(Adds UK business reaction, detail on ESRB)
By Huw Jones
LONDON, June 24 (Reuters) - The European Union's markets, banking and insurance watchdogs could be funded by a levy on the organisations they supervise, in an attempt by the bloc's executive body to save taxpayers' money.
The European Commission has been reviewing the three watchdogs it launched in 2011 to make supervision of banks, markets and insurers more consistent across its 28 member countries after the 2007-09 financial crisis highlighted failings in the way regulations were enforced.
The European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) currently receive 60 percent of their funding from national supervisors and 40 percent from the central EU budget.
"Given EU and national budgetary constraints, the Commission considers that a revision of the existing funding model should therefore be envisaged, ideally abolishing EU and national contributions," a draft European Commission report seen by Reuters said.
Staffing and budgets of the three watchdogs are modest compared with regulators in the larger member states, such as Britain's Financial Conduct Authority whose annual budget is 452 million pounds ($768.8 million). The EBA's budget for 2014 is only 33.6 million euros ($45.7 million).
However, the welter of EU rules approved to tighten supervision after the financial crisis, such as for derivatives, and bank and insurance capital, means the watchdogs will be taking on more responsibilities and will need extra staff and money.
The three watchdogs have about 150-200 staff each and rely heavily on national regulators to help with their workloads.
The Association for Financial Markets in Europe (AFME), a top banking lobby, has called for ESMA in particular to have more resources. ESMA is the main regulator for credit rating agencies and trade repositories in the EU.
The report did not give any indication of how much the tax on banks and insurers might be, but any levy would likely be applied in direct proportion to how much supervision an insitution requires.
Euro zone banks will also have to foot the bill for the European Central Bank's new supervisory arm. Banks under its watch will each be asked to contribute up to 15 million euros annually to help cover costs that are set to hit 260 billion euros next year.
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Member states could welcome the shift to industry-funded watchdogs - a common system of financing supervision.
However, Britain's Institute of Directors, a business lobby, said it was concerned with any attempt to offload supervision costs onto the industry, which is already paying a levy to UK regulators.
"Abolishing both EU and national contributions would send a message that Brussels is willing to expand its oversight powers without being willing to pay for the privilege," the IOD said.
The report also looks at how the powers of the three EU agencies could be extended.
It said potential new areas include enforcing accounting rules, supervising the "shadow banking" sector, settlement houses, market benchmarks, and clearing houses, a step Britain is likely to oppose as it seeks to draw a line on more powers being centralised at the EU level.
The report, which is expected to be published in coming months and is subject to change, said the three watchdogs have performed well so far and have begun to develop their own profiles.
They should, however, give consumer and investor protection a higher priority, the report said.
Governance of the watchdogs could be improved further to make decision making faster in the interests of the EU as a whole, the report said, in a nod to British concerns to safeguard the bloc's single market.
The report made no recommendations regarding the fourth EU body set up after the financial crisis, the European Systemic Risk Board (ESRB), which is chaired by the European Central Bank president Mario Draghi. It was set up to spot system-wide risks and has been criticised for failing to forge a clear role in the public eye. ($1 = 0.5880 British Pounds) ($1 = 0.7357 Euros) (Additional reporting by John O'Donnell in Frankfurt; Editing by Erica Billingham)