A more powerful securities watchdog may be needed in the European Union to counter market fragmentation after Britain, its biggest financial centre, leaves the bloc, an EU consultation paper said on Tuesday.

The EU's executive European Commission paper looks at revamping the bloc's system of financial supervision, which is mainly based on three agencies covering securities, banking and insurance.

Clearing houses, banks and insurers use Britain as a base to serve clients across the EU, but this will likely end in its current form given that the UK intends to leave the single market in two years.

"The vote of the United Kingdom to leave the EU, the position of the government of the United Kingdom that it will not be seeking membership of the single market, and the expected impact on the market of those decisions also underline the need to reflect carefully about supervisory arrangements," the commission's paper said.

The euro zone has already centralised banking supervision under the European Central Bank, and in the meantime the bloc has launched a capital markets union project to spur more funding for the economy from securities such as stocks and bonds.

The commission noted that the European Securities and Markets Authority's (ESMA) powers are currently limited to credit rating agencies and trade reporting bodies.

The EU executive said it wanted to identify specific areas where stronger European supervision will help overcome market fragmentation.

"A possible extension of ESMA's powers could be considered in market segments in which there is a strong need to support more integrated, efficient and well-functioning financial instruments markets," it said.

The European Banking Authority is based in London and will have to find another home inside the EU after Brexit, triggering industry speculation that it could be merged with the Frankfurt based European Insurance and Occupational Pensions Authority. (Reuters)

Source: www.businessworld.ie