The federal minister met on the issue Tuesday with his Ontario counterpart, Dwight Duncan, who is seeking to revive the proposal by enlisting support from British Columbia and Alberta, two provinces that are key to the project's success.
"We’ve made some significant progress," Flaherty said after what he described as a lengthy and constructive meeting.
"I don’t want to be overly optimistic, but I think there’s some prospect that we’ll be able to get to a common position.”
In a later interview, Duncan said he has talked to his counterparts in Alberta and British Columbia, provinces that had previously expressed hostility to the idea of a single regulator. Now, Duncan said, he has found they have a "willingness to explore ... in a fairly detailed way" areas of agreement.
"I've been on this file now for about six or seven years, and I'm more optimistic today than I've been in a long time," he said.
However, Duncan cautioned that although there is a window of opportunity, it is "fairly narrow."
With Quebec almost certainly out as a possible partner — particularly after the election of the Parti Quebecois — federal officials and Ontario consider enlisting the two big economic players in western Canada critical. Officials believe some of the smaller provinces would also opt in, although Manitoba is still officially offside.
Last December, the Supreme Court ruled unanimously that securities regulation — the policing of stock markets and company filings — was primarily under provincial jurisdiction, although Ottawa does have responsibility to guard against systemic risk where failure by one market participant in one province can impact the overall system.
Flaherty at the time said he could not proceed with the legislation as drafted, but did not abandon the project either.
Ottawa has continued its lobbying of provinces since, and found more receptive ears in the West, particularly now that the high court has affirmed provincial jurisdiction over the day-to-day running and oversight of securities.
Duncan said he believes a new regulatory framework can be established that would address the concerns of provinces.
"There's no reason why we can't come up with a regulatory environment that recognizes the legitimate aspirations of Alberta and British Columbia, as well as provide our capital markets here in Ontario with a regulatory environment that protects investors and allows them to do business in a better fashion," he said.
The federal Conservative government has long advocated the need for a single regulatory framework for securities, arguing that leaving the provinces and territories in charge of overseeing and policing financial markets was inefficient, costly and less likely to detect fraud.
The fragmented system has also been criticized by world organizations like the International Monetary Fund and the World Bank.
Asked to evaluate the chances of success this time, Flaherty said experience has taught him not to get too hopeful.
"I’ve been working on this for six and a half years, so I’m very cautious about it," he explained. "I think we’ve made some progress. I think there’s a lot of goodwill. We’ll see in the next little while.”