The European Commission has proposed new measures for supervising credit rating agencies, which have been blamed for contributing to world financial turmoil.
The Commission said it wanted to introduce rules that would cover conflicts of interest and the way the agencies rate companies and institutions. The rules would also increase transparency in their activities.
The measures, the commission said, were aimed at ensuring that ratings remain reliable and accurate pieces of information that investors can use.
'The crisis has shown that self-regulation has not worked,' said EU Internal Market Commissioner Charlie McCreevy. 'I am convinced, like others in Europe, of the need to legislate in this area at EU level.'
Leading rating agencies Moody's, Standard and Poor's and Fitch have come under fire recently for being too slow to alert investors to the dangers of investments based on US sub-prime, or high risk, mortgage loans.
Assets linked to sub-prime loans have suffered multi-billion-dollar losses in the past year and played havoc with wider bank finances.
The ratings assigned to investment portfolios and the banks holding them often determine whether other parties will trade with the banks. They can even impact a bank's share price.
To combat conflict of interest, the EU wants to ban an agency in Europe from evaluating a lending institution if that institution provides the agency with 5% or more of annual revenues for ratings activities.
It also seeks to tighten control over the agencies, either by boosting cooperation between national regulators or setting up a European registry.
In the short term, Mr McCreevy has opened public consultation on the proposals until September 5, after which he will draw up a formal proposal in the hope it will be adopted by mid-2009.
