* UK opposes EU supervision of London-based clearing houses
* UK to defend principle of keeping national supervisors
* UK regulator sees scope for compromise
(Adds comment from UK Treasury minister)
By Huw Jones
TEL AVIV, June 11 (Reuters) - London-based securities clearing houses should not be regulated by a planned new pan-EU watchdog due to the risk of political interference, a top British supervisory official said on Thursday.
Adair Turner, chairman of the UK Financial Services Authority, told Reuters he expected a compromise to be found.
Britain is battling European Union plans for a sweeping overhaul of market supervision to plug gaps highlighted by the credit crunch that saw risks getting out of control.
It will strongly defend the principle of keeping national supervisors for financial institutions, UK Treasury minister Paul Myners said on Thursday.
Pan-EU authorities for securities, insurance and banking supervision would have binding powers over member states.
The new securities authority would have a direct say over clearing houses such as LCH.Clearnet in London, a step the UK Financial Services Authority said goes too far.
The plans must be adopted by EU governments and the European Parliament to come into force. Most EU states back the plans that are due to take effect in 2010 leaving Britain little choice but to a deal or be outvoted.
"We believe we will end up with something that is a reasonable way forward," Turner said at the annual meeting of the International Organisation of Securities Commissions (IOSCO) in Tel Aviv.
"The things we have been particularly focusing on is the idea that there should be direct supervision at European level of the bits of trading infrastructure.
"Frankly this is an area that when it gets Europeanised you sometimes get the introduction of things which are not actually to do with good regulation and supervision for prudential purposes, but are about how do we play games that shift the locations around Europe," Turner said.
"If one was absolutely confident that European supervision was going to be completely politics-free, in a neutral, technocratic fashion, we would be more relaxed about it."
COMPROMISE
EU leaders are set to give broad endorsement to the supervision plans later this month. One compromise emerging is to have no binding decisions in cases where a country's public finances are at stake.
Myners set out the British position in a speech in London.
"What we could not live with is an agreement at a European level that would have had domestic fiscal consequences for domestic governments."
"That is why supervision of individual institutions must remain a matter for national supervisors. We will strongly defend this principle at the forthcoming European Council meeting." [ID:nLAC003314]
Eddy Wymeersch, chairman of the Committee of European Securities Regulators which will become one of the three new authorities under the EU plan, said the draft compromise would not gut the reform.
The bulk of securities supervisory issues would remain subject to a binding decision in cases of disputes between national regulators, Wymeersch said.
"It will weaken the reform on a certain number of points, but for each point, the weakening is not unjustified. To say that everything that has to do with the parent-subsidiary relationship is not subject to mediation, that would be very difficult to work," Wymeersch said. (Additional reporting by Sumeet Desai in London; Editing by Alastair Macdonald)
(For more from the IOSCO conference in Tel Aviv, click on [nL8366078])