BRUSSELS (Reuters) - Credit rating agencies came under fire in the European Parliament Tuesday when a key lawmaker said he wanted to reopen discussion on controversial proposals to curb their ability to comment on bailed-out euro zone countries.
Italian socialist Leonardo Domenici, tasked with hammering out amendments to a draft law being debated by the Parliament, said the body should re-examine the suggestion again after the European Commission had backed away from it.
A proposal for a rating blackout on countries in a bail-out program was left out of the draft law by the European Commission, which proposes legislation in the European Union.
Domenici's comments come amid growing political criticism of rating agencies, particularly following Standard & Poor's recent warning that it may downgrade 15 euro zone states, including Germany and France, as credit conditions tighten.
Members of the Parliament were debating how they may change the draft rules to control rating agencies. Some raised the prospect of resurrecting elements of an idea to ban the ratings of countries, such as Greece, which are in bail-out programs.
"The possibility of giving ESMA (the European Securities and Markets Authority) the chance of suspending financial evaluations of countries during a period when they are going through recovery plans has been removed," said Italian socialist Leonardo Domenici.
"I think we should talk about this not necessarily because we want to just copy it, paste it back as part of our counter proposal."
"But I do think that we might be able to find new solutions to ... the problem of countries going through ... difficulties who are rated while that is going on," he said.
Domenici is the so-called rapporteur for the draft law, which means he steers it through Parliament and advises on it.
RATINGS BAN TRICKY
Discussing curbs is a long way from them actually becoming law.
The European Parliament has a say equal to that of EU countries in writing laws to regulate finance and has, in the past, hardened rules such as those on deferring bonus payments to bankers.
But not all attempts to toughen up draft laws are successful and many get bogged down in disagreement within the Parliament. Even if they do win broad backing among lawmakers, EU member countries often water them down later.
Sharon Bowles, who chaired the debate in the parliament's economic and monetary affairs committee Tuesday, cautioned against any blackout on ratings.
"Getting rid of ratings is tricky," said the British Liberal Democrat member.
The debate came a day after European Central Bank President Mario Draghi cautioned investors against an over-reliance on credit ratings.
Banks currently rely on the credit ratings of assets, such as packages of loans, in deciding how risky they are and how much capital should be set aside to cover this. EU reforms are designed to weaken these connections.
"Ratings simplify complex risk assessment. But they should only be one of several inputs for investors as well as regulators," Draghi told the same parliamentary committee on Monday.
Rating agencies are already subject to stricter policing, since the establishment earlier this year of ESMA as their chief European supervisor.
Officials from the Paris-based watchdog have been visiting offices of the three big agencies -- Standard & Poor's MHP.N, Moody's (MCO.N) and Fitch (LBCP.PA) -- as well as smaller rivals, since the start of last month in an audit that will continue through this month.
(Reporting By John O'Donnell)