UPDATE 2-EU plan to wrest Libor supervision "intrusive"-lawmaker
* ESMA lined up to regulate top benchmark
* Banks may be forced to help compile benchmarks
* Benchmarks should be based on transactions
LONDON/BRUSSELS June 6 (Reuters) - European Union plans to wrest from London the supervision of Libor and other benchmarks, such as those covering oil and commodities, are "intrusive" and likely to be changed, a top EU lawmaker said on Thursday.
The bloc's financial services chief Michel Barnier is due to publish his plans in coming weeks to regulate how benchmarks are compiled, aiming to stop the rigging for which three banks have been fined.
The plans are likely to raise hackles in Britain, as Brussels seeks to take on powers currently held by national regulators. But the draft law will need approval from EU states and the European Parliament, and changes are likely.
"I would be surprised if this ends up the same as it is starting out," Sharon Bowles, head of the European Parliament's influential economic and monetary affairs committee, told Reuters.
Bowles said Britain would view such direct supervision as "intrusive".
"There is a lot of sensitivity about any kind of direct supervision," said the British lawmaker, who will play a key role in finalising the rules.
The draft law, which is unlikely to take effect before 2014, proposes that regulation of top benchmarks like Libor and oil indexes would be shifted to the Paris-based European Securities and Markets Authority (ESMA).
"Where benchmarks are critical to more than one member state ... authorisation and supervision is most effectively carried out by ESMA and the proposal therefore grants ESMA the appropriate powers," the draft law obtained by Reuters said.
Separately on Thursday ESMA published guidelines for administrating, calculating, publishing and submitting quotes for compiling benchmarks, including for oil and other commodities.
ESMA Chairman Steven Maijoor said the immediate adoption of the guidelines would help restore confidence in financial benchmarks and prepare the way for future legislative changes.
The guidelines and draft law follow public outcry after two British banks, Royal Bank of Scotland and Barclays , along with Swiss bank UBS, were fined a total of $2.6 billion for rigging Libor.
Libor - the London Interbank Offered Rate - is used as a basis for pricing financial products from home loans to credit cards worth over $300 trillion globally.
The draft law says banks should be compelled to contribute to interest rate benchmarks if need be. Several banks have pulled out of panels that compile Libor and Euribor.
"Where necessary the relevant competent authority should have the power to mandate contributors to continue to contribute to benchmarks," the draft says.
There should also be "adequate rights of redress and ensuring 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, saying if this is not available, other "verifiable" data may be used.
This aims to satisfy regulators like Gary Gensler, head of the U.S. Commodity Futures Trading Commission, who wants Libor scrapped and replaced with a benchmark based only on market transactions, a step other regulators like the UK Financial Conduct Authority say is not feasible for now.
Libor is based on rates at which banks think they can borrow from each other, but in the aftermath of the Lehman Brothers collapse in 2008, interbank lending froze. Libor rates, however, were still published.
Libor was not regulated until Britain's Financial Conduct Authority (FCA) was set up in April. The FCA and Britain's Treasury had no comment on the draft EU law.
TheCityUK, a representative body for Britain's financial services sector, said the FCA should retain oversight of Libor.
"The supervision of Libor indices and benchmarking should be carried out by those with the closest knowledge of the market and who demonstrate the best market understanding. In our opinion, that is The Financial Conduct Authority," said TheCityUK's Chief Executive Peter Cummings.
"Indices are vital for financial stability, so the European Commission's proposals to move supervisory duties to a new institution or jurisdiction must be weighed against current arrangements," he added.
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