The European Commission adopted on Wednesday "an important package of draft legislation" to significantly strengthen the supervision of the financial sector in Europe.
The commission said the aim of "these enhanced cooperative arrangements" was to sustainably reinforce financial stability throughout the EU, ensure basic technical rules were applied and enforced consistently, identify risks in the system at an early stage, and be able to act together more effectively in emergency situations and in resolving disagreements among supervisors.
Under the legislation, a new European Systemic Risk Board (ESRB) will be created to detect risks to the financial system as a whole with a critical function of issuing early risk warnings.
The heads of the European Central Bank, national central banks, the European Supervisory Authorities, and national supervisors, will be represented on the ESRB.
The creation of the ESRB "is in line with several initiatives at multilateral level or outside the EU, including the creation of a Financial Stability Board by the G20," said the commission, the executive body of the EU.
Another system to be created is a European System of Financial Supervisors (ESFS), which will be composed of national supervisors and three new European Supervisory Authorities for the banking, securities and insurance and occupational pensions sectors.
"Financial markets are European and global, not only national. Their supervision must also be European and global," said European Commission President Jose Manuel Barroso.
The European system could also inspire a global one and "we will argue for that in Pittsburgh," he said.
The commission adopted the draft legislation only days before leaders of the Group of 20 rich and developing nations are to meet in Pittsburgh, the United States, to discuss the financial supervision, among other things.
"I commend this package to the Council and Parliament for rapid adoption, so that the new structures can begin functioning in 2010," said EU Internal Market and Services Commissioner Charlie McCreevy.
Economic and Monetary Affairs Commissioner Joaquin Almunia said the creation of a ESRB "will go a long way toward tackling the imbalances in our financial systems and solving the weaknesses in our financial supervision system that are at least partly to blame for the financial crisis."
The current financial crisis has highlighted weaknesses in the EU's supervisory framework, which remains fragmented along national lines despite the creation of a European single market more than a decade ago and the importance of pan-European institutions.