The European Commission is set to investigate the role played by credit rating agencies in the recent crisis over sub-prime US home loans.
It will review the current voluntary code used by the agencies as it is concerned that they appeared to be too slow in warning about the US problems.
The leading rating agencies include Standard & Poor's, Moody's and Fitch. The voluntary code was aimed at tackling conflicts of interest as rating agencies are paid by the firms they rate.
EU Internal Market Commissioner Charlie McCreevy is expected to reach a decision on whether to propose legislation in 2008.
'If the rating agencies believe this is going to be business as usual, they are very wrong,' an unnamed Commission official told the Financial Times. 'The securitised subprime mortgage market would not have grown to the extent that it did without the favourable ratings given by some agencies.'
The FT said Mr McCreevy met senior S&P executives last month and expressed his concern over the sub-prime mortgage market.
