Supporters of a single securities regulator are more optimistic than ever that they may finally get their wish. They may yet have reason for optimism, but the sad fact is the government isn’t thinking nearly big enough if it hopes to modernize Canada’s system of financial services regulation.

The latest push for a single regulator has made believers out of many industry skeptics for two reasons. One, federal Finance Minister Jim Flaherty remains doggedly committed to the idea and seems determined to make it happen. Two, the ongoing financial crisis seems to present the perfect opportunity to overcome petty political objections to such important reform.

But if the government truly wants to modernize Canada’s system of financial services regulation, it should be aiming much higher than a single securities regulator. Many countries have long since transcended sector-specific regulation — in some cases, bringing conduct regulation, prudential oversight and market stability responsibilities under one roof.

In Canada, the government is aiming merely to consolidate securities regulation and give it a role in ensuring systemic stability. Assuming that it achieves this goal — a big assumption in light of the strident objections of Alberta and Quebec — this still leaves the country with a patchwork system. Research commissioned by the Hockin Panel, while outside its brief, recommends moving either to a single regulator or a so-called “twin peaks” model.

Even if the effort to consolidate securities regulation is successful, clients will still face confusing, disparate levels of protection. Regulatory efficiency and efficacy will be far from ideal. And the government will probably have missed its moment.

If the government hopes to sort out securities regulation and then move on to further reform, it’s wasting a grand opportunity. Regulatory mergers are notoriously tricky. Merger fatigue will no doubt entrench opposition at affected institutions. Dragging out the process also increases transition risk and distracts regulators from the job at hand. And the appetite for fundamental reform is unlikely ever to be as big as it is now.

The government may believe that it can create a capital markets advantage by forcing together its fractious provincial securities regulators. But it is sadly mistaken. That might bring Canada up to late-20th century standards, but it is far from a truly modern regulatory system.