Rating agencies blast EU three-day warning plan

LONDON May 17 (Reuters) - Forcing credit rating agencies to let countries know about rating changes three days in advance could encourage insider trading, top officials from the sector said on Tuesday.

"One of the leakiest areas in our business is sovereign ratings," Paul Taylor, president of Fitch Ratings, told a panel of lawmakers from Britain's upper parliamentary chamber.

"If you inform the Greeks of a rating decision you get phoned up by the French. Countries tend to talk to each other," Taylor said.

The lawmakers were kicking off hearings into the sector's role in the financial crisis and its perceived lack of competition as the "Big Three" -- Fitch (LBCP.PA), Moody's (MCO.N), and Standard & Poor's (MHP.N) -- dominate the international market.

Rating agencies give all issuers 12 hours' notice to challenge any factual errors but the European Union's executive European Commission has floated the idea of a three-day notice period on sovereign debt changes in Europe.

Politicians have criticised agencies for causing big swings in government bond prices in the euro zone at a time when bailout packages were being negotiated for countries like Greece.

Frederic Drevon, managing director and head of Europe at Moody's, said three days would increase the risk of insider trading by increasing the number of people involved.

MAGIC WANDS

Taylor said the rating agencies were less influential than people thought and blamed some of the big market moves on the power of the press.

"It's overstated, the power we have in markets. A lot of that comes from the press. The financial press in particular loves the idea we wave our wand and magic things happen," Taylor said. The press tended to be less informed than the investment professionals who are managing portfolios, Taylor said, adding that governments, including in the United States and elsewhere, were more mature in the way they responded to ratings news.

The officials also warned that another layer of EU regulation would add more barriers to new competitors.

The Big Three are also widely perceived as being U.S.-centric, sparking calls for the use of public funds to set up rival, home-grown European agencies.

"There is a perception that all decisions are taken in New York. That is not true," said David Beers, global head of sovereign ratings at Standard & Poor's.

"There is no secretive committee based in New York that tries to impose their views on Moody's globally," Drevon added.

Taylor said the perception stemmed from a "European mentality" and "generally came from Germany". (Reporting by Huw Jones; editing by Susan Fenton)