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US and EC line up to kick credit ratings agencies

Action likely on both sides of pond

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The Securities and Exchange Commission probe into the ratings agencies - the firms which wrongly assessed how risky certain US mortgage-backed investments were - is calling for new rules to govern how the companies operate.

The SEC investigation found the agencies failed to deal with conflicts of interest because people were involved in selling the products, discussing fees for new ratings and doing the actual analysis.

The full report is to be released later this week and will call for new rules, the FT reports.

The SEC is looking at Fitch, Moody's and S&P. The companies gave their highest AAA ratings to several structured debt products which came unstuck as US property prices began to fall. Investors like pension funds are only allowed to make AAA investments which are seen as almost risk-free.

Meanwhile, the EC is also calling for stronger regulation of the industry and is likely to support a compulsory register of ratings firms as well as independent regulation.

Charlie McCreevy, European Commissioner for Internal Market and Services, said he was unconvinced that voluntary regulation was working. He said that international cooperation was important but the steps already announced by the agencies did not go far enough.

McCreevy said: "The financial turmoil has prompted a reality check of the financial system. It has also emphasised the growing worldwide economic and financial interdependencies. In our efforts to strengthen the supervisory and regulatory framework we should therefore continue to adopt a global perspective."

McCreevy will introduce proposals for a register and external regulation of credit rating agencies in October. ®

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