EU watchdogs voice fear over rating agency reform

By Huw Jones

NICE, France (Reuters) - A planned European reform of how credit rating agencies work, after the subprime crisis, should not give a pan-EU watchdog extensive powers to intervene in their internal workings, a top regulator said on Thursday.

European Internal Market Commissioner Charlie McCreevy is due to propose a mandatory shake-up of rating agencies next month, including the requirement for registration to operate in the 27-nation European Union.

Ratings agencies such as Standard & Poor's (S&P), Moody's and Fitch have been criticised for being too slow to warn investors about risks in securitised products that they rated.

Despite high ratings, the products became untradeable last year when U.S. home loans underpinning them went unpaid, forcing banks holding them to write down over $500 billion (286 billion pounds).

"We would not like to see the independence of agencies put in danger," said Eddy Wymeersch, chairman of the Committee of European Securities Regulators (CESR).

"They have to remain responsible for their ratings. We would not like to intervene in their internal processes too much," Wymeersch told Reuters at a financial services conference.

The EU law would replace a voluntary code of conduct drawn up by IOSCO, a global umbrella group of national regulators.

It would also take into account the skills of non-executive directors at rating agencies to ensure they understand the ratings process.