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* ESMA lined up to regulate top benchmark
* Banks may be forced to help compile benchmarks
* Benchmarks should be based on transactions
By Huw Jones and John O'Donnell
LONDON/BRUSSELS June 6 (Reuters) - European Union plans towrest from London the supervision of Libor and other benchmarks,such as those covering oil and commodities, are "intrusive" andlikely to be changed, a top EU lawmaker said on Thursday.
The bloc's financial services chief Michel Barnier is due topublish his plans in coming weeks to regulate how benchmarks arecompiled, aiming to stop the rigging for which three banks havebeen fined.
The plans are likely to raise hackles in Britain, asBrussels seeks to take on powers currently held by nationalregulators. But the draft law will need approval from EU statesand the European Parliament, and changes are likely.
"I would be surprised if this ends up the same as it isstarting out," Sharon Bowles, head of the European Parliament'sinfluential economic and monetary affairs committee, toldReuters.
Bowles said Britain would view such direct supervision as"intrusive".
"There is a lot of sensitivity about any kind of directsupervision," said the British lawmaker, who will play a keyrole in finalising the rules.
The draft law, which is unlikely to take effect before 2014,proposes that regulation of top benchmarks like Libor and oilindexes would be shifted to the Paris-based European Securitiesand Markets Authority (ESMA).
"Where benchmarks are critical to more than one member state... authorisation and supervision is most effectively carriedout by ESMA and the proposal therefore grants ESMA theappropriate powers," the draft law obtained by Reuters said.
Separately on Thursday ESMA published guidelines foradministrating, calculating, publishing and submitting quotesfor compiling benchmarks, including for oil and othercommodities.
FUTURE CHANGE
ESMA Chairman Steven Maijoor said the immediate adoption ofthe guidelines would help restore confidence in financialbenchmarks and prepare the way for future legislative changes.
The guidelines and draft law follow public outcry after twoBritish banks, Royal Bank of Scotland and Barclays, along with Swiss bank UBS, were fined atotal of $2.6 billion for rigging Libor.
Libor - the London Interbank Offered Rate - is used as abasis for pricing financial products from home loans to creditcards worth over $300 trillion globally.
The draft law says banks should be compelled to contributeto interest rate benchmarks if need be. Several banks havepulled out of panels that compile Libor and Euribor.
"Where necessary the relevant competent authority shouldhave the power to mandate contributors to continue to contributeto benchmarks," the draft says.
There should also be "adequate rights of redress andensuring suitability is assessed where necessary," it adds.
The draft EU law says data used to compile a benchmark"shall be transaction data", but offers some flexibility, sayingif this is not available, other "verifiable" data may be used.
This aims to satisfy regulators like Gary Gensler, head ofthe U.S. Commodity Futures Trading Commission, who wants Liborscrapped and replaced with a benchmark based only on markettransactions, a step other regulators like the UK FinancialConduct Authority say is not feasible for now.
Libor is based on rates at which banks think they can borrowfrom each other, but in the aftermath of the Lehman Brotherscollapse in 2008, interbank lending froze. Libor rates, however,were still published.
Libor was not regulated until Britain's Financial ConductAuthority (FCA) was set up in April. The FCA and Britain'sTreasury had no comment on the draft EU law.
TheCityUK, a representative body for Britain's financialservices sector, said the FCA should retain oversight of Libor.
"The supervision of Libor indices and benchmarking should becarried out by those with the closest knowledge of the marketand who demonstrate the best market understanding. In ouropinion, that is The Financial Conduct Authority," saidTheCityUK's Chief Executive Peter Cummings.
"Indices are vital for financial stability, so the EuropeanCommission's proposals to move supervisory duties to a newinstitution or jurisdiction must be weighed against currentarrangements," he added.
