Three new pan-European watchdogs are to oversee the financial services sector under a compromise deal struck by ministers in Brussels on Wednesday.

A breakthrough came after several hours of negotiations, with European Union finance ministers agreeing complex voting and appeals procedures should any country feel the new authorities were overstepping their brief and intruding on areas of national sovereignty.

Britain had been anxious to protect the City of London's dominant role in financial services and was reluctant to cede oversight to Europe. However, envoys said they were satisfied with the protections secured.

Nevertheless, the creation of the three watchdogs - to be based in Paris, London and Frankfurt and to cover securities, banking and insurance markets respectively - is a significant step towards more centralised, pan-European oversight of the sector and is likely to be viewed warily in the City
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The three new European supervisory authorities will not handle day-to-day supervision of individual financial institutions, a role that will remain with national watchdogs. But they will have the task of co-ordinating the actions of national supervisors, have direct supervisory powers over credit rating agencies, and work towards a "common rulebook" for all EU financial institutions..