In a letter to European Union finance ministers last week, Darling said that the body would bring together the three existing committees of national supervisors covering the banking, insurance and securities markets.
A European Commission taskforce, headed by Jacques de Larosiere, recently put forward the different proposal of strengthening the powers of the three separate committees.
Darling said the single body should have a stronger role in rule-making and an explicit objective to “iron out national divergences”.
He added: “In short, it would, over time, become a regulatory authority and a forum in which the effectiveness of national supervisors can be peer reviewed. But it would not supervise individual banks, insurers or investment firms, leaving that to national authorities, including through more effective colleges, given that arrangements for resolving difficulties in these firms remain a national responsibility.”
The Chancellor said the body would not have powers over national supervisors and it would not prescribe detailed supervisory practices.
Darling has also called for closer integration and consolidation of European Union financial infrastructure, including stricter rules for clearing and settlement systems.
In his letter, he champions the development of an early warning system to oversee macro-economic and financial market issues, run by supervisory authorities, central banks and finance ministries.
Darling said: “I believe that the growing interconnectedness of financial markets within the EU means that we should consider fundamental reforms to the system of regulation and supervision. We should not shy away from radical options if that is the right thing to do.”