LONDON - The European Union's securities watchdog on Wednesday called for powers to directly supervise cross-border financial firms and help fast-track the bloc's capital market union (CMU) after years of piecemeal progress.

The European Securities and Markets Authority set out 20 recommendations for the EU on how to make progress on CMU, including allowing the watchdog to supervise parts of the market, such as cross-border exchanges or crypto-asset firms.

CMU aims to encourage companies to raise more funds by issuing shares, rather than relying on bank loans. Progress has been slow as some countries balk at allowing more EU-level supervision, but there are signs of a thaw.

German Finance Minister Christian Lindner said on Tuesday that the EU's executive European Commission, due to be appointed for new term from the autumn, should make CMU a top priority.

There is also greater urgency due to London, Europe's biggest financial centre, becoming a competitor since Brexit, and the need to raise trillions of euros to build a net-zero economy.

EU leaders in April backed more progress on CMU, though divisions remain over handing more supervisory powers to the European Securities and Markets Authority (ESMA).

"I think the level of urgency and political recognition that a real step change needs to happen is really coming through, and supervision is one of the aspects to consider," ESMA Chair Verena Ross told Reuters.

"The vast majority of entities will remain supervised at national level," Ross said.

European Central Bank President Christine Lagarde said CMU needs a "bold, top-down" approach, such as a single EU rulebook to facilitate cross-border trading and competition, and extending ESMA's powers to directly supervise systemic firms.

"This would both promote the EU level playing field that supports financial integration, and avoid the potential risks going unnoticed as capital markets grow and develop across borders," Lagarde told an ESMA event.

ESMA also calls for 'forbearance' powers to temporarily suspend financial rules, such as in times of market turmoil, to ensure consistency across the bloc. This would put it on par with 'no-objection' letters that U.S. regulators like the Securities & Exchange Commission (SEC) can issue.

ESMA said it wants to be a "gatekeeper" to stop crypto and other firms from outside the bloc from "forum shopping" among national regulators to get the most favourable pan-EU "passport" or licence terms.

"I think it makes a lot of sense because it means that you have one single entry point that allows you to get access to that passport," Ross said.

(Reporting by Huw Jones Editing by Peter Graff and Bernadette Baum)