protect consumers, it's clear that Canada's system isn't doing the job,” he said in the text of a speech at the Vancouver Board of Trade.

“If the current economic crisis has demonstrated anything, it's that systemic risk is no longer just a banking issue – it's increasingly showing up in capital markets as well.”

However, “we don't want an OSC on steroids,” Mr. Hockin added, referring to the Ontario Securities Commission.

The 97-page report, released to reporters in Ottawa and officially by Mr. Hockin in Vancouver, said the three bodies could be based in any of Canada's four major financial centres: Vancouver, Calgary, Toronto and Montreal.

Mr. Hockin said also that a national commission should have strong regional offices led by vice-commissioners, and that existing provincial bodies should remain in place as boots on the ground in each corner of Canada's financial system.

The emphasis on a decentralized system is an effort to break down provincial intransigence based on concern a national regulator would be dominated by Ontario. Mr. Hockin wrote his report with the financial crisis as a backdrop, saying Canada's fragmented regulatory regime creates the same cracks that contributed to the creation of the complex financial instruments at the core of last year's turmoil in financial markets.

“The decentralized structure, with regional offices in major financial centres and a network of smaller, local offices, would work to ensure that provincial and regional interests are thoroughly represented at all levels of decision making,” the report said.

“Our consolidated structure should be implemented as soon as possible so that Canada can position itself to better respond to financial instability and attain better securities regulatory outcomes.”

While dominated by inducements to ease provincial concerns, the report does contain at least one controversial recommendation that risks angering provinces such as Quebec and Alberta.

If provinces resist, Mr. Hockin's panel proposes that Mr. Flaherty undercut their position by allowing individual companies and other market participants to opt in to the federal regulator. This would almost certainly spark a constitutional challenge, which the panel concluded the federal government would easily win under the trade and commerce provisions of the Constitution.

Alberta and Quebec immediately rejected the proposal, each warning of a potential legal battle.

“In today's turbulent economic climate, the structural changes required for the move to a single regulator could further unsettle the capital markets,” said Alberta Finance Minister Iris Evans, saying securities regulation is a provincial power. “The most immediate and significant improvement to Canadian securities regulation would be for Ontario to harmonize its securities legislation with the rest of Canada and join the passport system.”

Under the passport system, which has been adopted in all provinces and territories except Ontario, companies can file an application for prospectus approval with their provincial regulator and have it automatically accepted by all other provinces.

Alberta said it would “ continue to oppose, through all available avenues, including legal action if necessary, any move toward establishing a single national regulator.”

Quebec Premier Jean Charest also cited provincial jurisdiction, saying the power is “important to us because it allows us to take the necessary actions needed to manage our economy.”

Asked if he would fight to the Supreme Court of Canada, Mr. Charest said: “That is what we are considering ... Regardless of what the report states, the issue remains one of jurisdiction and that hasn't changed. It is a provincial jurisdiction.”

British Columbia Finance Minister Colin Hansen said before the report was released the province can support the proposal for a single national regulator, but further negotiations are needed. Despite the call for talks, the statement represented a clear softening of the province's opposition to a national watchdog.

Ontario Finance Minister Dwight Duncan said the province supports a common regulator, and immediately began promoting Toronto as its home.

“Given the significant role Ontario's financial sector plays in Canada's capital markets, we would expect to see the headquarters located in Toronto,” he said. “The city is home to most of Canada's investment and mutual fund dealers, the executive offices of Canada's five largest banks, Canada's senior stock exchange, the sole central securities depository and Canada's largest provincial securities regulator.”

Under the current structure, each of the 13 provinces and territories regulates trading within its jurisdiction, a cumbersome system that leaves Canada as one of only two countries at the 103-member International Organization of Securities Commissions without a national overseer.

Mr. Flaherty, who has made the creation of single regulator something of a personal crusade, appointed Mr. Hockin almost a year ago to design a road map on how that might be done.

Ontario is the only province that explicitly backs Mr. Flaherty's push, although several others are neutral on the issue. Quebec and Alberta are adamantly opposed, saying a national regulator would cater to Bay Street at the expense of Montreal and the oil patch.

If not supportive of their stand, Mr. Hockin is sympathetic to the regions' concerns. He said the national commission shouldn't force smaller resource companies in British Columbia and Alberta to comply with the same reporting standards as the big companies that list on the Toronto stock exchange.

The report also recommends the creation of a panel with the commission that would be tasked specifically with dealing with smaller and medium-sized companies.

The report was quickly endorsed by the Canadian Council of Chief Executives and the Investment Industry Association of Canada.

“The recent financial crisis demonstrates the need for a single regulator,” the investment group's president, Ian Russell, said in a statement. “A single securities regulator for Canada will facilitate cooperation among domestic and international financial sector regulators to monitor market trends and identify systemic risk. The single regulator will implement timely regulation in response to market developments.”

The Canadian Council of Chief Executives (CCCE) today strongly endorsed the recommendations of the Expert Panel on Securities Regulation – in particular its call for a single national regulator to replace the existing system of 13 separate provincial and territorial regulatory agencies.

With files from Patrick Brethour in Vancouver and Janet McFarland in Toronto