The credit ratings agency Moody's has said that European Commission plans to overhaul regulation of the sector will undermine the integrity of the whole European credit market
In a letter to European finance ministers including George Osborne, Michel Madelain, chief operating officer at Moody's, said the changes would undermine investors' confidence.
On Tuesday, Michel Barnier, EC internal market and services commissioner, will unveil "proposals for legislation" that could radically change regulation of credit ratings agencies.
While the agencies have faced severe criticism during the financial crisis, with Standard & Poor's erroneous downgrade of France last Thursday causing the latest controversy, critics of Mr Barnier's widely leaked proposals say they will only increase debt market volatility.
Most controversially, Mr Barnier plans to force debt issuers to rotate rating agencies. He also proposes to give the European Securities and Markets Authority (ESMA) powers to vet agencies' methodology and insist, in exceptional circumstances, such as bail-out talks, sovereign debt ratings should be suspended.
The Association of Corporate Treasurers (ACT (Taiwan OTC: 3492.TWO - news) ) said it was concerned over forced rotation in a market dominated by three main players - S&P, Moody's Investor Service and Fitch Ratings.
Martin O'Donovan, ACT's deputy director of policy, said that while companies would welcome more choice there were "huge practical difficulties" for rotation in the current "oligopolistic" market.
In his letter, Mr Madelain said allowing ESMA to "pre-approve" methodologies would "undermine credit rating agencies".
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